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U.S. Bank National Association v. Williams

415 N.J. Super. 358, 1 A.3d 857 (App. Div. 2010)

MORTGAGES; FORECLOSURES; MEDIATION — Where a borrower’s financial disclosures reveal an inability to satisfy a debt, even under a modified loan, a lender is not required to modify the loan through the judiciary’s foreclosure mediation program.

A borrower took advantage of a purchase-money mortgage loan to finance the purchase of his principal residence. Four years later, he refinanced this debt by executing a note that was secured by a mortgage on his residence. He also borrowed additional funds from the same lender that had arranged the refinancing to purchase an investment property. Both loans were assigned. The following year, the borrower defaulted on the residential loan.

The assignee-lender filed a complaint, seeking to foreclose the borrower’s interest in his principal residence. The borrower responded and the lower court entered a final judgment of foreclosure. It ordered a sheriff’s sale of the borrower’s residence. Over the following months, the parties attempted to negotiate an arrangement to allow the borrower to reinstate the mortgage obligation and avoid the forced sale of his residence. These efforts were unsuccessful, and the borrower exercised his statutory right to twice adjourn the date set for the sheriff’s sale. The borrower then filed an emergent motion in the lower court, seeking to stay the sheriff’s sale pending the parties’ participation in the judiciary’s newly implemented foreclosure mediation program. The Court granted the motion and stayed the sheriff’s sale. It ordered the parties to attend the mediation.

The borrower attended the mediation without the assistance of a housing counselor or attorney. He appeared without completing a worksheet or supplying supporting financial information. He was unable to prove that he could afford to satisfy the mortgage arrears payments in a modified lower interest loan. The borrower subsequently hired a housing counselor who assisted with preparing and submitting his proofs. The lender agreed to reconsider the borrower’s request to negotiate a loan modification and adjourned the sheriff’s sale again. The lender ultimately concluded the borrower could not satisfy the terms of the loan modification, and moved forward with a new date for a sheriff’s sale. The lower court denied the borrower’s motion for another stay. The lender purchased the property for $100.

Prior to the expiration of the ten day redemption period, the borrower filed an emergent motion seeking additional time to redeem the property. The court granted the motion, having heard the borrower testify that the lender had not reviewed his most recent proposal for a loan modification. The lender, after considering the borrower’s additional submissions, again denied his proposal for modification. It believed that the borrower could not satisfy the payments on a modified loan. The borrower filed another emergent motion to extend the redemption period, but the motion was denied. The borrower appealed, arguing that he was denied a meaningful opportunity to participate in the foreclosure mediation process because previously he had been unrepresented by a housing counselor or attorney.

On appeal, the Appellate Division affirmed the lower court’s use of discretion in denying the borrower’s request for a further extension to redeem. The Court explained the foreclosure mediation process was created in response to the mortgage foreclosure crisis, and that courts were directed to encourage mediation in all foreclosure cases whenever a homeowner files opposition in a foreclosure proceeding. In this matter, the lower court gave the borrower all necessary information and instructions regarding completion of the worksheet and a list of housing counselors and attorneys who could assist the borrower in the mediation. The Court said that although the borrower attended the mediation unassisted, he acquired effective assistance after the mediation from an able housing counselor and assembled his proofs for the lender’s review. The lender gave ample extensions to engage in negotiations with the borrower, even after the redemption period began. Unfortunately, the borrower’s financial disclosures revealed an inability to satisfy the debt, even under a modified loan. The Court concluded that the borrower was afforded all of the benefits the mediation program was designed to provide, and was not treated unfairly in this forum.

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