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Bankers Trust Company of California, N.A. v. Ali

A-3752-99T1 (N.J. Super. App. Div. 2001) (Unpublished)

MORTGAGES; FORECLOSURE—Foreclosure judgments are only res judicata as to the amount of the unpaid debt secured by the mortgage; they are not res judicata as to a borrower’s liability for any deficiency.

A mortgagors’ property was foreclosed and, in the proceeding that followed, the Court rejected the mortgagor’s defense that “the mortgage should never have been approved from the outset because their application disclosed their monthly income was insufficient to cover the monthly payments.” The mortgagors also argued that they were entitled to rescind the mortgage because, at closing, they never received a financial disclosure form required by the Truth-in-Lending Act. The mortgagors appealed the foreclosure judgment, but in the interim, the property was sold at auction. The mortgagors’ attempts to secure a stay were unsuccessful. The Court refused to hear the appeal “[b]ecause the rights of third parties have intervened, we have determined that the appeal is moot and thus decline to address the substance of the [mortgagors’] legal arguments for even if we were to determine, for some reason, that the trial court erred in striking these defenses, we could provide no effective relief.” The Court invited the mortgagor to explain why the appeal should not be deemed moot. The mortgagors claimed that the result of the matter could prejudice them in subsequent deficiency action. According to the Court, however, if there were to be a deficiency action is required that take place within three months of the sale of the property, and there was no record to indicate that such a deficiency action had been initiated. Further, foreclosure judgments are only “res judicata as to the amount of the unpaid debt secured by the mortgage; they are not res judicata as to a defendant’s liability for any deficiency.”

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