Skip to main content



HSBC Bank USA, National Association v. Gouda

A-1983-09T2 (N.J. Super. App. Div. 2010) (Unpublished)

NOTES — While New Jersey prohibits an undertaking or instruction to do an act in addition to the payment of money in order to satisfy a promissory note, requiring a borrower to first notify its lender that the borrower wishes to prepay part of the principal does not constitute such an additional undertaking or instruction because it is a benefit, not a burden, and is not a condition placed on the promise to pay.

An investor bought a home and later refinanced the property through a broker. Then, it sought a second mortgage from the same broker, but the broker supposedly persuaded the borrower to refinance the entire loan instead. Refinancing was offered at an 8% interest rate. Two days before closing, however, the broker informed the investor that such a loan was not available. Instead, it offered an adjustable rate loan with an initial interest rate of 9.9%. According to the investor, the broker represented that the investor could refinance again within three months and get a conventional loan at an interest rate of 8% or less. The investor agreed, and took the mortgage loan. The more favorable refinance terms never materialized, and the mortgage was later assigned to a bank.

The investor defaulted and the bank elected to call the entire principal balance due. It filed a foreclosure action and the borrower answered by contesting the foreclosure action and asserting statutory claims under the Truth in Lending Act and the New Jersey Consumer Fraud Act, as well based on common law fraud, deceit, inducement, and misrepresentation. Specifically, the investor asserted that the actual terms of the loan were not disclosed in the executed documents, since they were to be given a loan at 8% and not 9.9%. Also, it claimed it never received executed copies of the documents relating to the note and mortgage except for two signed HUD-1 forms.

The lower court heard arguments and granted the bank’s motion for summary judgment, struck the investor’s answer, and entered judgment. A sheriff’s sale was stayed pending appeal.

On appeal, the investor argued that the note was non-negotiable because it imposed an obligation on the borrower to notify the lender if pre-payment was made, and that this was in violation of New Jersey law. While New Jersey law prohibits an undertaking or instruction to do an act in addition to the payment of money, the Court found that the right of the borrower to prepay part of the principal did not constitute an additional undertaking or instruction; rather, the right of prepayment was a voluntary option that the borrower was free to exercise solely at its discretion. The right was a benefit, not a burden, and was not a condition placed on the promise to pay.

The investor next argued that the bank was not a holder in due course because it knew, or should have known, of defects and irregularities in the mortgage closing documents at the time of assignment. Specifically, it challenged the bank’s good faith because a few days before closing, the terms of the note changed from a conventional loan with an 8% interest rate to a adjustable rate loan with an initial interest rate of 9.9%. However, the Court found that suspicious circumstances, without more, do not implicate a note holder’s good faith.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com