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Amboy National Bank v. Goodson

F-17157-03 (N.J. Super. Ch. Div. 2004) (Unpublished)

FORECLOSURE; STATUTE OF FRAUDS—Neither substitute performance nor a judgment takes a mortgage foreclosure out of the Statute of Frauds and to prove that there was an oral agreement to extinguish a mortgage, a borrower must prove the existence of such an agreement under the clear and convincing standard.

A bank acquired a note and mortgage by assignment. When the borrower stopped making payments, the bank foreclosed on the property and obtained a final judgment. The foreclosure action was deficient because various interested parties were omitted from the complaint and therefore they did not receive notice. The property was never brought to a sheriff’s sale.

The bank was then seized by the Federal Deposit Insurance Corporation (FDIC), and another bank purchased the loan from the FDIC. It also bought a loan made to the borrower’s former wife, which he had guaranteed. His ex-wife defaulted and the bank foreclosed on her house.

About two years after the foreclosure on his ex-wife’s home, the man approached the bank to purchase that home for $200,000 and to pay his own debt over six months. After making those payments, his slate would be wiped clean with respect to all obligations he might have owed the bank at that time.

A few days after he made the offer, a money judgment was entered against him on his guarantee of his ex-wife’s home. When the bank declined to sell, the man enlisted a potential straw man. The straw man and the bank agreed on a sale for $230,000. The bank also agreed to assign the money judgment against its borrower to the straw man. Closing took place just before the end of the year. Nothing in the sale indicated that the husband was released or discharged from his obligations to the bank. The agreement between the bank and the straw man had an integration clause providing that the contract for sale of the ex-wife’s property constituted the entire agreement between the parties.

Just after the sale, the bank entered into negotiations to settle the original debt. According to the bank, its borrower never said anything about an alleged release from his debt. Negotiations failed and the bank foreclosed on the original property. Its borrower objected, arguing that as part of the sale of his ex-wife’s home, the bank’s agent agreed that after the sale, the “slate would be wiped clean” as to all of his bank debts. The bank’s agent denied making such an agreement and the bank argued that the Statute of Frauds barred its borrower’s claim.

The borrower admitted that he had no written evidence of a release, but claimed that the bank’s sales agreement with the straw man was substitute performance. His argument was that the bank was willing to accept $213,000 for his ex-wife’s house, but the final purchase price was actually $230,000. According to him, the extra money was in consideration for satisfying the debt on his own home.

The bank’s borrower asserted that because no statute required that an agreement to satisfy a judgment be in writing, the Statute of Frauds did not apply and he only had to prove the bank’s release by a preponderance of the evidence.

The existence of an alleged oral contract and its terms must be proven by clear and convincing evidence. Further, an oral agreement to forebear from foreclosing a mortgage is clearly covered by the Statute of Frauds. According to the lower court, neither substitute performance nor a judgment takes a mortgage foreclosure out of the Statute of Frauds.

The lower court doubted the validity of the original foreclosure judgment, and held that the court’s foreclosure unit had the power to vacate or reinstate a foreclosure judgment until it is recorded. Thus, the 1990 judgment could have been vacated up until the judgment was recorded in the county in which the property was located. The court found no evidence that the 1990 judgment had been recorded. Nonetheless, the Court concluded that even if the 1990 judgment was invalid, the bank would still prevail because its borrower failed to prove, under the clear and convincing standard, that there was an oral agreement to extinguish the mortgage. The borrower didn’t even know exactly how much was owed. Additionally, the bank’s agent testified that he did not know of any other of the borrower’s debts until after the ex-wife’s house was sold.

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