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Wallace v. Merchia

A-3744-03T1 (N.J. Super. App. Div. 2005) (Unpublished)

FORECLOSURE; DEFICIENCIES— A credible claim that a mortgagor had agreed to forgo pursuing a deficiency claim if its borrower didn’t contest the foreclosure is a viable defense to such a deficiency action and the failure of an appraiser to opine as to the value of the entire property deprives a court of the ability to determine the true deficiency.

Borrowers defaulted on a mortgage loan. Their lender filed a foreclosure action as well as a separate lawsuit to recover the amounts due and owing under the note. The borrowers did not respond to either action. The lender was awarded default judgments in both lawsuits. The lender then assigned its interest to another party. The assignee purchased the property at the foreclosure sale and proceeded to enforce the deficiency judgment by serving an information subpoena on the borrowers. When the borrowers did not respond, the assignee made a motion to compel the borrowers to respond. In its motion papers, the assignee never suggested that the borrowers were entitled to a fair market value credit for the value of the property, but did, for the first time, attach an appraisal of the property. At the hearing, the borrowers contended that they had an agreement with the lender whereby the lender would not seek a deficiency judgment if they did not contest the foreclosure action; that the fair market value of the property exceeded the amount of the debt; and that they needed time to retain a lawyer to represent them. The lower court rejected all of these arguments and granted the assignee’s motion for summary judgment. The borrowers then filed an order to show cause, which the lower court rejected without further filings or oral argument. The borrowers then appealed, and the Appellate Division reversed, noting that the borrowers had raised issue of material fact that precluded the entry of the deficiency judgment. First, the borrowers claimed that they had reached an agreement with the lender whereby they would not contest the foreclosure if the lender did not initiate a deficiency judgment. Second, the appraisal submitted by the assignee was deficient because the property consisted of two lots and the appraisal covered only one of the two lots. Without an appraisal on both lots, the lower court could not reasonably have determined the amount of the deficiency.

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