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Ocwen Loan Services, LLC v. Quinn

Superior Court of New Jersey, Appellate Division

July 10, 2017

OCWEN LOAN SERVICES, LLC, Plaintiff-Respondent,

          Argued October 6, 2016

         On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. F-27321-09.

          Richard A. Herman argued the cause for appellants.

          Rajan Patel argued the cause for respondent (Law Office of Rajan Patel and Blank Rome LLP, attorneys; Mr. Patel, on the brief).

          Before Judges Fuentes, Carroll, and Gooden Brown.


          CARROLL, J.A.D.

         Defendants Louisa Wuebbens and David Wuebbens appeal from companion orders entered by the Chancery Division on January 5, 2015, granting partial summary judgment to plaintiff Ocwen Loan Servicing, LLC, [1] and denying defendants' motion for summary judgment. Applying equitable principles recognized by this court in Sovereign Bank v. Gillis, 432 N.J.Super. 36 (App. Div. 2013), Judge Margaret Mary McVeigh granted plaintiff's mortgage a lien priority over defendants' life estates in the mortgaged property. We affirm both orders, substantially for the reasons articulated by Judge McVeigh in her well-reasoned written opinion of January 5, 2015.

         The essential facts are undisputed. By deed dated November 12, 2004, defendants conveyed their residential property in Little Falls to their daughter, Marla Wuebbens Quinn. Defendants retained a life estate in the property, and agreed to remain responsible for the maintenance and upkeep of the property, to pay all taxes assessed upon the property, and to maintain adequate insurance.

         On December 2, 2005, Marla Wuebbens Quinn, her husband, Thomas Francis Quinn, and defendants executed a $260, 000 mortgage on the property in favor of IndyMac Bank, F.S.B. (the 2005 mortgage). The mortgage loan had a thirty-year term through December 2035, with an adjustable interest rate initially set at 1.000% and a maximum cap not to exceed 9.700%. The mortgage further provided that, because the borrowers were initially only making limited monthly payments, the addition of unpaid interest could increase the principal balance to 110% of the $260, 000 loan amount, or $286, 000.

         On September 21, 2007, Marla Wuebbens Quinn refinanced the existing mortgage loan by executing a $380, 000 note and mortgage in favor of IndyMac (the 2007 mortgage). Plaintiff alleges, and defendants do not dispute, that the title commitment obtained by IndyMac did not disclose the recorded life estates held by defendants. Consequently, the title commitment did not require defendants to execute the 2007 mortgage, and they did not do so. The new mortgage loan had a thirty-year term, through October 2037, and provided for a fixed annual interest rate of 6.625%.

         Indymac's title commitment did reveal the existence of two open mortgages encumbering the property: its own 2005 mortgage, and a $60, 000 second mortgage executed by the Quinns in 2006 in favor of another lender. Both mortgages were satisfied out of the proceeds of the 2007 mortgage loan, with Indymac receiving $265, 269.45 to satisfy the 2005 mortgage, and the second lender receiving $57, 305.59 to discharge its mortgage. As a result, the 2007 mortgage to Indymac, signed only by Marla Wuebbens Quinn and not by defendants, became the sole mortgage lien on the property.

         In May 2009, IndyMac filed a foreclosure action in the Chancery Division against the Quinns on the defaulted 2007 mortgage. Subsequent amendments to the complaint by IndyMac's assignees added defendants as parties to the action and, among other things, sought to equitably subrogate defendants' life estate interests in the property to plaintiff's mortgage.

         On cross-motions for summary judgment, plaintiff sought an adjudication that defendants' life estates in the property were subject and subordinate to the lien of plaintiff's 2007 mortgage, plus taxes and insurance advanced by plaintiff and its predecessors while the loan was in default. In turn, defendants sought dismissal of the foreclosure complaint against them on the grounds that they did not sign the 2007 mortgage nor pledge their life estates in connection with the 2007 loan refinancing.

         Applying the "equitable principles of Gillis" and the principles of replacement and modification recognized in the Restatement (Third) of Property - Mortgages (1997) ("the Third Restatement"), Judge McVeigh granted plaintiff's motion and denied defendants' motion. Specifically, the judge permitted plaintiff to step into the shoes of its prior mortgage which its own funds satisfied. However, the judge "capped" the amount of plaintiff's priority at $260, 000, and ruled that "[t]o the extent that the [2007] refinance exceeds the value of the [2005] mortgage, such a portion of the refinance does not maintain priority" over defendants' life estates. Judge McVeigh ...

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