The limitations period described in subsection (a) of N.J.S.A. 2A:50-56.1 is unambiguously defined as six years from “the maturity date set forth in the mortgage or the note.

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ANIM INVESTMENT COMPANY v SHALOUB | NJSC – the court finds that Plaintiff is now time-barred from filing a foreclosure complaint and from obtaining a final judgment of foreclosure

ANIM INVESTMENT COMPANY v  SHALOUB | NJSC – the court finds that Plaintiff is now time-barred from filing a foreclosure complaint and from obtaining a final judgment of foreclosure

SUPERIOR COURT OF NEW JERSEY
CHANCERY DIVISION: BERGEN COUNTY
DOCKET No. F-30508-15

ANIM INVESTMENT COMPANY,
Plaintiff,

vs.

GEORGE SHALOUB and KATHLEEN
SHALOUB, et al.,

Defendants.

In the foreclosure action brought before this court, Defendants filed a Motion to Dismiss
Plaintiff’s Complaint with Prejudice on February 9, 2016, asserting that
the statute of limitations for the Plaintiff to commence the within foreclosure action has expired.
Plaintiff filed an opposition on March 4, 2016, and a Cross-Motion for Summary Judgment on
June 15, 2016.

Due to the relative recency of the enactment of the statute of limitations addressing
mortgage foreclosures in this State, there is little guidance presently available regarding analysis
of a litigant’s application to dismiss a Complaint based on a statute of limitation defense. After
extensively reviewing the existing case law and statutes, and giving due consideration to each
party’s arguments and submissions, the court finds that Plaintiff is now time-barred from filing a
foreclosure complaint and from obtaining a final judgment of foreclosure.

The following material facts are undisputed by both parties:

1. Defendants George Shalhoub and Kathleen Shalhoub borrowed $178,100 from Mina
Investment Company and on September 19, 1990, signed a Note.
2. That same day, Defendants George Shalhoub and Kathleen Shalhoub executed a
Mortgage in favor of MERS, as nominee for Mina Investment Company, covering
premises at 522 Cleveland Ave., River Vale, NJ. This Mortgage was recorded.
3. This Mortgage was assigned to Anim Investment Company, by assignment dated October
14, 1997.
4. Defendants defaulted on November 1, 1990 and remains in default.
5. Notice of Intention in form complying with the requirements of the statute was sent by
plaintiff’s servicer on February 12, 2015 (more than 30 days prior to the commencement
of suit).
6. Suit was commenced on September 2, 2015.
7. Defendant’s motion for Summary Judgment was filed on February 9, 2016.

Initially, both parties agreed and set forth arguments based on the assumption that the
applicable statute of limitations for mortgage foreclosures is twenty (20) years. N.J.S.A. 2A:50-
56.1(c). Under N.J.S.A. 2A:50-56.1(c), an action to foreclose a residential mortgage cannot be
commenced after twenty years from the date on which the mortgagor defaulted. Based on that
assumption, Plaintiff argued that the date of default is the maturity date stated in the Mortgage,
October 1, 1995, and that the running of the statute of limitations pursuant to N.J.S.A. 2A:50-
56.1(c) commenced on the maturity date stated on the Mortgage, providing him until October 1,
2015, to file timely Complaint. Conversely, Defendants argued that the date of default is
November 1, 1990, the date Defendants failed to make their first monthly payment.

Accordingly, Defendants argued that the running of the twenty (20) year statute of limitations
commenced on November 21, 1990, twenty days after they failed to make their first monthly
payment, resulting in the expiration of statute of limitations on November 22, 2010. Plaintiff
filed the Complaint on August 31, 2015.1

