OCWEN LOAN SERVICES. LLC v. MARLA WUEBBENS QUINN
A-2668-14T1
| N.J. Super. Ct. App. Div. | Jul 10, 2017Background
- In 2004 Louisa and David Wuebbens conveyed Little Falls property to their daughter Marla but retained life estates and agreed to pay taxes, maintain the property, and keep insurance.
- In 2005 Marla (with husband Thomas) and the parents executed a $260,000 mortgage in favor of IndyMac (2005 mortgage); Louisa and David signed and thus subordinated their life estates to that mortgage.
- In 2007 Marla refinanced with a $380,000 IndyMac mortgage (2007 mortgage) signed only by Marla; title commitment for the 2007 loan failed to disclose the recorded life estates so Louisa and David did not execute the new mortgage.
- Proceeds of the 2007 loan paid off the 2005 mortgage and a $60,000 second mortgage, leaving the 2007 mortgage as the sole lien; IndyMac later assigned the loan and Ocwen became plaintiff.
- IndyMac/Ocwen sued to foreclose; it sought equitable subrogation/replacement priority for the 2007 mortgage to the extent it paid off the 2005 mortgage and to recover taxes/insurance advances.
- Chancery Division granted plaintiff partial summary judgment: treated the 2007 mortgage as taking the 2005 mortgage's priority up to $260,000 (the amount of the 2005 mortgage), preserved defendants' priority for the excess, and allowed recovery of $43,019.85 in taxes/insurance; defendants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a refinance that pays off a prior mortgage can take the prior mortgage's priority against intervening interests (life estates) | Ocwen: equitable subrogation/replacement permits the 2007 mortgage to step into the 2005 mortgage's priority because proceeds paid off the 2005 mortgage and there is no prejudice to defendants | Louisa & David: their life estates were not parties to/refinanced into the 2007 mortgage and cannot be subordinated without their signatures; life estate is a prior property interest not subject to subrogation | Court: affirmed — replacement/subrogation applies; 2007 mortgage takes 2005 priority up to $260,000 because defendants were parties to and had subordinated their life estates to the 2005 mortgage and suffered no material prejudice |
| Whether defendants are entitled to a hearing on the validity of the 2005 mortgage | Ocwen: 2005 mortgage was valid and plaintiffs were entitled to subrogation; no further hearing necessary | Defendants: trial court should have held a hearing to test validity of the 2005 mortgage before subordinating life estates | Court: affirmed denial — no abuse of discretion; no procedural or substantive defect shown in the 2005 mortgage |
| Whether the new mortgage's entire amount should be given priority, including amounts exceeding the old mortgage payoff | Ocwen: seeks full priority for amounts used to pay off prior liens and advances | Defendants: excess portion of the 2007 loan (beyond the 2005 payoff) should not have priority over life estates | Court: affirmed cap — priority limited to the amount of the discharged 2005 mortgage ($260,000); excess remains subject to defendants' life estates |
| Whether taxes and insurance advances are recoverable and subordinate to defendants' life estates | Ocwen: advances made under mortgage terms are recoverable and take priority under the mortgage lien | Defendants: their life estates should remain free from these lender advances | Court: affirmed — allowed recovery of advances ($43,019.85) as subordinate to the mortgage lien up to the capped priority amount |
Key Cases Cited
- Sovereign Bank v. Gillis, 432 N.J. Super. 36 (App. Div. 2013) (adopts Third Restatement approach of replacement and evaluates "material prejudice" to intervening lienors)
- Equity Sav. & Loan Ass'n v. Chicago Title Ins. Co., 190 N.J. Super. 340 (App. Div. 1983) (equitable subrogation permits new lender to assume priority of discharged lien absent prejudice)
- First Union Nat'l Bank v. Nelkin, 354 N.J. Super. 557 (App. Div. 2002) (explains equitable subrogation elements and relevance of lender knowledge)
- Feigenbaum v. Guaracini, 402 N.J. Super. 7 (App. Div. 2008) (equitable subrogation is discretionary and applied only when justice requires it)