Lexology-
On July 13, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision, ruling that a deceased homeowner’s family (defendants) had provided sufficient evidence to show that a division of a national bank (lender) had knowingly engaged in predatory lending practices when it approved a fraudulent mortgage application in violation of the New Jersey Consumer Fraud Act (Act). According to the opinion, in 2007 when the now deceased homeowner purchased a house, the lender may have been complicit in creating and approving a fraudulent loan application that, among other things, stated falsely that (i) the homeowner was a small business owner with a monthly income of $30,000 rather than $1,500, and (ii) the down payment came from the homeowner, when it supposedly came from a second mortgage offered to him from the same lender.
[LEXOLOGY]
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0249-16T2
THE BANK OF NEW YORK MELLON
f/k/a THE BANK OF NEW YORK,
AS TRUSTEE FOR THE
CERTIFICATEHOLDERS OF THE
CWALT, INC., ALTERNATIVE
LOAN TRUST 2007-24 MORTGAGE
PASS-THROUGH CERTIFICATES,
SERVICES 2007-24,
Plaintiff-Respondent,
v.
JOHN KINGSBURY, his heirs,
devisees and personal
representatives and his, her, or
any of their successors in right,
title, and interest; GLENN MICHAEL
KINGSBURY; MRS. GLENN MICHAEL
KINGSBURY, his wife; MRS. JOHN
KINGSBURY, his wife; SUSAN E.
KINGSBURY, n/k/a SUSAN E. DANSON,
Defendants-Appellants,
and
STATE OF NEW JERSEY; UNITED STATES
OF AMERICA,
Defendants.
____________________________________________
Argued May 1, 2018 – Decided July 13, 2018
Before Judges Hoffman and Mitterhoff.
On appeal from Superior Court New Jersey,
Chancery Division, Ocean County, Docket No.
F-012351-15.
Mark G. Schwartz argued the cause for
appellants (Cooper Levenson, PA, attorneys;
Howard E. Drucks and Jennifer B. Swift, on the
briefs).
Eugene R. Mariano argued the cause for
respondent (Parker McCay, PA, attorneys;
Eugene R. Mariano, of counsel and on the
brief).
PER CURIAM
In this mortgage foreclosure action, defendant Glenn
Kingsbury1 appeals from an August 5, 2016 final judgment entered
by the Chancery Division, following the court's grant of summary
judgment in favor of plaintiff, The Bank of New York Mellon, on
April 29, 2016.2 On appeal, defendant challenges the trial court's
1 On February 5, 2012, the mortgagor, John Kingsbury (decedent),
passed away. On June 22, 2012, the Atlantic County Surrogate
issued Letters Testamentary to defendant, decedent's son,
confirming his appointment and qualification as executor of his
father's estate. For ease of reference, we refer to John Kingsbury
as decedent and his son, Glenn Kingsbury, as defendant.
2
The notice of appeal refers only to the August 5, 2016 final
judgment. However, defendant's Appellate Division Civil Case
Information Statement identifies the underlying summary judgment
order as the order he seeks to appeal. Both parties have fully
briefed the court's decision granting summary judgment. In the
interest of justice, we deem the appeal properly taken from the
summary judgment order.
2 A-0249-16T2
rejection of his claim that decedent was the victim of predatory
lending, in violation of the New Jersey Consumer Fraud Act (CFA),
N.J.S.A. 56:8-1 to -210. For the following reasons, we reverse
and remand.
I
On March 20, 2007, decedent, then seventy-two years old,
executed a Real Estate Contract (Contract) for the purchase of a
beachfront home in Beach Haven. The Contract provided for a sale
price of $1,775,000, a deposit of $1000, an additional deposit of
$126,500 within ten days of the signing of the Contract, and a
contingency of buyer obtaining a mortgage of $1,597,500. The
Contract did not reference a second mortgage.
The record indicates the closing for the purchase took place
on June 8, 2007. On that date, decedent executed an Interest Only
Fixed Rate Note (Note) in favor of Countrywide Home Loans, Inc.