Plaintiff argued that the twenty-year limitations period did not begin to run until the
maturity date, as the Mortgage contained a standard language that gives the option to the
mortgagee to declare a default and accelerate the principal balance: “the aforesaid principal sum,
together with interest and all arrearages of interest thereon shall, at the option of the said
Mortgagee, become and be due and payable immediately thereafter . . . .” (Ex. A to Defendants’
Motion) (emphasis added). Plaintiff asserted that the mortgage was never accelerated until the
maturity date. Defendants opposed Plaintiff’s argument by pointing to a Rider to the Mortgage
that that did not require the Plaintiff to send any separate notice to the Defendants accelerating
the principal, as acceleration under the Rider was automatic and self-actuating when the
Defendants started missing monthly payments: “There shall be an acceleration of the unpaid
principal balance in the event of any default under the Mortgage and the Note” (emphasis
added). (Ex. A to Defendants’ Motion, Rider to Mortgage at ¶ 8). Plaintiff argued that such
automatic acceleration was illegal under N.J.S.A. 2A:50-56(a) of the Fair Foreclosure Act, which
he argued prohibits an automatic acceleration, and which prohibits the acceleration of a
Mortgage prior to full compliance with the formal notice required by the statute.
After hearing oral argument on this issue, the court, unconvinced that the twenty year
statute of limitations set forth in subsection (c) applied, questioned which subsection of N.J.S.A.
2A:50-56.1 was in fact applicable, and whether the statute could be applied retroactively to a
Note and Mortgage executed in 1990, and a Complaint that was filed in 2015. As a result, the
court directed the parties to submit supplemental briefs and heard additional arguments as to
these issues.

The Fair Foreclosure Act was enacted in 1995 to protect residential mortgage debtors, in
furtherance of the public policy of this State that homeowners should be given every opportunity
to keep their homes. The Fair Foreclosure Act took effect on December 4, 1995, and applies to
actions commenced on or after December 4, 1995 (emphasis added). See First Am. Title Ins.
Co. v. Tilbury, DDS# 15-2-3840 (App. Div. 2003) (Fair Foreclosure Act did not apply to an
action commenced in 1987); Federal Nat’l Mortg. Ass’n v. Bracero, 297 N.J. Super. 105, 107
(Ch. Div. 1996).

Section 2A:50-56.1 of the Fair Foreclosure Act took effect on August 6, 2009, to codify
the New Jersey Appellate Division’s holding in Security National Partners v. Mahler, 336 N.J.
Super. 101, 104, 763 A.2d 804, 806 (App. Div. 2000), that a twenty (20) year limitations period
limits a mortgagee’s right to commence a foreclosure action, running from the date of the
debtor’s default. The statute does not state whether the effective date is measured against the
date of the mortgage, the default date, or the date of filing of the Complaint; the only authority
on this issue is that the parent Fair Foreclosure Act applies to actions commenced on or after
December 4, 1995. Prior to the enactment of N.J.S.A. 2A:50-56.1, New Jersey did not have a
statute of limitations addressing mortgage foreclosure actions, and courts applied a twenty year
limitations period based on the common law adverse possession period.

Defendants argue that N.J.S.A. 2A:50-56.1 applies retroactively to this case, as when the
legislature passed this statute, it was, for the first time, passing a statute of limitations that would
regulate the date by which a residential foreclosure complaint needed to be filed, and it sought to
address a problem that had not been addressed by legislation previously. The legislative intent of
retroactivity may thus be applied so as to make the statute workable or to give it the most
sensible interpretation. Defendants rely on Gibbons v. Gibbons, 86 N.J. 515 (1981), which dealt
with a statute addressing equitable distribution of marital assets. Defendants state that the court
in Gibbons looked to the situation in Rothman v. Rothman, 65 N.J. 219, 224 (1974), and found
itself “unable to believe that the legislature intended its grant of power to undertake an equitable
distribution of marital assets to apply solely to property acquired on or after the effective date of
the act.” Rothman, supra, 65 N.J. at 223-24. Similarly, Defendants argue this court should find
itself “unable to believe” that the law in question should be limited in its application to those
mortgages made, or to those mortgage defaults that occurred, only after the statute’s effective
date. If the court were to limit its application, Defendants argue there would be mortgages and
mortgage situations, such as the one in the case before the Court, for which there would be no
statute of limitations at all. Defendants also assert that in the absence of a clear expression of
legislative intent that the statute is to be applied prospectively, the court is to give due
consideration to the expectations of the parties. See Gibbons, supra, 86 N.J. at 523. Defendants
point out there is nothing before this court to suggest anything regarding the expectations of the
parties. Finally, the Defendants advance that the court in Gibbons applied the statute in question
retroactively as it also considered: “Another category of cases in which we have held that
statutes may be given retroactive application is that in which the statute is ameliorative or
curative.” Gibbons, supra, 86 N.J. at 523. Likewise, Defendants argue N.J.S.A. 2A:50-56.1 was

