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PHH Mortgage Corporation v. Garner

Superior Court of New Jersey, Appellate Division

June 10, 2013

JAYNE A. GARNER, Defendant-Appellant.


Submitted April 22, 2013

On appeal from Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. F-22974-08.

David J. Khawam, attorney for appellant.

Phelan Hallinan & Schmieg, P.C., attorneys for respondent (Vladimir Palma, on the brief).

Before Judges Ashrafi and Espinosa.


Defendant Jayne Garner appeals from a January 6, 2012 order of the Chancery Division denying her motion to vacate a foreclosure judgment entered on November 10, 2010. She claims that the judgment was improperly entered "due to lack of notice of intent to foreclose upon appellant by appellee and a lack of standing by appellee to bring their complaint." We reject those contentions and affirm the Chancery Division's order.

On December 21, 2005, defendant obtained a loan of $234, 650 to purchase residential property located in Browns Mills. There is a dispute in our record regarding whether defendant intended to reside at the premises or was purchasing it as an investment rental property. At the time of the foreclosure, defendant did not reside at the property.

The note evidencing the loan named the lender as plaintiff "PHH Mortgage Corp (f/k/a Cendant Mortgage Corp) d/b/a Century 21 Mortgage" (PHH). To secure the loan, defendant gave a mortgage to Mortgage Electronic Registration Systems, Inc. (MERS), "as a nominee for" PHH.

Defendant made installment payments on the loan to PHH for more than two years. She did not make the March 1, 2008 payment or any other payment after that date. On April 15, 2008, PHH sent defendant a "Notice of Intention to Foreclose, " indicating that defendant could cure the default by paying $4, 321.23 immediately. The notice further warned that continued nonpayment would result in the acceleration of the balance due on the loan and the commencement of foreclosure proceedings. There is no record of any attempt by defendant to cure the default.

On June 13, 2008, MERS assigned "all beneficial interest" in the mortgage to PHH. Three days later, PHH filed a foreclosure complaint in the Chancery Division. Defendant was served with the complaint on June 27, 2008, at an address different from the mortgaged property. She did not answer or otherwise respond to the complaint, and default was entered on August 4, 2008. On October 1, 2008, however, defendant filed a late, pro se answer. Her answer contained nineteen affirmative defenses, and several other allegations, but it did not allege improper notice or challenge PHH's standing to sue for foreclosure. The Chancery Division treated the late answer as a motion to vacate the default and allowed the answer to be filed on March 20, 2009.

On September 22, 2009, PHH moved to strike defendant's answer as non-contesting. Defendant did not file opposition. The Chancery Division granted PHH's motion on October 23, 2009 and entered default. It then sent the case to the Office of Foreclosure for further processing. Defendant sought leave to appeal, which we denied on February 24, 2010. The Supreme Court also denied leave to appeal on May 4, 2010.

On March 3, 2010, PHH moved for entry of final judgment. Defendant, still pro-se, opposed the motion on June 30, 2010. The Chancery Division granted PHH's motion and final judgment of foreclosure was entered on November 10, 2010.

A sheriff's sale was scheduled but cancelled when defendant filed a petition for bankruptcy on January 4, 2011. The federal bankruptcy court dismissed defendant's petition on January 31, 2011, but defendant filed a second petition for bankruptcy on June 24, 2011. That case, too, was dismissed on July 18, 2011.

Defendant then retained counsel to pursue a motion in the Chancery Division to vacate the foreclosure judgment, which counsel filed on November 15, 2011. The court denied the motion on January 6, 2012, and defendant filed an appeal before us from that order of denial.

Motions to vacate a default judgment are generally reviewed under the abuse of discretion standard. U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012). They are to be granted liberally to facilitate the resolution of disputes on the merits. Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283-84 (1994).

Rule 4:50-1 provides the grounds upon which a judgment may be vacated:
[T]he court may relieve a party . . . from a final judgment or order for the following reasons: (a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial under R. 4:49;
(c)fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(d)the judgment or order is void; (e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or (f) any other reason justifying relief from the operation of the judgment or order.

[Emphasis added.]

Motions to vacate a judgment under subsections (a), (b), and (c) must be made within one year of entry of the judgment. R. 4:50-2. Defendant's motion was filed on November 15, 2011, slightly more than a year after entry of the default judgment on November 10, 2010. Therefore, she may not seek relief on grounds of excusable neglect.

