First Trust National Assoc. v. Merola

319 N.J. Super. 44, 724 A.2d 858 (App. Div. 1999)
  • Opinion Date: March 4, 1999

FORECLOSURE; BIDDERS—The successful bidder at a foreclosure sale has no duty to a second mortgagee that fails to appear at the sale through its own error, even if the successful bidder is aware of the absent party’s desire to bid at the sale, and such a sale will not be set aside.

The single and narrow question raised by this appeal was whether a second mortgagee with notice of a foreclosure sale is entitled to set aside the mortgage foreclosure sale because it failed to appear at the sale due to its admitted error. The Chancery Division thought so, but the Appellate Division reversed.

The mortgage foreclosure sale was initially scheduled for a given date. The holder of the second mortgage received notice of the initial sale. It retained the services of a company to bid up to, but not to exceed, a certain amount to protect its second mortgage interest and provided its agent with a check representing a twenty percent deposit on its highest authorized bid. The initial sale was postponed and the mortgagee and its agent were aware of the postponement. On the new date, the agent appeared at the sale, but it was again postponed. Again, when the new date came, the agent appeared, but was advised that the sale had been stayed by a bankruptcy court order. When the automatic stay was lifted, the mortgagee received notice of the rescheduled sale, but failed to notify its agent. At the sale that finally took place, a successful buyer, aware of the previous attempts by the second mortgagee to bid at the sale, nonetheless successfully purchased the property. Asserting the facts, the second mortgagee contended that equitable principles required the court to set aside the foreclosure sale. It argued that, but for a clerical error, it would have appeared at the sale and would have bid on the property in a sum in excess of any bid by the eventually successful purchaser. It also argued that it had filed its motion to vacate the sale within ten (10) days after the sale and prior to the successful bidder’s payment of the balance of the purchase price as well as prior to the issuance of the Sheriff’s deed. Lastly, it claimed that the successful bidder would reap a windfall because the property was worth substantially more than the bid.

Unquestionably, the Chancery Division has the authority to set aside a Sheriff’s sale and order a resale of property. However, the exercise of this power is discretionary and must be based on considerations of equity and justice. Inadequacy of price is not sufficient alone to justify equitable relief. Although the successful bidder was aware of the second mortgagee’s interest in the property, the Appellate Division only viewed that knowledge of the property’s status as prudent. The bidder had no responsibility to communicate with the second mortgagee prior to the sale to assure its presence. The bidder did not mislead the second mortgagee or cause it not to attend the foreclosure sale. Instead, the second mortgagee’s failure to attend the foreclosure sale was the result of its own culpable negligence. The successful bidder, as a stranger to the foreclosure proceeding, did not have any greater duty than a first mortgagee who is not obligated to protect the interests of a junior mortgagee. The first mortgagee fully complied with all notice requirements. The second mortgagee was given adequate and timely notice. The sale was conducted without any irregularity. The integrity of the process, designed as it is to secure the highest and best price in cash then obtainable for the property, demands that a sale so conducted shall be vacated only when necessary to correct a plain injustice. The Appellate Division did not believe that such an injustice existed under this set of facts.