intended to be both ameliorative and curative, as previously there had been only uncertainty and
confusion as to statute of limitations relative to residential mortgage foreclosures.
To the extent that N.J.S.A. 2A:50-56.1 applies to this case only if given retroactive
application, this statute meets the criteria for retroactive application under Gibbons, Phillips v.
Curiale, 128 N.J. 608, 617, 608 A.2d 895 (1992), and In re D.C., 146 N.J. 50, 679 A.2d 634 (N.J.
1996). In New Jersey, a two-part test is used for determining whether a statute could be applied
retroactively:

The first part questions “whether the Legislature intended to give the statute retroactive
application.” The second part involves “whether retroactive application of that statute
will result in either an unconstitutional interference with ‘vested rights’ or a ‘manifest
injustice.’” In re D.C., supra, 146 N.J. 50 (quoting Phillips v. Curiale, 128 N.J. 608, 617,
608 A.2d 895 (1992)).

Elaborating on the two-part test, the court in In re D.C. specified:

In applying this test generally, there are three circumstances that will justify a retroactive
application of a statute: (1) where the Legislature has declared such an intent, either
explicitly or implicitly; (2) where the statute is curative; and (3) where the expectations of
the parties warrant retroactive application. 146 N.J. at 50-51; Gibbons, supra, at 522-23;
see Savarese v. New Jersey Auto. Full Ins. Underwriting Assoc., 235 N.J. Super. 298,
308, 562 A.2d 239 (1989) (finding an expressed intent to apply statute retroactively).

However, even if a statute is found to apply retroactively based on those factors, under
the second prong of the basic test, retroactive application must not “result in ‘manifest
injustice’ to a party adversely affected by such application.” Id. at 51; Gibbons, supra, 86
N.J. at 523.

The New Jersey Appellate Division’s holding in Security National Partners, which served
as the basis for enactment of N.J.S.A. 2A:50-56.1, provide some insight into the circumstances
surrounding mortgage foreclosures during that time:

This appeal involves an issue which one would expect to have been resolved decades–or
even a century–ago. It concerns the statute of limitations applicable to a mortgage
foreclosure and, while this opinion does not offer a vehicle to resolve all unsettled
questions concerning that issue, it does provide an opportunity to at least simplify and
perhaps provide some additional guidance concerning the applicable law. Security
National Partners, supra, 336 N.J. Super. at 103.

Although the legislature did not specify whether the statute should be applied
retroactively, N.J.S.A. 2A:50-56.1 is meant to be curative, and provide guidance on an issue that
was previously unaddressed. The Statement to Senate Number 250, a supplement to the Fair
Foreclosure Act, by New Jersey Assembly Financial Institutions and Insurance Committee, dated
October 6, 2008, provides insight into the legislature’s intent in codifying N.J.S.A. 2A:50-56.1.
Specifically, it states, “the bill is intended to address some of the problems caused by the
presence on the record of residential mortgages which have been paid or which are otherwise
enforceable.” It further states, “This bill would resolve the uncertainties surrounding this area of
law by providing a specific statute of limitations of 20 years from the date of the default by the
debtor.”

