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Luciani v. Hill Wallack

329 N.J. Super. 170, 746 A.2d 1097 (Ch. Div. 1999)

MORTGAGES; FORECLOSURE; ATTORNEYS’ FEES—Where a mortgage is reinstated during the pendency of a foreclosure action, the attorneys’ fees allowable by court rules are only a cap; the chargeable fees must still be reasonable.

Following a default by a homeowner on a mortgage and the underlying note, the lender instituted a foreclosure action. While the action was pending, the homeowner entered into an agreement to sell the premises and sought a pay-off figure from the lender through the lender’s attorney. In response, the homeowner received two separate letters, each with different figures. After asking for an explanation and an accounting, the homeowner was advised that the higher of the two figures represented an update of the amounts due. No accounting was supplied. In the court action that followed, the lender conceded that the higher figures were incorrect, but contended that the miscalculations were inconsequential since, once the payoff funds were received, it retained only the amount called for by its own accounting records. The original payoff figure included an attorney’s fees component. Although relatively little action had occurred on the foreclosure suit, and judgment had been entered, the attorney’s fees were computed the basis of the maximum percentages allowed under court rule. Based on the time actually expended, the fees would have amounted to about one-sixth of that amount. In a court action following the payoff, the consumer argued that the fees were excessive and should have been limited to the reasonable value of the services performed, with the formula in R. 4:42-9(a)(4) to be applied as a cap. The lender and its attorney argued that the full percentages outlined in the Rule were mandatory and that the actual time expended was not controlling. No Appellate Division court had ever ruled on this issue, and the lower court rulings that were cited stood only for the proposition that, in a mortgage foreclosure, the attorneys fees that may be included in a judgment are limited by the Rule. According to the Court, the underlying principle of those and other cases “is that although contractual provisions relating to an award of counsel fees are generally enforceable, if the fees being sought are part of an award in a mortgage foreclosure action, such provisions must be read within the restrictions imposed by ‘Court Rules.’” The Court, however, observed that such a recognition did not answer the question of whether a court has any discretion in this area. The lender’s attorney argued that the Rule states that “the allowance shall be calculated as follows ...” (emphasis ours). In response, the Court stated that even if use of the word “shall” was intended to make the full percentages contained in the Rule mandatory, the Rule, like all Court Rules, can be relaxed in the interest of justice and that this was an appropriate case in which to do so. The Court said, “it would clearly be inequitable to sanction a fee which is six times greater than the reasonable value of the time expended.” This would be particularly true when a homeowner, subject to foreclosure, has little or no bargaining strength. Further, the Court did not think that this lender’s reading of the rule was strictly correct. “Defendants interpretation of the word ‘shall’ as implying an imperative is not unreasonable but a fairer reading of the language suggests that the mandatory nature of the Rule relates to its upper limits.” Given the widespread and longstanding acceptance of the discretion that courts generally have regarding the amount of attorney’s fees, the Court felt that the likely intent of the rule was to set a cap, and not to be a mandate to charge the maximum, regardless of what is reasonable. Further, under the Fair Foreclosure Act, it is the public policy of New Jersey to give homeowners “every opportunity” to pay their home mortgages and thus keep their homes. Among these protections is a prohibition on lenders imposing on a debtor any charge, fee or penalty as a condition to curing the default. The prohibition does not preclude the inclusion of attorney fees but, under the Act, fees “shall not exceed the amount permitted under the Rules Governing the Courts of the State of New Jersey.” The implication is that the award may be for less than the rules allow.


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