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Llewellyn-Edison Savings Bank v. Sussman

A-4167-99T1 (N.J. Super. App. Div. 2001) (Unpublished)

FORECLOSURE—Even though a foreclosing mortgagee does not receive cash at the sheriff’s sale when it is the successful bidder, it must give the mortgagor credit for the amount of its bid.

Spirited bidding at a foreclosure sale resulted in a mortgagee purchasing the property for $200,000 at a time when it was owed about $225,000. It then obtained a judgment against the guarantor for the entire $225,000. Seven years later, the mortgagor and the guarantor sought a fair value hearing to show that, at the time of the foreclosure sale, the property was worth more than the amount owed to the mortgagee. In the interim, appraisal records had been lost and the property itself was destroyed in a fire. The lower court rejected the request for a fair value hearing, based upon “the lapse of time in making the motion and the absence of compelling equities.” The Appellate Division upheld that ruling. The lower court also ordered that the mortgagee give a credit for the $200,000. In doing so, it rejected the mortgagee’s argument that it had not received “cash” at the foreclosure sale, but instead had received the property. The Court could find no support for “this rather formalistic approach,” holding that the mortgagee’s position ignored “the fact that the Bank deliberately chose to place the winning bid, presumably because it believed the property was worth at least $200,000.” A mortgage merges into a foreclosure judgment, but the final judgment in foreclosure does not extinguish the indebtedness of the mortgagor through merger except as to the amount realized at the foreclosure sale. In essence, a mortgagee has the option of first foreclosing and then suing for a deficiency, which amount is determined solely by the difference between the foreclosure sale price and debt, or, in the alternative, the mortgagee might sue for the full amount due on the note, levy on the mortgaged property in execution of the judgment, and seek satisfaction of the mortgagor’s other assets for the difference between the amount realized in the execution sale and the judgment. The personal liability of a mortgagor is extinguished by foreclosure only to the extent of the proceeds of sale, and a mortgagor remains liable for the unsatisfied balance. Here, the mortgagor, an individual, was entitled to the credit.

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