By any prospective or retroactive measure of effectiveness, N.J.S.A. 2A:50-56.1 applies
to the instant case. Plaintiff does not cite to any statute or case law to the contrary, offer any
reason why a retroactive application would result in manifest injustice, or submit why the
expectations of the Defendants do not warrant retroactive application. Critical to Plaintiff’s
position is that he argues N.J.S.A. 2A:50-56 of the Fair Foreclosure Act applies to this case,
while N.J.S.A. 2A:50-56.1 does not, seemingly based on the rationale that the latter was enacted
in 2009. Among other things, N.J.S.A. 2A:50-56 of the Fair Foreclosure Act requires all
foreclosing Plaintiffs to send Defendants a requisite Notice of Intent to Foreclose before filing a
Complaint. Both statutes supplement Chapter 50 of Title 2A of the New Jersey Statutes. No
explanation is provided as to why N.J.S.A. 2A:50-56 (effective December 4, 1995) is intended to
be binding on all mortgages, although it too, was enacted after when the Note and Mortgage
were executed, on September 19, 1990, other than stating that the statute is prospective in
operation. Plaintiff cannot argue that only one of the two supplementing statutes of the Fair
Foreclosure Act applies, when both were enacted after the Note and Mortgage were executed.
Thus, arguments against retroactive application of N.J.S.A. 2A:50-56.1 are unsupported and
contradictory.

Next, assuming N.J.S.A. 2A:50-56.1 can be applied retroactively to this case,
the statute of limitations relative to residential mortgage foreclosures provides:
An action to foreclose a residential mortgage shall not be commenced following the
earliest of:

a. Six years from the date fixed for the making of the last payment or the maturity date
set forth in the mortgage or the note, bond, or other obligation secured by the mortgage;
b. Thirty-six years from the date of recording of the mortgage, or, if the mortgage is not
recorded, 36 years from the date of execution, so long as the mortgage itself does not
provide for a period of repayment in excess of 30 years; or
c. Twenty years from the date on which the debtor defaulted, which default has not been
cured, as to any of the obligations or covenants contained in the mortgage or in the note,
bond, or other obligation secured by the mortgage.
[N.J.S.A. 2A:50-56.1.]

Under this statute, there are three triggering events which commence the running of the
statute of limitations period, after which a mortgage foreclosure action cannot be brought.
Whereas N.J.S.A. 2A:50-56.1(c) is triggered by nonpayment or default, N.J.S.A. 2A:50-56.1(a)
is triggered by the date fixed for making of the last payment or the maturity date. Here, the Note
and Mortgage states on its face: “[s]aid principal sum and the interest to be paid as follows:
$1,899.33 on the first day of November 1990, and a like sum on the first day of each and every
month thereafter, until the first day of October 1995, when the balance of the unpaid principal
and interest shall be due and payable.” (Ex. A to Defendants’ motion). It is undisputed that the
Defendants failed to make their first monthly payment.

Here, the mortgagors took out a five-year loan on September 19, 1990. The Note and
Mortgage specifies that the maturity date is October 1, 1995. Applying the plain language of the
limitations period described in subsection (a), an action to foreclose on the Mortgage is timely as
long as it is commenced no later than six years from October 1, 1995, the maturity date set forth
on the Note and Mortgage. Six years from the maturity date would provide Plaintiff until
October 1, 2001 to file a timely Complaint. See N.J.S.A. 2A:50-56.1(a). If the court were to
apply subsection (c), regardless of the date of default (October 1, 1995 or November 1, 1990),
the date by which Plaintiff may commence the foreclosure action is still subsequent to 2001. See
N.J.S.A. 2A:50-56.1(c). Thus, the earliest date triggered by the statue is October 1, 2001, six
years from the maturity date stated on the Note (emphasis added). It is immaterial what the date
of default is, as subsection (c) is not the applicable statute on this matter.

