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Westmark Commercial Mortgage Fund, IV v. Teenform Associates, L.P.

A-531-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

FORECLOSURE; ACCOUNTINGS—A mortgagor is not entitled to an accounting after foreclosure when the mortgagee bids a nominal amount and does not seek a deficiency judgment even if the debt was secured by multiple properties and the published foreclosure notice didn’t reveal that fact.

A borrower defaulted on its loans. There was one note secured by three separate mortgages. A foreclosure judgment affecting all three properties was obtained. A county sheriff published a notice of sale for one of the properties. It set forth the judgment balance, but did not state that the loan had been secured by the other two other properties. The mortgagee was the only bidder, bought the property for a nominal price, and then resold the property for $2,500,000. The mortgagor thought the property had a fair market value of $2,600,000. Therefore, it applied to the Chancery Division for a fair market value hearing and sought a stay of foreclosure sales of the other two properties. The stay was granted pending a decision in the Chancery Division.

After a hearing, the lower court denied the application on the ground that it failed to meet the requirements for a stay. Based on prior case law, the lower court held that a mortgagor does not have a right to an accounting when its mortgagee bids a nominal amount and does not seek a deficiency judgment against the mortgagor. The only basis for such relief is where there is an irregularity in the sale. Here, the only unusual fact was that the note was secured by three properties, not one. This was not enough to overturn the sale. Consequently, the Appellate Division upheld the lower court.

The original mortgagors argued that the lower court erred in denying their request to determine the fair market value of the property sold in the foreclosure, contending that the foreclosure judgment should have been reduced by its fair market value. They also argued that they were entitled to a fair market value hearing as alleged guarantors of the note.

The Court found significant the lower court’s conclusion that there was no entitlement to a fair market value hearing because no deficiency action had been filed. It also found it significant that there was no personal liability on the note and there was no liability to any of the original mortgagors as guarantors. Further, neither the mortgagor nor the guarantors took any action while the foreclosure action proceeded, nor did they attend the sheriff’s sale or bid on the property. As a result, the Court agreed with the lower court that there was no need for a fair market value hearing since there was neither an actual nor a potential deficiency claim against the original mortgagors despite the way the original mortgage agreements were structured.

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