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Sun National Bank v. Hypothecators Mortgage Company

F-10280-03 (N.J. Super. Ch. Div. 2004) (Unpublished)

FORECLOSURE; FRAUD—Inferior lien holders cannot bar a first mortgagee from otherwise properly foreclosing on its mortgage based on an allegation that the first mortgagee defrauded them and not the mortgagor.

A second mortgagee and a third mortgagee each objected to the grant of a judgment in foreclosure in favor of the first mortgagee. They each claimed that the first mortgagee had “made a material fraudulent or negligent misrepresentation of the status of its [own] loan” and that each “relied on said representation in making its loan to” the property owner. The Court rejected those arguments, pointing to a court rule that says “[a] mortgagee has a prima facie right to foreclose and declare default upon a showing of an execution, recordation, and non-payment of the mortgage.” They argued that there was case law to the effect that “an otherwise actionable default may not form the basis for a foreclosure action where it has been occasioned by the conduct on the mortgagee.” There is also case law that “when a mortgagor raises counterclaims against a mortgagee such as fraud, he is in fact raising ‘defenses’ as to that mortgagee’s right to foreclose.” The Court felt that neither situation was present in this case. In each of the other cases, the claims were raised by mortgagors, not by successive lenders as in the present case. Therefore, according to the Court, the first mortgagee had the absolute right to have its loan paid in full. If the subsequent lenders believed that the first mortgagee had defrauded them, they were entitled to bring a monetary claim, but the first mortgagee was “statutorily entitled to foreclose on [its] mortgage when [its right to foreclose] is unchallenged by the mortgagor.”

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