Luppino v. Mizrahi

326 N.J. Super. 182, 740 A.2d 1111 (App. Div. 1999)
  • Opinion Date: November 23, 1999

MORTGAGES; FORECLOSURE; RECEIVERS; ENTIRE CONTROVERSY DOCTRINE—A landlord need not raise a rent claim against its tenant in a foreclosure matter and a rent receiver is not entitled to the rents owed prior to its appointment.

A landlord filed suit against a former tenant, alleging that it failed to pay rent from October, 1995 through May, 1996. The landlord, however, was in significant financial difficulty and in September, 1995 it filed a voluntary petition of a bankruptcy. The trustee in the bankruptcy then abandoned any claim to the premises. This allowed a prior foreclosure action to continue. A rent receiver was appointed in May, 1996 in that action. The lower court concluded that the landlord’s complaint was barred under the entire controversy doctrine because it failed to raise the issue of the outstanding rent within the foreclosure action where the landlord, the mortgagee, and the tenant were all parties. The Appellate Division disagreed because foreclosure actions do not permit the assertion of non-germane counterclaims and cross-claims unless the party demonstrates good cause and obtains leave of court. In its view, “[i]f routine disputes between landlord and tenant over balances due for rent were permitted to be raised in foreclosure actions, it would only serve to delay the appropriate disposition of those matters.” The tenant also alleged that once a rent receiver was appointed, the landlord was prohibited from making a claim for any rent that might have been owed. Although some jurisdictions have reflected dissatisfaction with the principle that the authority of a rent receiver to collect rent runs only from the date of the receiver’s appointment and that rents that accrue prior to the receiver’s appointment belong to the mortgagor (landlord), the Appellate Division held that this was not an appropriate case within which to consider the continued viability of that principle. As to the tenant’s argument that once the landlord filed for bankruptcy, the trustee, and not the bankrupt landlord, was entitled to rent or income generated from the asset, the Appellate Division agreed that the landlord’s complaint should have been dismissed. The tenant also counterclaimed for return of its security deposit. With respect to this issue, the rent receiver and the tenant had entered into a stipulation of settlement in the rent collection suit by the receiver. Here, the Court held that the tenant should have raised the security issue when it settled the dispute with the rent receiver. Because the tenant did not do so, the entire controversy doctrine counterclaim for return of its security deposit was denied.