Under the other subsections of the rule, a motion to vacate the judgment must be made within a "reasonable time." R. 4:50-2; Bascom Corp. v. Chase Manhattan Bank, 363 N.J.Super. 334, 340 (App. Div. 2003), certif. denied, 178 N.J. 453, cert. denied, 542 U.S. 938, 124 S.Ct. 2911, 159 L.Ed.2d 813 (2004); Garza v. Paone, 44 N.J.Super. 553, 557 (App. Div. 1957). The question of what is a reasonable time necessarily depends on the specific circumstances of each case. Pressler & Verniero, Current N.J. Court Rules, comment 3 on R. 4:50-2 (2013). The interests of both parties must be borne in mind, and the failure of the defendant to deny the essential facts entitling the plaintiff to judgment will weigh against relief. As we stated in Deutsche Bank Trust Co. Americas v. Angeles, 428 N.J.Super. 315, 320 (App. Div. 2012):

In foreclosure matters, equity must be applied to plaintiffs as well as defendants. Defendant did not raise the issue of standing until he had the advantage of many years of delay. . . . Defendant at no time denied his responsibility for the debt incurred nor can he reasonably argue that Deutsche is not the party legitimately in possession of the property. Rather, when all hope of further delay expired, after his home was sold and he was evicted, he made a last-ditch effort to relitigate the case. The trial court did not abuse its discretion in determining that defendant was not equitably entitled to vacate the judgment.

Similarly, defendant in this case did not formally challenge PHH's standing or the adequacy of the notice of foreclosure until her other efforts to ward off foreclosure and a sheriff's sale were exhausted. She raised the issue of PHH's standing for the first time in her opposition to its motion to strike her answer as non-contesting, more than a year after the complaint was filed. The issue of improper notice was first raised in her motion to vacate the default judgment, more than three years after the complaint. Defendant provides no reasons for failing to pursue these contentions sooner, and no reasons for delaying more than a year to seek to vacate the judgment of foreclosure on these grounds. Nevertheless, for purposes of this appeal, we will assume that she filed her motion to vacate the judgment within a reasonable time after entry of the judgment and address defendant's notice and standing arguments on the merits.

The Fair Foreclosure Act (FFA), N.J.S.A. 2A:50-53 to -68, was adopted in 1995 with the goal that "homeowners . . . be given every opportunity to pay their home mortgages, and thus keep their homes." N.J.S.A. 2A:50-54. In pursuit of this goal, the FFA established several procedures to be followed in the event of foreclosure, including a requirement that the "residential mortgage lender" send a notice of intent to foreclose to the mortgagor at least 30 days before filing a foreclosure complaint. N.J.S.A. 2A:50-56. The mortgage lender must strictly comply with this requirement. EMC Mortg. Corp. v. Chaudri, 400 N.J.Super. 126, 138 (App. Div. 2008); Bank of N.Y. Mellon v. Elghossain, 419 N.J.Super. 336, 339 (Ch. Div. 2010).

Defendant contends that, at the time the notice of intent to foreclose was sent on April 15, 2008, MERS, not PHH, was the holder of the mortgage, and MERS therefore should have been named in the notice. PHH responds that defendant was not entitled to a notice of intent at all because she was not living in the mortgaged property at the time of default and foreclosure. PHH further argues that it held the note from the very beginning, and was therefore the appropriate "lender" for the purposes of the FFA.

The FFA provides that it "shall not apply to the foreclosure of a non-residential mortgage." N.J.S.A. 2A:50-62. A residential mortgage is defined as:

a mortgage, security interest or the like, in which the security is a residential property such as a house, real property or condominium, which is occupied, or is to be occupied, by the debtor, who is a natural person, or a member of the debtor's immediate family, as that person's residence. This act shall apply to all residential mortgages, wherever made, which have as their security such a residence in the State of New Jersey, provided that the real property which is the subject of the mortgage shall not have more than four dwelling units, one of which shall be, or is planned to be, occupied by the debtor or a member of the debtor's immediate family as the debtor's or member's residence at the time the loan is originated.
[N.J.S.A. 2A:50-55.]

Here, the subject premises were not occupied by defendant when the loan went into default and PHH filed its foreclosure complaint. Defendant rented the house to tenants. Nevertheless, without citation to any factual part of the record, defendant argues that she did occupy the house at the time she obtained the loan and executed the mortgage. Although at least one court has held that the statute does not apply if a defendant was not occupying the residence when the loan went into default and the foreclosure complaint was filed, see Sturdy Sav. Bank v. Roberts, 427 N.J.Super. 27, 38 (Ch. Div. 2012), we need not decide on this incomplete record whether the FFA applies or does not apply if defendant earlier occupied the premises but not at the time of foreclosure.

We conclude that the April 15, 2008 notice of intent to foreclose that PHH served upon defendant was not deficient. N.J.S.A. 2A:50-56(c)(11) requires that "foreclosure plaintiffs list on the notice of intention the name and address of the actual lender, in addition to the contact information for any loan servicer involved in the mortgage." Guillaume, supra, 209 N.J. at 458. The "residential mortgage lender" to be named is defined as "any person, corporation, or other entity which makes or holds a residential mortgage, and any person, corporation or other entity to which such residential mortgage is assigned." N.J.S.A. 2A:50-55. The notice in this case listed PHH as the lender, and also listed a "Mortgage Service Center" to which defendant could send the $4, 321.23 necessary to bring her loan current. Defendant argues that because the mortgage listed MERS as mortgagee, "as a nominee for" PHH, MERS was the proper entity to name in the notice.