Plaintiff advances two arguments as to why subsection (a) of N.J.S.A. 2A:50-56.1 does
not apply to mortgage foreclosures: 1) the six year statute of limitations is consistent with
N.J.S.A. 12A:3-118(a) of the Uniform Commercial Code, which states a proceeding on the
underlying Note is governed by a six year statute of limitations which begins running from the
due date of the Note, subject to prior acceleration; and 2) subsection (c) is the applicable
subsection for mortgage foreclosures under Specialized Loan Servicing, LLC v. Washington,
2015 U.S. Dist. LEXIS 105794 (D.N.J. Aug 12, 2015).

Plaintiff first argues that because a foreclosure action is not a lawsuit on the Note,
N.J.S.A. 2A:50-56.1(a) is inapplicable. Plaintiff contends the legislature itself limited subsection
(a) of N.J.S.A. 2A:50-56.1 to lawsuits on the mortgage Note itself, for which he does not provide
authority. Contrary to Plaintiff’s argument, N.J.S.A. 2A:50-56.1(a) sets forth a six year statute
of limitations from the date of maturity. A foreclosure proceeding and its accompanying statute
of limitation is uniquely distinct and separate from a proceeding on the underlying Note under
N.J.S.A. 12A:3-118(a).

Elaborating on this issue, the court notes that the District Court in Hartman v. Wells
Fargo Bank, N.A. (In re Hartman), 2016 U.S. Dist. LEXIS 40470, (D.N.J. Mar. 28, 2016)
compared the difference between an action commenced on an obligation to pay and an action to
foreclose, finding:

[A]s noted by the Defendants, the statute’s silence with respect to the effect of
acceleration on the mortgage foreclosure limitations period is particularly significant
since New Jersey’s statute of limitations for negotiable instruments, N.J.S.A. 12A:3-
118(a), specifically addresses acceleration. N.J.S.A. § 12A:3-118(a) provides:
An action to enforce the obligation of a party to pay a note payable at a definite
time must be commenced within six years after the due date or dates stated in the
note or, if a due date is accelerated, within six years after the accelerated due date.
N.J.S.A. § 12A:3-118(a).

Thus, there is no doubt that the New Jersey legislature knows how to clearly draft a
statute that provides for the commencement of a statute of limitations from an accelerated
due date. The fact that the legislature did not include such language when it enacted
N.J.S.A. § 2A:50-56.1 is evidence that it did not intend for the six-year limitations period
to commence upon acceleration of a mortgage. Hartman v. Wells Fargo Bank, N.A. (In
re Hartman), 2016 U.S. Dist. LEXIS 40470, *10, 2016 WL 1183175 (D.N.J. Mar. 28,
2016).

Plaintiff’s argument would also be contrary to Security National Partners, which held that the
“claim that the foreclosure suit is governed by the same six-year statute of limitations [applying
to notes] is contrary to long settled case law and has no merit.” See Hartman, supra, at *15
(quoting Security National Partners, supra, 336 N.J. Super. at 104).
Second, Plaintiff relies on Specialized Loan Servicing, which he states is directly on
point. Plaintiff explains the District Court in that case held that a twenty (20) year statute of
limitations applied to plaintiff’s foreclosure action and that commencement date began to run on
the agreed maturity date.

The District Court in Specialized Loan Servicing addressed the issue of the term
“accelerated” in N.J.S.A. 2A:50-56.1(a), which was never clearly defined. 2015 U.S. Dist.
LEXIS 105794, at *12. The District Court found that neither the date of filing of the Complaint
nor the default date would constitute an acceleration of a mortgage. Id. at *14. To accept such an
interpretation would render N.J.S.A. 2A:50-56.1(c) “superfluous and insignificant,” and without
a functional purpose. Id. at *13. For those reasons, the District Court found that the maturity
date was not accelerated to the alleged dates of default or the date of the filing of the Complaint;
instead, the District Court held that the terms of the Note and Mortgage provided that the
Mortgage would mature on March 1, 2037, the date fixed for the making of the last payment. Id.
at *15. Additionally, Court opined that in that circumstance, the twenty year statute of limitations
promulgated under N.J.S.A. 2A:50-56.1(c) was the pertinent subsection to be applied in that
case, as it would trigger the earliest date under the statute. Id.

