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Herdelin v. Sherlock

A-4357-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

FORECLOSURES; MORTGAGES — Where a mortgagee delays a foreclosure sale, it cannot claim that it should have paid the judgment rate interest under the court rules instead of the higher default interest rate under its mortgage between the time a court issues a summary judgment and when the final judgment of foreclosure was issued.

Property owners executed a note and a mortgage with an interest rate of 11 percent. The note gave owners two extension options provided they paid an extension fee. They paid one year of interest in advance but made no payments thereafter. As a result, the lender instituted a foreclosure action. The borrower contested the action and also filed a complaint in United States District Court seeking to rescind the mortgage.

The lower court granted summary judgment to the lender but ordered that there would be no execution on a final judgment pending resolution of the federal action. After the federal case was dismissed, the lower court vacated its prior order and, approximately three and a half years later, a final foreclosure judgment was entered. The judgment included an award for an extension fee due under the option provision of the note and administrative expenses in connection thereof. The owners then filed a motion to vacate the judgment, claiming that the lender fraudulently misrepresented the amount due by purposely delaying entry of final judgment so that the very high contract rate of interest could continue to accumulate on the outstanding note. The Court denied the owners’ motion, holding they had been attempting to delay the matter from the beginning. The owners also claimed that the lender fraudulently obtained the extension and administrative fees by unlawfully exercising the extension option. The Court denied that motion as well, claiming there was insufficient proof of fraud. The owners appealed.

The Appellate Division agreed with the lower court that the facts did not establish that the lender unreasonably delayed the matter in order to collect interest at 11 percent instead of at the judgment rate interest. Instead, it found that the lender acted promptly, and that the owners contributed to the delay. As to the extension and administrative fees, it also agreed with the lower court that the facts did not establish fraudulent conduct on the part of the lender. However, it disagreed with the lower court’s determination that the facts did not establish a misrepresentation or other misconduct by the lender. The note clearly stated that only the owners had the right to exercise the option to extend, which did not occur here. Once the owners’ defaulted, the option was no longer available. Accordingly, the lender was not entitled to an award for extension or administrative fees related to the extension. Thus, the order denying the motion to vacate the final judgment of foreclosure was reversed, the sheriff’s sale was set aside, and the matter was remanded for entry of an amended judgment consistent with this opinion.


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