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1099, L.L.C. v. Recreational Health Care Concepts, Inc.

A-3521-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

MORTGAGES; JUDGMENT CREDITORS —If a mortgagee’s assignment of rents is recorded after a judgment creditor has levied on rents being paid by a tenant of the mortgaged property, the judgment creditor is entitled to garnish those rents ahead of the assignee and to collect the money so received.

A husband and wife took title to a condominium unit as tenants by the entirety. A writ of execution was entered based on a judgment subsequently obtained against the husband only. It directed the county sheriff to satisfy the judgment out of the debtor-husband’s personal property within the county. Among the assets found were monies to be paid by two month-to-month tenants of the unit. The tenants had no business dealings with the debtor’s wife and the husband directly accepted all tenant payments related to the unit. After the levy was issued, the husband executed an assignment of rents to the condominium unit’s mortgage holder. He also filed a motion to quash the sheriff’s levy.

The lower court held that the assignment of rents was ineffective as to the prior levy and ordered rents to be paid directly to the judgment creditor. It found that the sheriff’s levy pre-dated the assignment of rents meaning that the debtor no longer had the right to assign these payments because the rents were encumbered by the levy. The lower court also refused to partition the unit on “equitable grounds.” The debtor-husband appealed, claiming, among other things, that the assignment of rents was effective and had priority over the sheriff’s levy.

The Appellate Division affirmed, rejecting the debtor’s argument that, as to the creditor, the tenant’s payments were not rents, but as to the mortgage holder, they should be. It noted that the general rule in determining whether a right may be levied upon is to determine “whether the right or credit is assignable by the judgment debtor.” Here, the debtor conceded that the rents were subject to levy. Moreover, it determined that the rents due were the debtor’s sole property and not owned by both the husband and wife. Thus, it held that the sheriff appropriately levied upon the rents due, and, because the levy was prior in time to the assignment of rents, the levy was superior.

The Court rejected the husband’s argument that the lower court ignored his wife’s undivided one-half interest in the unit as a tenant by the entirety. First, the lower court had found that the rents were solely the husband’s asset. Second, it believed the husband was arguing on his wife’s behalf, when he did not, and could not, represent her because she was not a party to the action. It opined that the dispute here was solely between the debtor and creditor and that the debtor’s analysis based on tenancy by the entirety principles was not ripe at this time.

The Court’s ruling was made without prejudice to either the wife or the mortgage holder filing separate actions to determine what rights, if any, they each might have to the monies paid to the judgment creditor.

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