(Countrywide) for $1,420,000, along with a corresponding mortgage.
The Note provided for a thirty-year term, with monthly payments
of $9319 for the first 120 months and $11,767 thereafter. Decedent
also executed a Uniform Residential Loan Application (Loan
Application) on the same day. The Loan Application states decedent
was the self-employed owner of Cheer Tech for ten years and two
months and had a monthly income of $30,000, composed of a base
income of $25,000 and a pension of $5000. It further listed a
3 A-0249-16T2
contract sales price of $1,775,000, subordinate financing of
$177,500, earnest money of $177,500, and a loan amount of
$1,420,000. Also on June 8, 2007, decedent executed a HUD-1
Uniform Settlement Statement, which listed earnest money of
$177,500, a principal loan amount of $1,420,000, and a second
mortgage of $177,050.
Plaintiff's file regarding decedent's loan contained two
additional documents. First was an April 30, 2007 letter decedent
allegedly wrote "to explain inquiries on my credit report";
apparently, "[d]ue to the size of the mortgage," decedent had
contacted other lenders. Decedent also allegedly wrote, "I am
retired," but "bought into the business Cheer Tech in 1997 . . . ."
Second was a May 14, 2007 letter from an employee of H&R Block
stating, decedent "has filed as owner of Cheer Tech . . . since
1997. I have been preparing his taxes for the last twelve years."
On September 1, 2010, decedent stopped making the monthly
mortgage payments, constituting a default that he never cured. On
June 1, 2011, Mortgage Electronic Registration Systems, Inc., as
nominee for Countrywide, assigned the mortgage to plaintiff. As
noted, decedent passed away on February 5, 2012. A title search
4 A-0249-16T2
revealed a second mortgage for $177,5003 in favor of Countrywide
that was discharged on September 26, 2012.
On August 22, 2014, plaintiff sent a notice of intent to
foreclose to decedent's estate. Plaintiff filed an amended
foreclosure complaint on June 30, 2015 against decedent's estate
and heirs. Defendant answered on September 9, 2015, alleging the
CFA barred plaintiff's claims due to Countrywide's fraudulent
actions, including material misrepresentation of decedent's income
on the loan application.
On February 18, 2016, plaintiff filed a motion for summary
judgment. On April 27, 2016, defendant filed opposition to
plaintiff's motion, arguing the court should hold plaintiff
responsible for Countrywide's fraudulent actions in issuing the
loan. Defendant also asserted plaintiff frustrated his right to
conduct meaningful discovery.
On April 29, 2016, the trial court heard oral argument on
plaintiff's motion for summary judgment. The court initially
noted that plaintiff is not a holder in due course because the
assignment of the note and mortgage to plaintiff occurred after
the loan went into default; as a result, plaintiff is "subject to
3
We assume this second mortgage represents the same second
mortgage reflected on the settlement sheet, which lists a second
mortgage of $177,050. This discrepancy constitutes another issue
for the parties to address when they complete discovery.
5 A-0249-16T2
the defenses that are relevant." Plaintiff's counsel did not
dispute this point. Defendant requested further discovery and
argued Countrywide defrauded decedent. Plaintiff argued it met
the standard for summary judgment because decedent signed all of
the loan documents and defendant failed to establish fraud or
other wrongful conduct by Countrywide.
The motion court found plaintiff established a prima facie
right to foreclose, concluding defendant failed to raise any
genuine issues of material fact. The court specifically found
defendant's fraud claim "untenable." The court also noted the
statute of limitations barred defendant from asserting a fraud
claim. Furthermore, the court found decedent's failure to raise
a fraud claim at the time of the transaction, and the loan payments
he made for the next three years, ratified the note and mortgage.
The court further found the opposing certification of defendant
"unpersuasive," dismissing it as "clearly hearsay and
speculation." The court then granted plaintiff's motion,
concluding defendant had "not met [his] burden for opposing . . .
summary judgment . . . ."
