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BEI Management, Inc. v. Moniodis

A-4317-97T1 (N.J. Super. App. Div. 1999) (Unpublished)

MORTGAGES; FORECLOSURE; JUDGMENTS—If a foreclosing mortgagee acquires the property at the Sheriff’s sale for itself or through an affiliate, the amount that it eventually receives at a resale will be credited against any outstanding judgment on the note from the same loan transaction to avoid a double recovery.

The holder of a defaulted commercial, purchase money mortgage filed both a foreclosure action and a collection action on a note. It then secured judgments in both proceedings. At the mortgage foreclosure sale, it acquired title to the premises for a nominal bid and then assigned its bid to a related entity. About seven months after the related entity took title by Sheriff’s deed, it sold the property to a third party for an amount in excess of the debt that was owed. The borrower then filed a motion to compel satisfaction of the note judgment based upon the foreclosure transaction and, in the alternative, based upon an appraisal of the property’s value that showed the property to be worth well in excess of the amount owed on the debt. The lower court denied relief to the borrower.

Basically, the borrower argued that N.J.S. 2A:50, et seq precluded the mortgagee from pursuing a deficiency action. The cited statute, however, specifically precluded its applicability to commercial transactions. Consequently, the borrower was not entitled to its protections, the foremost of which, for the borrower’s purposes, was a bar against a deficiency action. The Appellate Division agreed with the lower court that the mortgagee had the right to pursue a deficiency judgment in the Law Division. Nevertheless, the Court did not agree that such a right mandates denial of the borrower’s motion to order the note judgment satisfied. According to the Court, “case law is replete with the adage that the powers of equity must be exercised to bar a double recovery by a note holder.” The mortgagee’s sale of the property at a profit after foreclosure satisfied the amount due on the note judgment. By electing foreclosure, the mortgagee looked to the land as principal security. According to the Court, it would be inequitable and unjust for the mortgagee also to be able to seek recovery from the borrower’s other assets by execution on the judgment. Lastly, the Appellate Division believed that the issue as to whether the borrower was entitled to a fair market value credit in a deficiency proceeding was premature.


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