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EMC Mortgage Corporation v. Chaudhri

400 N.J. Super. 126, 946 A.2d 578 (App. Div. 2008)

FORECLOSURE; ASSIGNEES; NOTICES — Under the Fair Foreclosure Act, the only notice needed to be sent to a borrower is that set forth in the Act and there is no obligation for an assignee of the mortgage to provide actual notice of the recorded assignment to the borrower prior to filing a foreclosure action.

A husband and wife, purchasers of a house, took out a mortgage loan secured by a first mortgage on their new house. The original lender assigned its mortgage interest to another lender, and the assignment of mortgage was recorded in the county recording office. The homeowners defaulted on their mortgage loan, and the new lender filed a foreclosure complaint. The new lender then filed for bankruptcy protection and a third lender purchased the mortgage interest. This newest lender also received an assignment of mortgage, which it did not record. The lower court dismissed the foreclosure complaint, because the third lender failed to record the assignment of mortgage and because the lender failed to prove that it sent a required notice of assignment to the homeowners. After the complaint was dismissed, the third lender submitted the assignment of mortgage for recording. Around the same time, the homeowners filed a motion to discharge the lis pendens and the mortgage based on the court’s dismissal of the foreclosure complaint. Their motion was unopposed, and the lower court entered an order discharging the mortgage. The homeowners then sold their house, now unencumbered by a mortgage, to their daughter, who took out a purchase money mortgage with a different lender.

When the third lender discovered that its mortgage had been discharged, it filed an application to have the discharge vacated. The lower court vacated the discharge of the mortgage and of the lis pendens and reinstated the original mortgage’s first lien priority. The lower court found that the third lender was unaware of the sale of the house or the new mortgage. The lender then amended its foreclosure suit to include the daughter and her mortgage lender. The daughter’s lender filed a counterclaim seeking to have its lien declared superior. It also filed suit against the original homeowners and their daughter for damages in the event that its mortgage was declared inferior to the other mortgage. The lower court found that the daughter’s lender’s mortgage had priority over the other mortgage and that daughter and her lender properly relied on the discharge of mortgage. The lower court also found that the foreclosing lender failed to give proper notice of the assignment of the mortgage as required by the Fair Foreclosure Act.

The foreclosing lender appealed, arguing that the lower court erroneously held it to a notice standard not required by the Fair Foreclosure Act. The lower court had ruled that, based on the circumstances, the lender should have provided the notice of foreclosure by means of personal service, and that service of the notice by certified and first class mail was insufficient in this situation. The Court found that the Fair Foreclosure Act does not always provide for enhanced forms of notice and that the lower court had no authority to impute a greater notice requirement on the lender. The lender’s mailing of the notice of foreclosure by certified and first class mail met the requirements. The Court also rejected the lower court’s finding that the lender was obligated to send the homeowners actual notice of the assignment of mortgage. It found that, by statute, the recording of the assignment itself served as notice to “any concerned party” of the existence of the assignment and that no additional notice was required. Lastly, the Court rejected the daughter’s lender’s claim that it was an innocent lender. It found that there were factual issues as to whether the daughter’s lender was aware, or should have been aware, of title issues related to the discharge of mortgage prior to lending the money and recording its mortgage.


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