Based on the foregoing, Specialized Loan Servicing does not support Plaintiff’s
proposition that subsection (a) applies only to lawsuits for damages on the Note and 36 years or
20 years apply to the commencement of a foreclosure action in the Chancery Division. The
dispute between the parties in Specialized Loan Servicing concerned whether it was appropriate
to calculate the maturity date as accelerated for the purpose of applying the six year statute of
limitations under N.J.S.A. 2A:50-56.1(a), not whether subsection (a) is inapplicable to all
foreclosure actions. The case simply does not stand for the proposition that subsection (a) does
not apply at all to foreclosure matters. Further, Plaintiff offers no authority to evidence the
legislature’s intent that it limited section (a) to lawsuits on the Mortgage Note itself.

In Fed. Nat’l Mortg. v. Hartstein, the court recognized that “Since the creation of N.J.S.A.
2A:50-56.1, few cases have applied or interpreted the statute.” 2015 N.J. Super. Unpub. LEXIS
2198, *9 (Ch. Div. Sept. 14, 2015). The court cited to Garruto v. Cannici, in which the Appellate
Division affirmed the Superior Court’s decision to grant the defendant’s summary judgment
motion on the basis that plaintiff’s foreclosure action was barred by N.J.S.A. 2A:50-56.1. 2011
N.J. Super. Unpub. LEXIS 1436, 2011 WL 2409912 *1 (App. Div. June 6, 2011). In that case,
the defendant granted a purchase money mortgage to the Plaintiff on November 28, 1979. Id.
According to the terms of the Mortgage, the loan was to be paid in full on or before November
28, 1994. Id. at 2. The defendant argued that the six year statute of limitations under N.J.S.A.
2A:50-56.1(a) barred the plaintiff’s foreclosure action. The Appellate Division affirmed, finding
that under N.J.S.A. 2A:50-56.1(a), the plaintiff had until November 27, 2000, to commence the
foreclosure action, as the mortgage had reached its maturity date on November 28, 1994. Id. at 9.
The court further found that the plaintiff’s foreclosure action was barred under N.J.S.A. 2A:50-
56.1(c) because the defendant defaulted on August 10, 1984, and therefore, pursuant to N.J.S.A.
2A:50-56.1(c), the plaintiff had until September 9, 2004 to file the foreclosure complaint. Id.

The limitations period described in subsection (a) of N.J.S.A. 2A:50-56.1 is
unambiguously defined as six years from “the maturity date set forth in the mortgage or the
note.” The Court sees no reason why acceleration would change the commencement of the
limitations period from that date. Here, maturity date stated on the Note and Mortgage is
October 1, 1995. Applying the plain language of the limitations period described in subsection
(a), an action to foreclose on the Mortgage is timely as long as it is commenced no later than
October 1, 2001. See N.J.S.A. 2A:50-56.1(a). The Complaint was filed after the running of the
six year statute of limitations pursuant to N.J.S.A. 2A:50-56.1(a), and thus, is untimely. The date
of default is irrelevant.

The Supreme Court of New Jersey has noted that the purpose of a statute of limitations is
to ensure defendants a fair opportunity to defend against claims, to prevent parties from sitting
on their rights, and to promote repose. See Gantes v. Kason Corp., 145 N.J. 478, 486, 679 A.2d
106 (1996) (quoting Rivera v. Prudential Property & Casualty Ins. Co., 104 N.J. 32, 39, 514
A.2d 1296 (1986)).

The court finds that Plaintiffs are now time-barred from filing a foreclosure complaint
and from obtaining a final judgment of foreclosure. Defendants’ motion is granted, rendering
Plaintiff’s cross-motion moot. An order accompanies this decision.

1 Plaintiff contends that the Complaint was not filed sooner because this was a third lien on the property, and that there was not enough equity in the property to file a Complaint at an earlier date. The value of the property rose over the years, and all senior liens on the property have been satisfied.

 

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