RIVER EDGE SAVINGS & LOAN ASSOC. v. CLUBHOUSE ASSOCIATES, INC.RIVER EDGE SAVINGS & LOAN ASSOC. v. CLUBHOUSE ASSOCIATES, INC.
- Reporters:
- ,
- Before:
- Bischoff, Milmed, Francis (per curiam)
This is an appeal from a deficiency judgment following a mortgage foreclosure. The issue presented is whether this action was barred by
In June 1974 Holidаy Lake, Inc. (Holiday) and its principal, Henry E. Wulster, gave a bond and mortgage to plaintiff covering two condominium units which were part of a larger development. In September 1976 a bank not involved in the instant matter began an action to foreclosе a mortgage on other condominium units and related properties owned by Holiday. Plaintiff filed a separate foreclosure action in December 1976 and defaults were entered against all defendants named in that action in May 1977. Thereafter, however, plaintiff was prevented from proceeding with its action by orders entered in the unrelated foreclosure action and in bankruptcy proceedings filed by Holiday.
On April 10, 1978 defendant Clubhouse, which had not been a party to any of the preceding litigation, agreed to buy substantially all of the assets of Holiday. As part of the purchase price defendant agreed to assume the mortgage held by the plaintiff and to hold Holiday harmless from any deficiency thereon. The transaction was conditioned upon obtaining approvals of the sale and financing provisions from the courts in which the bankruptcy proceeding and the foreclosure action not brought by plaintiff were then pending. After those approvals had been given plaintiff movеd to vacate the stays which had been entered against its own foreclosure action. Although defendant was not a party to any of the litigation, it received notice of plaintiff‘s motions.
About two months before the deed was executed the orders staying plaintiff‘s foreclosure action were vacated. Defendant received copies of the orders vacating the stays. A final judgment foreclosing all equity of redemption in the mortgage held by plaintiff was entered on November 27, 1978. On thе following day, November 28, 1978, the deed conveying Holiday‘s assets to defendant was recorded. The condominium units covered by plaintiff‘s mortgage were sold to plaintiff at a sheriff‘s sale for $100 each. Plaintiff filed this deficiency action, asserting a right to enforсe the bond and mortgage against defendant, and also asserting that it was a third-party beneficiary of the assumption agreement between defendant and Holiday.
At the end of plaintiff‘s case defendant moved to dismiss the complaint, based on
The trial judge also determined the amount of the credit defendant was entitled to for the fair market value of the premises at the time of the sheriff‘s sale, and the amount of the resulting deficiency to which plaintiff was entitled. Those amounts are not contested on this appeal.
No action to enforce an agreement, express or implied, to assume the payment of any mortgage or of any bond secured by a mortgage, shall be maintained against a person making such agreement unlеss the mortgage shall have been first foreclosed, or extinguished by the foreclosure of a prior mortgage or a lien, provided no such action may be maintained unless:
(a) the person making such agreement was made a party defendant in the foreclosure action,
....
There are no reported decisions applying this statute. But a related statute,
The central requirement of both statutes, that a separate foreclosure action must precede a deficiency judgment, was first adopted as part of the Mortgage Act of 1880, as amended in 1881. Montclair Savings Bank v. Sylvester, 122 N.J. Eq. 518, 521 (E. & A. 1937); Pennsylvania Co. for Ins. etc., v. Marcus, 89 N.J.L. 633, 635-636 (E. & A. 1916). In 1932 the Legislature added the requirement that no deficiency action may be instituted “against any party answerable on the bond unless such party is joined in the proceedings to foreclose the mortgage.” L. 1932, c. 231. In Lapp v. Belvedere, 116 N.J.L. 563, 569 (E. & A. 1936), the court commented on the purрose of this joinder requirement:
... The evident legislative purpose was to afford to the person liable upon the bond, through notice of the proceedings instituted to foreclose the collateral mortgage, timely opportunity to invoke measures for self-protection, particularly in relation to the sale of the security, upon which deficiency liability depends. Manifestly, it was a measure deemed necessary in view of the almost complete paralysis of the real estatе market consequent upon the current trade depression. It was essentially procedural in character. It did not impair the substantial means of enforcement in existence when the contract was made.
See, also, Klorman v. Westcliff Co., Inc., 12 N.J. Misc. 266, 271, 170 A. 251 (Sup.Ct. 1934); Vanderbilt v. S.W. Holding Co., 112 N.J. Eq. 584, 585 (Ch. 1933).
... Under the old practice, where the mortgagor was a proper but not a necessary party to the foreclosure suit, even though a deficiency action was in contemplation, the foreclosure decree did not, as regards the quantum of the mortgage debt, have this conclusive character... But now, by the amendment of section 2 of the act of 1880, supra, ... no action on the underlying obligation lies against one not made a party to the foreclosure proceedings and the decree is still res judicata in respect of the quantum of the mortgage debt.... [122 N.J. Eq. at 522-523; citations omitted]
Since the decision in Montclair the 1947 Constitution has been adоpted unifying our law and equity courts, and reflecting this State‘s commitment to the single controversy doctrine. Leisure Technology v. Klingbeil, 137 N.J. Super. 353, 357 (App. Div. 1975). This doctrine requires that all claims between parties be presented in a single proceeding in order to avoid the prolongation and fractionalization of litigation. Tevis v. Tevis, 79 N.J. 422, 434 (1979); Falcone v. Middlesex Cty. Medical Soc., 47 N.J. 92, 93-94 (1966). Clearly, the required joinder in a foreclosure action of a party to be charged in a deficiency suit fosters this policy. Conversely, the omission of such a party would tend to frustrate the policy by permitting an obligor to raise issues in a deficiency proceeding which would otherwise have been determined in the foreclosure action.
In Ledden v. Ehnes, 22 N.J. 501 (1956), a mortgagor was never properly served in a foreclosure action. Although the mortgagor had actual knowledge of the fоreclosure sale, he had no knowledge of the deficiency judgment entered against him until a levy was made 18 years later. The court held that while the mortgagor was barred by equitable doctrines from attacking the foreclosure judgment, the same disability did not apply to his attack on the deficiency judgment because the latter had always been invalid:
... The statute [ N.J.S.A. 2A:50-2 ] is positive in its terms and no amount of interpretation can read in anything other than a clear expression of a procedural mandate. Since Ledden had not “been made a party in the proceeding [action] to foreclose the mortgage” the statute says “no action shall be instituted.” The action leading to the deficiency judgment was improper at the time it was taken and is now out of time. [22 N.J. at 509]
We think that the conclusion in Ledden is equally applicable in the instant case.
Despite the rather plain language that
Plaintiff argues that
In the present case plaintiff knew of defendant‘s interest in the property and, in fact, relied on defendant‘s assumption of the mortgage, yet plaintiff took no action to join defendant in the foreclosure action. It is true that defendant could have acted more vigorously to protect its interest. But
Plaintiff argues that to permit defendant to benefit from
We have also considered plaintiff‘s arguments that it was entitled to enforce defendant‘s assumption of the mortgage debt as a third-party beneficiary of the agreement between defendant
The judgment is reversed and the matter is remanded for the entry of a judgment dismissing the complaint.