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Robert D. Gaskill and Kathleen Gaskill, H/W v. Citi Mortgage

September 28, 2012


On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. C-176-05.

The opinion of the court was delivered by: Cuff, P.J.A.D.



Argued: February 16, 2012

Before Judges Cuff, Waugh and St. John.

The opinion of the court was delivered by CUFF, P.J.A.D.

In this appeal, we address N.J.S.A. 2A:16-49.1, which permits a debtor, who has received a discharge of his debts in bankruptcy, to cancel a judgment entered in state court and discharge the record of that judgment. The Law Division judge held that the debtors could not avail themselves of this remedy against the judgment creditor because the judgment creditor did not receive notice of the bankruptcy proceedings, including the discharge of debts, and could not, therefore, levy on the debtors' property within the year permitted by statute. We affirm.

Plaintiffs Robert D. Gaskill and Kathleen Gaskill took title to real property located at 73 Hartford Road in Delran on January 31, 1991, encumbered by a purchase money mortgage issued by Bank of Mid-Jersey in the original amount of $63,200. The balance on the mortgage was $47,896 on October 11, 2005. Plaintiffs reside at 3524 Klockner Road in Hamilton. They acquired this real property with a purchase money mortgage in June 1986. In 1997, defendant Citi Mortgage, Inc. (Citi) obtained a default judgment against plaintiffs in the amount of $107,453.08 plus costs. The judgment was recorded and docketed and constitutes a judgment lien on the Delran and Hamilton properties.

On December 17, 2001, plaintiffs filed a Chapter 7, no asset, no bar date bankruptcy petition. Citi was not listed as a creditor and was not served with the petition. Plaintiffs listed Fein, Such, Kahn & Shepard, P.C., the firm that represented Citi in the 1996-97 litigation that produced the 1997 default judgment, as a creditor holding an unsecured claim in the amount of $107,453.08. The firm was served with the petition.

Plaintiffs claimed the Hamilton residence as exempt property. On January 28, 2002, the trustee filed a notice of intention to abandon certain property, including the Hamilton and Delran properties, "as being of inconsequential value to the estate." By order dated March 25, 2002, plaintiffs received a discharge pursuant to 11 U.S.C.A. § 727. Following discharge in 2002, plaintiffs' bankruptcy attorney informed a collection agency acting on behalf of Citi to cease collection efforts, citing the discharge in bankruptcy. The record reflects no further collection efforts by or on behalf of Citi.

On November 10, 2005, plaintiffs filed a complaint against Citi pursuant to N.J.S.A. 2A:16-49.1 seeking cancellation of the judgment lien on the Hamilton and Delran properties recorded in February 1997. Plaintiffs alleged Citi failed to levy on the real property prior to the initiation of bankruptcy proceedings; therefore, the lien was subject to avoidance pursuant to 11 U.S.C.A. § 544(a)(1). Plaintiffs alleged the lien was also subject to avoidance under other provisions of the Bankruptcy Code. In its answer, Citi denied that plaintiffs listed any real property as exempt and denied that the judgment lien was subject to avoidance under the Bankruptcy Code and subject to cancellation and discharge of record. In its amended answer, Citi alleged that certain misrepresentations made by plaintiffs during the bankruptcy proceedings prevented discharge of its judgment lien.

In response to cross-motions for summary judgment, the motion judge issued four tentative decisions between February 2, 2006, and February 2, 2007. The record reveals plaintiffs' Chapter 7 bankruptcy proceeding was re-opened to the extent that the trustee in bankruptcy sent a notice to creditors in 2007 permitting submission of proofs of claim, and Citi submitted one in the amount of $171,731.67. Citi filed a motion for various forms of relief in Bankruptcy Court, including a declaration that its lien was not intended to be discharged. The Bankruptcy judge denied the relief.

Finally, on August 21, 2009, another judge issued a decision and order denying each party's motions. In doing so, the motion judge found that Citi had not received notice of the bankruptcy petition and the trustee did not have an opportunity to assess the Citi judgment lien. He directed plaintiffs to return to the Bankruptcy Court to permit a determination of the Citi judgment lien by the trustee.

The record reflects that following submission of information of Citi's judgment lien to the trustee-in-bankruptcy, he concluded plaintiffs' bankruptcy estate had been fully administered. The trustee did not avoid ...

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