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Brunswick Bank & Trust v. Heln Management LLC

Superior Court of New Jersey, Appellate Division

February 21, 2018

BRUNSWICK BANK & TRUST, Plaintiff-Respondent,

          Argued September 12, 2017

         On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket Nos. F-30990-10 and F-21231-13, and Monmouth County, Docket No. F-26278-10.

          Philip R. Kaufman argued the cause for appellants.

          Anthony B. Vignuolo argued the cause for respondent (Borrus, Goldin, Foley, Vignuolo, Hyman & Stahl, PC, attorneys; Anthony B. Vignuolo, on the brief).

          Before Judges Fisher, Fasciale and Moynihan.


          FISHER, P.J.A.D.

         In this second appeal of a group of convoluted and consolidated foreclosure actions, we review the findings and conclusions drawn by the experienced chancery judge from the proofs elicited at an evidentiary hearing required by our earlier remand. Brunswick Bank & Tr. v. Affiliated Bldg. Corp., 440 N.J.Super. 118 (App. Div. 2015). We certainly did not burden the chancery judge with the easiest of tasks, and defendants' presentation of evidence certainly gave voice to the song lyric, "when nothing makes any sense, you have a reason to cry."[1] But, after careful review, we cannot endorse the judge's finding that defendants failed to present "competent" evidence to support the remedy they seek. Consequently, we are constrained to again remand.

         The consolidated cases concern five construction and development loans, four of which were made to defendant Heln Management, LLC, and the fifth to Affiliated Building Corp.; Jeffrey Miller, a principal of both entities, and his daughter Melanie Miller, were joined as defendants because they guaranteed repayment. Repayment was also ensured by mortgages held by Brunswick Bank on properties owned by Heln and Affiliated. We provided greater detail about these transactions in our earlier opinion, id. at 120 n.2, and will attempt not to unduly repeat what was then said.

          In deciding the earlier consolidated appeals, we ultimately remanded because issues concerning whether Brunswick Bank collected more than one-hundred percent of defendants' collective debt on all the loans could not be resolved "without a full accounting of the cash and property collected by plaintiff applied against the amount of the Law Division judgment and the interest that accrued on that judgment, as well as expenditures in 'different categories of [permissible] damages' not adjudicated in the Law Division action." Id. at 128 (alteration in original; quoting First Union Nat'l Bank v. Penn Salem Marina Inc., 190 N.J. 342, 345 (2007)). The judgment referred to was the product of Brunswick Bank's 2010 complaint in the Law Division seeking a money judgment on four of the five loans; Brunswick Bank chose that option rather than pursuing foreclosure on the mortgage properties. Default judgment was entered on August 18, 2010, against Heln for $1, 884, 141.84, and against Affiliated for $175, 000; both guarantor-defendants were declared jointly and severally liable on both those obligations. Id. at 120-21. By taking that course, Brunswick Bank opted to allow the unpaid debt on the four defaulted loans alleged in the Law Division complaint to accrue interest at the rate provided by Rule 4:42-11(a), rather than the interest rate to which the parties had been contractually bound. Brunswick Bank, 440 N.J.Super. at 127.

          After filing the Law Division action, Brunswick Bank filed four separate foreclosure actions. Three were filed in 2010, shortly before Brunswick Bank obtained the Law Division judgment: two in Middlesex County and a third in Monmouth County. A fourth was filed in Middlesex County in 2013. Default judgments setting redemption amounts were entered in 2012 and 2013. There followed - as we previously described in greater detail, id. at 121-22 - sales of properties encumbered by mortgages; this provided rolling compensation for Brunswick Bank against all defendants' obligations.

         In his earlier decision, the chancery judge recognized the loans might have been "over-collateralized" and questions about whether Brunswick Bank had been fully compensated on the entire obligation were presented. The judge concluded, however, that the record was "too muddled, " and he acknowledged his power to "prevent a windfall" had to await "a full and complete factual record." Id. at 122.

