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

383 N.J. Super. 562, 893 A.2d 1 (App. Div. 2006)

MORTGAGES; FORECLOSURE ; RES JUDICATA—A suit to collect monies due under a promissory note is not similar to a mortgage foreclosure action, therefore the amount determined to be owed in a later foreclosure action is not fixed by the res judicata doctrine based on the earlier collection action.

A borrower executed a promissory note, secured by a mortgage on commercial property. When the borrower defaulted, the lender filed a complaint in the Law Division seeking the balance due on the note. A final judgment by default was entered against the borrower. While the Law Division case was proceeding, the lender filed a foreclosure action in the Chancery Division and the borrower filed an answer and counterclaim. That court granted the lender’s motion for summary judgment, dismissing the answer and counterclaim and remanding the complaint to the Office of Foreclosure of the Administrative Office of the Courts to proceed as an uncontested matter. The lender then moved for a final judgment of foreclosure. In its motion, the lender included a certification as to the amount due. The amount listed in the certification included tax and insurance obligations and prepayment fees not requested in the Law Division case. Therefore, the amount requested exceeded the amount of the money judgment entered against the borrower.

The borrower claimed that the earlier Law Division judgment operated as res judicata to fix the amount owed by the borrower to the lender, and that the lender could not receive a foreclosure judgment in an amount greater than the amount of the Law Division judgment. The lower court disagreed and the borrower appealed, but Appellate Division affirmed. The doctrines of res judicata and collateral estoppel stop a party from re-litigating claims and issues to prevent harassment of the parties. In order to determine whether two causes of action are the same, one must examine the similarity of the complaints, the demand for relief, the theory of recovery, and the material facts. The Court found that a suit to collect monies due under a promissory note is not similar to a mortgage foreclosure action, and therefore, res judicata does not apply. A promissory note is an obligation to pay a debt and a lawsuit to collect affects the individual borrower, not the collateral. By contrast, a mortgage foreclosure suit only gives the lender the right to collect the money due from the land subject to the lien. The Court noted that, after a foreclosure judgment is obtained, a lender may file a deficiency suit if the amount recovered under the foreclosure is less than the amount due under the promissory note. The Court also rejected the borrower’s claim that, since at the time the Law Division suit was filed it could have sought reimbursement of the additional fees, it waived the right to seek them later in the foreclosure suit. It noted that the note and mortgage specifically provided that the lender could choose to enforce its remedies at any time, in any order, and the failure to seek a remedy at one time did not constitute a waiver of its right to seek that remedy later.


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