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Champion Mortgage Co., Inc. v. Estate of Mary Wright

A-2132-00T3 (N.J. Super. App. Div. 2002) (Unpublished)

FORECLOSURE; UNDISCLOSED LIENS— Even though a lien may be subordinate to the interest being foreclosed, the plain statutory language permits a successful bidder to be relieved of its bid if the lien was not disclosed in connection with the foreclosure sale.

A woman borrowed money by placing a mortgage on her property. She died almost four years later, leaving the property to her son. The estate defaulted on the mortgage payments and the lender obtained a final foreclosure judgment. It delivered a writ of execution to the County Sheriff. A third-party successfully bid for purchased the property at the foreclosure sale and posted a deposit with the sheriff. The terms of the sale required the bid to be paid within thirty days or objection to be served within ten days after the sale “or any time thereafter before the delivery of the conveyance.” The successful bidder did not complete the transaction within thirty days and waited almost three months to demand return of its deposit. In that demand, it alleged that after the sale it discovered “a pre-existing [child support] judgment lien with a balance of $50,000.00, a pre-existing mortgage lien with a balance due of $9,000.00 and taxes of at least $1,300.00 for a total of $60,300.00 in prior liens.” The lender’s Affidavit of Consideration stated that there were “no prior mortgages or liens.” Further, no parties were named in the space provided in the form to list “all mortgagees and other holders of encumbrances ... to which such sale shall be subject.” The lender responded by claiming that the prior mortgage had been fully satisfied even though it was “open of record.” It also supplied evidence that it had disclosed the property’s tax situation to auction sale bidders. Lastly, the lender questioned whether the child support judgment was a lien against the mortgagor’s heir. Further, the lender pointed out that the son had no interest in the property before his mother died and thus, if the judgment were against him, it was subordinate to the mortgage. The lower court denied the successful bidder’s motion and directed it to purchase the property. The successful bidder moved for reconsideration, arguing that the probation department had not been made a party to the foreclosure action and therefore the lien was not foreclosed, resulting in a “cloud upon the title.” The lower court rejected that argument holding that the lien clearly was subordinate to the mortgage. After all of this happened, the lender filed a strict foreclosure complaint against the State of New Jersey and the United States of America to eliminate the possible child support judgment and possible outstanding inheritance and other taxes due to the mortgagor’s death. It argued that the omissions were “through inadvertence.” That action was successful. On appeal, the Court only dealt with the alleged child support judgment. It disagreed that the judgment was not a lien on the property because it was subordinate to the mortgage. It pointed out that a judgment docketed in the Superior Court, “by operation of law automatically becomes a lien on all judgment debtor land throughout the State, without the need for any execution or levy by the judgment creditor.” Such a judgment, however, does not become a lien until the debtor takes title to the property. Here, the mortgagor left the property to her son. Title to real estate “vests in the heir at law immediately upon the death of the ancestor, and at the same instant the lien of a judgment against such an heir attaches to his interest in the land.” A child support order has the same force and effect as entry as the docketing of a judgment. On the other hand, it didn’t matter that the child support judgment was entered in 1992, before the 1994 mortgage. As to the property in question, it did not become a lien until 1998 when the mother died. As to the bidder’s position with respect to this dispute, a 1906 statute provides that a successful bidder can revoke the bid “if, before delivery of the deed, he shall satisfy the court by whose authority such sale was made of the existence of any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable, or of the existence of any lien or encumbrance thereon.” Such a claimed defect, however, does not exist if a reasonable description of the lien was inserted in the notices and advertisements surrounding the sale. Effectively, this statute shifts “the burden of unearthing the existence and approximate amount of superior liens from bidders to the selling mortgagee.” No prior published case had dealt with a judgment or mortgage that was subordinate to the foreclosing mortgage, but omitted in the foreclosure action. Arguably, such subordinate liens are not “substantial” defects or clouds on an “unmarketable” title even if they remain a lien on the property. On the other hand, the plain language statute allows a bidder to relieved of its bid because of an undisclosed “lien or encumbrance.” There is no requirement that the encumbrance be “substantial” or render the “title unmarketable.” All that is required is that it “be present and undisclosed by the foreclosing mortgagee.” Thus, if the actual child support judgment pertained to the son, the bidder was entitled to relief from its bid. If it was not against this particular son, the successful bidder would be required to complete its purchase, subject only to the lender providing proof that the prior mortgage had been paid and discharged of record.

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