         In resolving the prior consolidated appeals, we drew the same conclusion about the lack of clarity or certainty about the amount of compensation obtained by Brunswick Bank, and we remanded for illumination. We emphasized a court's power to prevent a windfall and to ensure a judgment creditor recovers no more than the amount of the debt by applying the fair market value credit of property struck off at a sheriff sale. Id. at 125; see also MMU of N.Y., Inc. v. Grieser, 415 N.J.Super. 37, 40 (App. Div. 2010). We also recognized that the proceedings would be most efficiently handled by a single judge; we, thus, designated the Middlesex chancery judge to provide a "global resolution" of the pending issues. Id. at 128.

         The question before us now is whether, following our remand, the factual clarity we sought was actually achieved. Following our remand, the chancery judge conducted as thorough an evidentiary hearing, over the course of four days, as the parties' presentations permitted and rendered written findings. After identifying and quantifying the various debts, property sales, and collection efforts, the judge concluded Brunswick Bank was entitled to "$2, 670, 825.92 plus additional interest not calculated, attorney's fees and costs, such as real estate taxes paid, not included in the [Law Division judgment]."[2] The judge was not precise about the total dollar amount due when adding those other items; he simply concluded Brunswick Bank was owed

at least $2.7 million dollars [and] . . . has received $2, 599, 208.51. [Brunswick Bank] also, as a result of two [s]heriff's [s]ales, owns Beacon Hill and Baldwin. Defendants failed to introduce any competent evidence to establish the fair market value of these properties at the time of the [s]heriff's [s]ale.

         Consequently, the judge "discharged" the Law Division judgment and, because Brunswick Bank so "stipulated, " the judge restrained - we assume permanently - Brunswick Bank from "pursuing any deficiency judgment" against defendants. The judge entered orders memorializing those determinations in October and December 2015.

         In appealing, defendants argue that: (1) Brunswick Bank's many claims "merged into" the Law Division judgment and created "one debt to be collected and satisfied"; (2) the successive foreclosure complaints constituted "de facto deficiency actions" and allowed defendants to challenge them as deficiency actions; (3)the judge erred in failing to provide them with the benefit of a fair market value credit for the properties ultimately received by Brunswick Bank through the foreclosure actions; and (4)"a deficiency action is illusory where a mortgagee has first brought an action on its note prior to foreclosing its mortgage." In a fifth point, defendants explain they "are not seeking damages, but only a credit against the amount due and the voiding of the sheriff's sales, the return of title and the enforcement of settlement on Loren Terrace."

         We start by recognizing, as previously held, that Brunswick Bank was entitled to collect only what was collectively owed from these defendants. Although the loans were separately made, Brunswick Bank recognized the link among all the loans by, among other things, commencing a single Law Division suit on four of the loans, apparently leaving out the fifth only through oversight.[3]Although our earlier opinion could have been clearer, our mandate directed that all the loans and payments against all the loans be accounted for in a single proceeding so that Brunswick Bank would not, as a result of the sequential manner in which collection was sought or occurred, come away from these proceedings with a windfall. It cannot be over-emphasized that the very nature of a foreclosure action suggests the potential for a forfeiture, and that - because "equity abhors a forfeiture, " Dunkin Donuts of Am., Inc. v. Middletown Donut Corp., 100 N.J. 166, 182 (1985) - a court of equity may in appropriate circumstances, through application of fair market value credits, or by other recognized means, spare a party from an unwarranted forfeiture.[4] Foreclosure, as we have observed, is a discretionary remedy. Sovereign Bank, FSB v. Kuezlow, 297 N.J.Super. 187, 196 (App. Div. 1997). Because the pursuit of that remedy summons the court's equity jurisdiction, the court may, through the imposition of flexible remedies, adjust the parties' rights, with regard to the facts, to achieve a fair and just result. See Sears, Roebuck & Co. v. Camp, 124 N.J. Eq. 403, 411-12 (E. & A. 1938) (citation omitted) (recognizing that "[e]quitable remedies are distinguished for their flexibility, their unlimited variety, their adaptability to circumstances, and the natural rules which govern their use"); see also U.S. Bank Nat. Ass'n v. Guillaume, 209 N.J. 449, 476 (2012); Matejek v.Watson, 449 N.J.Super. 179, 183 (App. Div. 2017); Marioni v. ...

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