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Washington Mutual Bank, FA v. Webb

F-16303-05 (N.J. Super. Ch. Div. 2006) (Unpublished)

FORECLOSURE; MORTGAGES; ESTATES—After the death of a mortgagor, his or her heirs at law or devisees are necessary and proper parties in a foreclosure action and a judgment of foreclosure is not binding on them if they were omitted from the proceedings.

A mortgagee filed a foreclosure action against its borrower. But, the borrower had already died and its was the borrower’s decedent estate that had been making the payments until it defaulted on its obligations. The borrower’s decedent estate filed a contesting answer claiming that because the mortgagee had failed to serve a notice of intention of foreclosure under the Fair Foreclosure Act, the foreclosure action could not go forward. The foreclosing lender argued that this was a non-contesting answer and that the matter should proceed. Under New Jersey law, “[a] mortgagee has a prima facie right to foreclose and declare default upon a showing an execution, recordation, and non-payment of the mortgage. ... However, an otherwise actionable default may not form the basis for a foreclosure action where it has been occasioned by the conduct [of] the mortgagee.” A court rule allows “meritorious defenses that are germane to the foreclosure action. Meritorious defenses which courts have considered to be germane in foreclosure actions include payment and discharge, failure of consideration, incorrect computation of amounts due, fraud, mistake, waste, credit for rental value of the mortgaged premises, usury, unjust enrichment, setoff, recoupment, non-compliance with regulatory pre-requisites to foreclosure, and abatement of the mortgage debt. ... Defenses that courts have rejected as being non-germane to the action in the context of a foreclosure action include alleged breach by the mortgagee of a contract unrelated to the mortgage debt, the liability or non-liability of the mortgagee for any deficiency resulting from the foreclosure sale, and the assertion of personal defenses to a negotiable mortgage note.” Here, the Court found that the failure to include the beneficiary of the estate and the estate itself as parties to the foreclosure action was a fatal defect. It stated, “[i]t is a well-settled principle of law that title to realty vests in the heirs at law or devisees of [a] decedent upon his death. ... Heirs are ‘necessary and proper parties in a foreclosure action and a judgment of foreclosure is not binding on heirs omitted from the proceedings.” Therefore, it found that both the beneficiary and the estate itself had to be joined as parties to the foreclosure action “in order for the judgment of foreclosure to be binding.” On the other hand, these were not sufficient grounds to dismiss the complaint. Instead, previous case law taught the Court that the defect could be corrected by ordering the mortgagee to serve “a new notice of intention setting forth the information required” within a given period of time. The beneficiary and the estate itself, having appeared in the action, were joined to the action by the Court. Accordingly, the Court ordered that the mortgagee serve the proper notice within a given period of time and gave the beneficiary and the estate itself a period of time thereafter to state their intention to either reinstate the mortgage or file a contesting answer.

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