MERS does not make mortgage loans. It operates as a tracking system for mortgages of other entities. By using MERS as a nominee, lenders are able to transfer their interests "without having to record those subsequent transactions in the public record." Bank of N.Y. v. Raftogianis, 418 N.J.Super. 323, 332 (Ch. Div. 2010). Defendant acknowledges that "MERS does not actually lend, borrow, or service loans." That is precisely why it was not the proper entity to name in the notice of intent, which is designed to provide information to the homeowner regarding how to cure the default.

Our Supreme Court has implicitly recognized that, under the circumstances presented here, the lender, and not MERS, is the party that should be designated in the notice of intent. In Guillaume, supra, the Court held that a notice of intent was deficient because it did not name the lender as "U.S. Bank." Id. at 472-75. There, as here, MERS was listed as the mortgagee as nominee for the lender. Id. at 458-59. By holding that U.S. Bank should have been named, the Court thus recognized that MERS was not the lender to which N.J.S.A. 2A:50-56(c)(11) refers.

This analysis makes good sense. PHH was listed as the lender on both the promissory note and the mortgage itself, even though MERS was named the mortgagee "as a nominee for" PHH. It does not appear that the note was ever transferred, and defendant made all her payments to PHH (d/b/a Century 21). PHH was always the lender for the purposes of N.J.S.A. 2A:50-56(c)(11), and it was always the party with whom defendant would have to deal if she desired to cure her default.

Our conclusion is bolstered by holdings of other courts that MERS's role as "nominee" is nothing more than an agency relationship and gives it no ownership interest in the mortgage. Raftogianis, supra, 418 N.J.Super. at 347; Landmark Nat'l Bank v. Kesler, 216 P.3d 158, 166 (Kan. 2009) (collecting cases). MERS does not "hold" mortgages for the purpose of N.J.S.A. 2A:50-55; it merely records mortgages in its name, and serves as a central exchange through which lenders can transfer and track mortgages without re-recording. Thus, PHH was the holder of the note and mortgage and the proper party to be named in the notice of intent.

Even if the notice of intent were defective because MERS was the nominal holder of the mortgage, defendant would not be entitled to dismissal of the complaint. Guillaume reaffirmed that courts may "fashion[] case-specific equitable remedies for violations of the notice of intention requirements" in the FFA. Guillaume, supra, 209 N.J. at 477. In choosing between remedies, the court must consider the purpose of the notice requirement: to apprise the debtor of the status of the loan and mortgage, and to permit an opportunity to cure. Id. at 479. Here, the notice of intent informed defendant that she was in default and gave her the information necessary to cure the default. Defendant has never alleged she had any intention or ability to cure the default. At most, she would have been entitled to a new notice while the litigation was pending, and a new opportunity to cure, not dismissal of the foreclosure action. See id. at 480 (given debtor's "thorough familiarity" with mortgage status, refusing to dismiss for violation of N.J.S.A. 2A:50-56(c)(11) was appropriate).

In sum, we find no merit in defendant's contention that the judgment should be vacated because of improper notice of intent to foreclose.

We also reject defendant's contention that PHH lacked standing to file the foreclosure complaint. Initially, we note that lack of standing does not render a foreclosure judgment void within the meaning of Rule 4:50-1(d). Deutsche Bank Nat'l Trust Co. v. Russo, 429 N.J.Super. 91, 101 (App. Div. 2012).

Defendant challenges the standing of PHH on a "split the note" theory. She argues that when MERS was named the mortgagee while PHH was named the lender on the promissory note, the note and the mortgage were separated, such that no one had the authority to enforce the obligation at the time the foreclosure complaint was filed.

As a general matter, to have standing to foreclose a mortgage, a party must own the underlying obligation as well. Deutsche Bank Nat'l Trust Co. v. Mitchell, 422 N.J.Super. 214, 222 (App. Div. 2011); Gotlib v. Gotlib, 399 N.J.Super. 295, 312 (App. Div. 2008). There is no question that PHH owned the underlying debt.

In Raftogianis, supra, 418 N.J.Super. at 345, the foreclosure defendant contended that designating MERS as nominee for the lender split the note, thereby limiting the ability of the lender to transfer and enforce the obligation. The Chancery Division rejected the argument, noting at the outset that it is clear the lender meant to make MERS the nominal mortgagee for administrative convenience only, and there was "no real intent to separate ownership of the note and mortgage." Id. at 346. Further, relying on case law from outside New Jersey, the court concluded that the nominee designation was nothing more than an agency relationship, leaving the lender as the owner of both the mortgage and the note. Id. at 347.

We agree with that analysis. The designation of MERS as nominee for PHH provided administrative benefits, but MERS neither serviced the loan nor participated in the market as a lender This agency role is further reflected in the designation of MERS as "nominee" rather than "assignee" or "transferee" See eg Fontenot v Wells Fargo Bank NA 129 Cal.Rptr.3d 467 479 (Cal App 2011) (MERS has "no interest in the note" and its authority is therefore determined entirely by the scope of its agency relationship with the lender)

We conclude that PHH had standing to bring a foreclosure action against defendant


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