Customers Bank v. Reitnour Inv. Props., LP, 181 A.3d 1038

Background

Customers Bank (plaintiff) held a $600,000 second mortgage (2008 Loan) on Stone Harbor property owned by Reitnour Investment Properties, LP (RI Properties); Phillip Reitnour guaranteed multiple related loans and controlled affiliated entities.
Parties entered a September 16, 2013 forbearance (cross-collateralization clause) and, on December 11, 2014, a settlement requiring a $500,000 payment by December 31, 2014 and a standstill by the bank on foreclosure actions.
Despite receipt of the $500,000, the bank sought and obtained a default final foreclosure judgment on December 31, 2014 for the 2008 Loan (approx. $585,764.74 including fees), without amending within the 20-day Rule 4:49-2 window.
In August 2015 an affiliated entity (RI Group) delivered checks totaling funds intended to pay off loans; the bank deposited/escrowed them and asserted discretion to apply funds among debts.
The Chancery Division held (Sept–Oct 2016) that (1) the bank could not amend the foreclosure judgment to include aggregate indebtedness, (2) the deposited payment satisfied the foreclosure judgment, and (3) the bank must refund an overpayment of $28,976.13 to RI Properties; the bank appealed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether bank could enforce cross-collateralization/dragnet clause by amending foreclosure judgment to include aggregate indebtedness	Cross-collateralization merged into settlement and permits aggregation of all loan balances into foreclosure judgment	Settlement/foreclosure judgment and merger doctrine preclude expanding judgment beyond amount sought/entered	Denied: merger doctrine extinguished mortgage rights; bank time-barred under R.4:49-2 and judgment could not be amended to include aggregate debt
Effect of bank obtaining foreclosure judgment despite standstill in settlement	Bank argues settlement did not prevent entry or did not change rights under mortgage/note	Defendants: bank breached settlement by obtaining judgment while standstill in effect; judgment merged bank's rights	Court: bank materially breached settlement; judgment merged former contractual rights; defendants entitled to enforcement consistent with judgment
Whether depositing checks with memo "payoff" constituted acceptance and satisfied foreclosure judgment	Bank contends it retained discretion to apply funds and did not accept as full satisfaction	Defendants: memo and deposit by bank show bank accepted payment in satisfaction of 2008 Loan/judgment	Held: depositing and retaining funds imputed acceptance; the designated payoff satisfied the foreclosure judgment; overpayment refundable to RI Properties
Who could redeem and whether RI Group could redeem on behalf of RI Properties/Reitnour	Bank contests equitable redemption by third party lacking direct mortgagor interest	Defendants: RI Group (via affiliation and Reitnour's control) effected redemption; Reitnour had redemption interest	Court: did not need to decide RI Group's independent right to redeem given bank acceptance; Reitnour/affiliates had sufficient connection and redemption right preserved

Key Cases Cited

U.S. Bank v. Curcio, 444 N.J. Super. 94 (App. Div. 2016) (foreclosure is an equitable remedy governed by equitable principles)
Flagg v. Essex Cty. Prosecutor, 171 N.J. 561 (N.J. 2002) (standard for abuse of discretion)
Gonzalez v. Wilshire Credit Corp., 207 N.J. 557 (N.J. 2011) (final judgment extinguishes the loan; merger doctrine)
In re Roach, 824 F.2d 1370 (3d Cir. 1987) (mortgage merges into final foreclosure judgment; post-judgment rights fixed by judgment)
Zeller v. Markson Rosenthal & Co., 299 N.J. Super. 461 (App. Div. 1997) (depositing a check marked as full satisfaction can bind creditor)
Hardyston Nat'l Bank v. Tartamella, 56 N.J. 508 (N.J. 1970) (mortgagor's absolute right to redeem)
Carteret Sav. & Loan Ass'n v. Davis, 105 N.J. 344 (N.J. 1987) (redemption right persists until the sheriff's sale confirmation period ends)