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Capital Finance Company of Delaware Valley, Inc. v. Asterbadi

398 N.J. Super. 299, 942 A.2d 21

CO-TENANTS; ACCOUNTING; MORTGAGEE — A co-tenant, even one who acquires its interest by foreclosure of its borrower’s interest in the property, must reimburse a co-tenant in possession for a proportionate share of operating and maintenance expenses, taxes, insurance, repair costs, and the principal and interest payment on purchase money mortgages.

A husband and wife purchased a single family house that was subject to a foreclosure action filed by a second mortgagee. The property was already subject to a first mortgage. The husband and wife then took out a mortgage to pay off the original first mortgage and to pay the balance of the purchase price to the sheriff. In the interim, a finance company obtained a judgment against the husband. The sheriff advertised the husband’s interest in the property for sale as part of the judgment execution, and the finance company purchased the husband’s interest in the property subject to the wife’s ownership interest and the open mortgages. The company notified the wife that it had acquired her husband’s interest in the property and filed a complaint for partition, requesting sale of the property, an accounting, and the appointment of a rent receiver. The lower court held that the husband and wife purchased the property as tenants by the entirety, but that after the husband’s interest was sold at sheriff’s sale, the wife and the finance company became tenants-in-common with rights of survivorship. It ordered the wife to provide an accounting with respect to her possession of the property, directed both of them to establish a fair rental value for the property, and ordered the finance company to account to the wife for its share of taxes, assessments, and insurance.

With respect to the mortgages, the lower court concluded that the finance company had to account to the wife for its share of the second mortgage, but not the first mortgage. It found that the husband and wife paid for the house in cash and they cashed out on the equity by taking out the mortgage. The lower court found it fundamentally unfair to require the finance company to repay the loan when the loan proceeds were owned by the husband and wife. With respect to the second mortgage, it found the finance company responsible for its share of that mortgage. The wife appealed and the Appellate Division reversed.

With respect to the first mortgage, the Court found that the lower court mistakenly presumed that the first mortgage loan taken out to buy the house was a cash-out mortgage and not a purchase money mortgage. It also found that the lower court failed to consider evidence that would have supported the wife’s contention that the loan proceeds were used to preserve the property. Having concluded that the first mortgage was not a cash-out of the equity, the Court then analyzed whether the finance company had to account to the wife for its portion of the mortgage payments for that loan. The Court noted that when a court denies partition to a creditor who acquires the property interest of a debtor-spouse, the creditor is entitled to an accounting. The wife, who was living in the house, was entitled to an accounting from the ousted co-tenant (in this case, the finance company) for its pro rata share of the operating and maintenance expenses, including taxes, insurance, mortgage payments, and repairs. However, since the finance company was an ousted co-tenant not entitled to possession or use of the property, the finance company was entitled to recover the reasonable rental value of its share of the property from its co-tenant, the wife. Here, the Court concluded that the finance company was responsible for paying its share of the mortgage payments, taxes, and maintenance expenses to the wife, but that it was entitled to a credit for one-half of the rental value of the property.

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