On appeal, defendant argues the motion court erred in failing
to allow discovery, and in denying "the right to seek equitable
remedies." We agree.
6 A-0249-16T2
II
We review a grant of summary judgment de novo, applying the
same standard as the trial court. Henry v. N.J. Dep't of Human
Servs.,
204 N.J. 320, 330 (2010). Summary judgment must be granted
if "the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact challenged
and that the moving party is entitled to a judgment or order as a
matter of law." R. 4:46-2(c). Without making credibility
determinations, the court considers the evidence "in the light
most favorable to the non-moving party" and determines whether it
would be "sufficient to permit a rational factfinder to resolve
the alleged disputed issue in favor of the non-moving party."
Brill v. Guardian Life Ins. Co. of Am.,
142 N.J. 520, 540 (1995).
The CFA authorizes a suit by "[a]ny person who suffers any
ascertainable loss of moneys or property, real or personal, as a
result of the use or employment by another person of any method,
act, or practice declared unlawful under this act . . . ."
N.J.S.A. 56:8-19. Thus, "[t]o prevail on a CFA claim, a plaintiff
must establish three elements: '1) unlawful conduct by defendant;
2) an ascertainable loss by plaintiff; and 3) a causal relationship
between the unlawful conduct and the ascertainable loss.'" Zaman
7 A-0249-16T2
v. Felton,
219 N.J. 199, 222 (2014) (quoting Bosland v. Warnock
Dodge, Inc.,
197 N.J. 543, 557 (2009)).
The CFA defines an "unlawful practice" as "any unconscionable
commercial practice, deception, fraud, false pretense, false
promise, misrepresentation, or the knowing, concealment,
suppression, or omission of any material fact with intent that
others rely upon such concealment, suppression or omission, in
connection with the sale or advertisement of any merchandise or
real estate . . . ."
N.J.S.A. 56:8-2. An "unconscionable
commercial practice" suggests a standard of conduct lacking in
"good faith, honesty in fact and observance of fair dealing." Cox
v. Sears Roebuck & Co.,
138 N.J. 2, 18 (1994) (quoting Kugler v.
Romain,
58 N.J. 522, 544 (1971)).
Predatory lending may constitute unconscionable commercial
practice under the CFA. See Assocs. Home Equity Servs., Inc. v.
Troup,
343 N.J. Super. 254, 278-79 (App. Div. 2001). Predatory
lending is:
a mismatch between the needs and capacity of
the borrower . . . . In essence, the loan
does not fit the borrower, either because the
borrower's underlying needs for the loan are
not being met or the terms of the loan are so
disadvantageous to that particular borrower
that there is little likelihood that the
borrower has the capability to repay the loan.
8 A-0249-16T2
[Nowosleska v. Steele,
400 N.J. Super. 297,
305 (App. Div. 2008) (alteration in original)
(quoting Troup,
343 N.J. Super. at 267).]
Here, whether decedent's loan application contained material
false information, and if so, Countrywide's complicity in creating
and approving such a fraudulent application, constitute material
facts in dispute. Defendant contends: decedent never owned or
worked for Cheer Tech, rather defendant owns the business;
decedent's monthly income at the time of loan origination was
approximately $1500, not $30,000; the April 30, 2007 letter
regarding decedent's credit report contains a forged signature;4
and H&R Block never filed Cheer Tech's tax returns. Defendant
submitted a certification attesting to those facts. Viewed in the
light most favorable to defendant, those facts clearly establish
a material dispute as to whether Countrywide engaged in unlawful
conduct proscribed by the CFA. See Brill,
142 N.J. at 540. We
discern no basis for the motion court's rejection of defendant's
certification as "clearly hearsay and speculation."
Furthermore, defendant contends Countrywide misrepresented
decedent as providing earnest money, when the money actually came
from a second mortgage from Countrywide; inexplicably, this
4
The signature on the April 30, 2007 letter does appear
substantially different from the signature on the Note, the
mortgage, the Loan Application, and the Settlement Statement.
