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California Federal Bank, FSB v. Bobila

BER-F-11510-00 (N.J. Super. Ch. Div. 2004) (Unpublished)

FORECLOSURE; NOTICE—When sending notice to a lien holder in a foreclosure sale, just because the local postmaster indicates that the lien holder has moved, leaving no forwarding address, doesn’t mean that published notice in a local newspaper will satisfy the service of process rules.

Buyers purchased a property by giving a purchase money mortgage to a third-party lender. At the closing, the buyers also executed a small mortgage in favor of the seller. The lender asserted that this small mortgage was intended to be a second mortgage, subordinate to its purchase money mortgage. The buyers defaulted under the lender’s mortgage, and the lender accelerated the loan. It then sued to foreclose on its first mortgage. The seller was named as a defendant and the complaint asserted that the seller’s mortgage was subject to and subordinate to the mortgage held by the lender.

The complaint was not properly served on the seller, but the lender and the buyers resolved their dispute by agreeing to a re-payment plan. The buyers defaulted on that plan and filed for Chapter 11 bankruptcy. The lender obtained relief from the automatic stay. In an effort to serve the seller, the lender sent an address verification request to the local postmaster. It was returned, indicating that the seller had moved leaving no forwarding address. The lender then published a notice in the local newspaper and sent a notice of the complaint to the seller’s last known address. The lender succeeded with its foreclosure action and the property was listed for a sheriff’s sale.

On the night before the sheriff’s sale, the seller filed an order to show cause to stay the sale, asserting that its second mortgage had priority over the lender’s purchase money mortgage. The seller certified that he was never served nor had he ever received notice of the foreclosure action. He certified that he had moved since selling the property, but had remained at the same address thereafter. He also asserted that had he been served, he would have answered, and that if the lender’s inquiry had been appropriate, it would have learned where he resided. The lender argued that the seller’s mortgage was a “wild mortgage” because it was recorded outside of the chain of title. If true, it would be void against mortgagees who obtained their interest from the mortgagor after the mortgagor had acquired title to the land.

The Court held that the seller was never served or even notified about the suit. To validate service by publication, the Court has to be satisfied that the plaintiff’s inquiry was reasonable and diligent, otherwise a defendant’s rights to notice and procedural due process would be trampled. Therefore, because the Court was not satisfied that service was proper, it did not have to decide whether there was a meritorious defense. Although the Court was not certain that the seller’s claim actually had priority over the lender’s mortgage, if felt that such an issue needed to be addressed in a plenary hearing and not be resolved through a default judgment.

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