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Aurora Loan Services, LLC v. Einhorn

A-5586-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

MORTGAGES; FORECLOSURE; FAIR FORECLOSURE ACT — The Fair Foreclosure Act only applies to residential mortgagees which means that it applies only where the collateral is a home that was currently occupied, or was to be occupied, by the borrower at the time the loan was originated.

A homeowner executed three mortgages in succession. Then, a loan servicer filed a foreclosure complaint, alleging that the borrower had failed to pay installments due on the loan. By certified letter, the loan servicer served a notice of intention to foreclose. The borrower failed to answer, and a default judgment was entered. The loan servicer then served a motion for entry of final judgment by certified and regular mail. Although the motion was uncontested, the judgment was delayed apparently due to a backlog in the Office of Foreclosure.

Meanwhile, the borrower filed an answer without moving to vacate the default. The clerk, consistent with court rules, did not reject the answer but instead deemed it to be a contest to the foreclosure and forwarded it to the court. However, at least two weeks earlier, upon the request of the Office of Foreclosure, the court in another county entered the requested final judgment. In the answer, the borrower did not contest that the mortgage had been executed or that it was in default. In the borrower’s affirmative defenses, however, was a challenge to the loan servicer’s standing and its compliance with the Fair Foreclosure Act. The lower court entered a case management order requiring the loan servicer to file a motion for summary judgment, but the lower court did not formally enter an order vacating default. Consistent with the case management order, the loan servicer asked the sheriff to cancel the foreclosure sale.

The borrower opposed the loan servicer’s motion for summary judgment and moved for dismissal. The lower court orally granted the loan servicer’s motion and ordered the loan servicer to cancel and re-advertise the sheriff’s sale, apparently to give the borrower more time to resolve the matter. The borrower, arguing that the loan servicer had failed to provide it with a timely notice to cure pursuant to the Fair Foreclosure Act, moved to vacate the final judgment and to discharge the writ of execution. During oral argument, the borrower agreed that the mortgaged property was not her home. This statement was consistent with other documents in the record that indicated that the borrower resided elsewhere. The lower court denied the motion, holding that it was untimely as it sought reconsideration more than twenty days after the order granting summary judgment had issued. The lower court also reasoned that there was no compelling reason to vacate the judgment; although the court did not formally vacate the default, it reached a decision on the merits when it decided the motion for summary judgment.

On appeal, the borrower argued that although the lower court did not formally vacate the entry of default, the default was nonetheless vacated by acceptance of the answer by the Office of Foreclosure. Inasmuch as the answer was filed after service of the initial notice of entry of judgment under the Fair Foreclosure Act, the borrower argued that the loan servicer was required to serve a new notice. Based on this, the borrower concluded that the judgment should have been vacated and a new application for final judgment should have been filed. The loan servicer responded that its notices complied with the Act and, more importantly, the Act did not apply to the borrower as a non-resident of the mortgaged property.

The Appellate Division affirmed for substantially the reasons expressed by the lower court. The Court concluded that the Act did not apply because the borrower stopped living at the mortgaged property before the events of default that prompted the foreclosure action. The Act, intended to assist homeowners as opposed to investors, defines a “residential mortgage” to apply to homes currently occupied, or to be occupied, by the debtor at the time the loan was originated. Thus, because neither the debtor nor a family member occupied, or planned to occupy, the property when the loan originated, the Act did not apply, and would not have applied, even if the debtor or a family member later took up residence.

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