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First Union National Bank v. Penn Salem Marina, Inc.

A-4348-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

MORTGAGES; FORECLOSURES; DEFICIENCIES — A court only needs to make inquiry as to the fair value itself received at a foreclosure sale, if the lender, after purchasing the property at the foreclosure sale, seeks a deficiency judgment against the borrower or against any guarantor.

A marina company and its corporate president took out a loan secured by a note and mortgage. They defaulted on the loan and the bank sued and obtained a default judgment. Two years later, the bank filed a foreclosure action. This resulted in a judgment of a higher sum than the judgment on the note. The mortgagee appealed.

The Appellate Division affirmed the foreclosure action, but the Supreme Court reversed, holding that the judgments on the note and mortgage should be consistent with each other and remanded the case to the lower court to reconsider the amount of the foreclosure judgment.

Prior to the Supreme Court’s reversal of the Appellate Division’s decision, the bank purchased the property for nominal consideration at a sheriff’s sale. The sale notice was sent to the mortgagee’s attorney, but the mortgagee did not file a motion to stay the sale. There were no bidders other than the bank. After the sale, the marina filed a motion objecting to the confirmation of the sale and sought a stay of delivery of the sheriff’s deed. The lower court denied the marina’s motion and confirmed the sale.

After the Supreme Court remanded the matter to the lower court, the marina and its corporate officer filed a motion with the lower court to void the sale and to compel a new foreclosure sale, or in the alternative, compel the bank to pay them for the full value of the property. The lower court denied their motion. The lower court ruled that there was no legal basis for voiding a sale to an “arms length” purchaser. The marina and its corporate officer appealed.

The Appellate Division affirmed, noting that the lower court should have made inquiry as to the fair value of the sale only if the bank had chosen to seek a deficiency judgment against either the marina or any of the guarantors. Since the bank chose not to proceed with a deficiency action, the Court opined it was not necessary to have a “fair value” determination of the property.

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