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GFS/Morristown Limited Partnership v. Vector Whippany Associates

A-5638-06T3 (N.J. Super. App. Div. 2009) (Unpublished)

MORTGAGES; FORECLOSURES — In circumstances where a mortgage far exceeds the fair market value of a property and the mortgagee, as the sole bidder, entered a nominal bid, it is not a reversible mistake that no announcement of the high upside price was made at the sheriff’s sale.

A commercial property, entirely leased to a single tenant, was in foreclosure. Its fair market value was far below the mortgage balance. The mortgagee purchased the property at the sheriff’s sale for $100.

The sale was confirmed by the Chancery Division, which ordered the sheriff to deliver a deed to the mortgagee. The property owner sought to vacate the foreclosure sale and the deed of conveyance because the mortgagee was the sole bidder. It also alleged that the sale price was unconscionably low. It ruled that it did not have jurisdiction to modify the previously entered foreclosure judgment absent a request by the Appellate Division. The lower court noted that the owner had not appealed the amount paid even though it was paid on notice that such an issue was appealable. Further, it held that there was no mistake, surprise, fraud or other interest of justice for the court to consider when deciding to overturn the foreclosure judgment.

The owner appealed, but the Appellate Division affirmed, holding that the lower court was correct in finding that it lacked jurisdiction to modify the original foreclosure amount absent a showing of mistake, fraud or other some interest of justice. It also noted that “mistake,” for the purposes of overturning a foreclosure determination and applying the relief-from-judgment rule, does not include trial error. According to the Court, to permit a review of possible trial errors would defeat the forty-five day time limitation for the filing of a notice of appeal. Further, the Court did not think it was appropriate, on the facts presented, to address the owner’s claim that the high upset price should have been announced at a sheriff’s sale or whether failing to do so drove away prospective bidders. In the instant case, the mortgage amount far exceeded the fair market value of the property. It ruled that it was “highly unlikely” any prospective bidder was going to bid on the property where the mortgagee was present at the sheriff’s sale and in a position to bid, because the only likely bidder was the mortgagee. As to the equitable relief sought, the Court noted that: (a) the foreclosed-upon loan was non-recourse; (b) the loan proceeds paid off all debts on the property; (c) the sale reimbursed the owner and all of its partners and limited partners for all of their investments in the premises and provided for a disbursement to the limited partners of a sum representing their equity in the property; (d) subsequent to the time the owner had leased the property, all taxes and all expenses were being paid by the tenant under a triple net lease; (e) the owner received management fees and profits from the cash flow of the mortgaged premises; and (f) the owner was able to take advantage of the tax benefits of depreciating the property. Finding that the mortgagee’s sole remedy was against the property itself, it ruled that equitable considerations did not warrant intervention by an appellate court.

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