9 A-0249-16T2
mortgage was discharged shortly after decedent's death. We also
question whether the loan application decedent allegedly signed
on the date of settlement was the same application he signed when
he applied for the loan. The application signed on the date of
closing listed as an asset his "DOWNPAYMENT" of $177,500, but did
not list any liabilities, except for an unpaid credit card balance
of $29. Since Countrywide provided almost the entire amount of
the down payment via a second mortgage, it obviously knew the
application submitted to decedent at closing contained material
false information. Allowing defendant to complete discovery
should yield a full explanation of the facts and circumstances
surrounding the second mortgage, its discharge, and the degree of
Countrywide's involvement in the creation or submission of
falsified documents.
Accordingly, we find the trial court erred when it determined
the record showed no material facts in dispute regarding
Countrywide's conduct and whether it engaged in an unlawful
practice in violation of the CFA. We therefore reverse the grant
of summary judgment and remand to allow the parties to complete
discovery. Because the court entered its final judgment based
upon the order granting summary judgment, we also vacate the final
judgment.
10 A-0249-16T2
III
The trial court also found the statute of limitations bars
defendant's CFA defense. However, we find the doctrine of
equitable recoupment saves the defense.
We agree the statute of limitations bars defendant from
pursuing an action under the CFA. The statute of limitations for
the CFA is six years.
N.J.S.A. 2A:14-1; Trinity Church v. Lawson-
Bell,
394 N.J. Super. 159, 170 (App. Div. 2007) (citing Mirra v.
Holland Am. Line,
331 N.J. Super. 86, 90-91 (App. Div. 2000)).
Decedent signed the note and mortgage on June 8, 2007. Assuming
decedent knew of the fraud at that time, the statute of limitations
began to run. Defendant asserted a claim of fraud in his answer
to plaintiff's complaint on September 9, 2015, more than eight
years after the loan origination. However, defendant asserted the
claim as a defense, not as a counterclaim. The doctrine of
equitable recoupment permits a defendant to assert an otherwise
stale claim and avoid the statute of limitations, where the
defendant uses the claim as a shield instead of a sword. Nester
v. O'Donnell,
301 N.J. Super. 198, 208 (App. Div. 1997) (citing
Midlantic Nat'l Bank v. Georgian Ltd.,
233 N.J. Super. 621, 625
(Law Div. 1989)).
A defendant may raise an equitable recoupment defense in
order to reduce the plaintiff's recovery in a foreclosure action
11 A-0249-16T2
when the defendant claims fraud arising from the loan origination.
Troup,
343 N.J. Super. at 271 (citing Beneficial Fin. Co. of Atl.
City v. Swaggerty,
86 N.J. 602, 611 (1981)). "[J]udges invented
the doctrine of equitable recoupment in order to avoid an unusually
harsh or egregious result from a strict application of a statute
of limitations." Ibid. (quoting Georgian Ltd.,
233 N.J. Super.
at 625-26). Therefore, "the defense of recoupment 'is never barred
by the statute of limitations so long as the main action itself
is timely.'" Ibid. (quoting Nester,
301 N.J. Super. at 208).
Here, plaintiff argues the statute of limitations bars
defendant's CFA defense. However, a strict application of the
statute of limitations on the CFA defense would result in a gross
injustice if Countrywide engaged in unlawful practices to defraud
decedent during the loan process. We note the equitable recoupment
defense does not invalidate the debt; it merely reduces the amount
of plaintiff's recovery. Id. at 272. While plaintiff may still
be entitled to foreclose, equitable recoupment may limit the
recovery to the amount of the foreclosure sale and preclude any
deficiency judgment against defendant. We remand to the trial
court to allow the parties to complete discovery and determine an
equitable result.
Reversed, vacated, and remanded. We do not retain
jurisdiction.
12 A-0249-16T2
© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.
