Citicorp Mortg., Inc. v. Pessin
570 A.2d 481, 238 N.J.Super. 606 (1990)
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Rule of Law:
When a first mortgagee inadvertently omits a junior lienholder from a foreclosure action and subsequently purchases the property at the foreclosure sale, the first mortgagee may initiate a strict foreclosure action to compel the omitted junior lienholder to redeem the senior debt or be permanently foreclosed from their equity of redemption.
Facts:
- Glen A. Holcombe, Sr. owned property in Piscataway Township.
- On November 10, 1986, Holcombe executed a first bond and mortgage for $123,700 to Citicorp Mortgage, Inc.
- On the same date, Holcombe executed a second mortgage for $19,000 to Rudy Grillo, Sr., which was expressly subordinate to Citicorp's mortgage.
- Both the first and second mortgages were recorded on November 25, 1986.
- L. Steven Pessin witnessed Holcombe's signature on both mortgages and prepared Grillo's second mortgage.
- On September 18, 1987, Grillo assigned his second mortgage to Theresa Klein, Richard Hollander, and L. Steven Pessin for $10,500.
- Pessin witnessed Grillo's signature on the assignment and took the acknowledgment as an attorney.
- The assignment to Klein, Hollander, and Pessin was recorded in Middlesex County on October 16, 1987.
- Citicorp was unaware of the assignment of the second mortgage to Pessin, Klein, and Hollander when it purchased the property at the foreclosure sale.
- On December 6, 1988, Pessin informed Citicorp's attorneys that he and others were the assignees of the Grillo mortgage.
Procedural Posture:
- Citicorp filed a foreclosure action on October 19, 1987 (complaint dated Oct 13, 1987), naming the Holcombes and Rudy Grillo as defendants, but omitting the assignees of the second mortgage (Pessin, Klein, and Hollander).
- A notice of lis pendens was filed on November 6, 1987, under the caption of the foreclosure action.
- The foreclosure action proceeded, and Citicorp purchased the property at a sheriff's sale on May 11, 1988, for $108,487.
- A sheriff's deed conveying the property to Citicorp was recorded on June 20, 1988.
- Citicorp then instituted a strict foreclosure action against the assignees (L. Steven Pessin, Theresa Klein, and Richard Hollander) in the Chancery Division (a trial court).
- Citicorp moved for summary judgment and to strike Pessin's answer in this strict foreclosure action.
- The Chancery Division judge (Judge Bachman) refused to strike Pessin's answer, granted Pessin an equitable remedy of 60 days from the date of his opinion to redeem the property by paying the entire senior debt, and ruled that if Pessin failed to do so, Citicorp would be entitled to a judgment of strict foreclosure.
- L. Steven Pessin appealed the Chancery Division's decision to the Superior Court of New Jersey, Appellate Division.
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Issue:
Does a first mortgagee, who inadvertently omits the assignee of a junior mortgage from the original foreclosure action and then purchases the property at the foreclosure sale, have the right to seek strict foreclosure against the omitted junior assignee, thereby allowing the junior assignee the opportunity to redeem the senior debt?
Opinions:
Majority - Petrella, P.J.A.D.
Yes, a complainant in a foreclosure action who purchases in good faith at the foreclosure sale is entitled to file a complaint to force an outstanding junior lienor to redeem its mortgage or be foreclosed of the equity of redemption. The court affirmed the Chancery Division's decision, holding that strict foreclosure is an appropriate remedy where, through inadvertence not aggravated by bad faith, an outstanding junior interest has not been barred by the original foreclosure decree, and the legal and equitable estates have become united in the mortgagee. The court relied on long-standing New Jersey precedent, including Sears, Roebuck & Co. v. Camp, to emphasize that strict foreclosure subserves equity and justice in such circumstances. The rights of an omitted junior mortgagor are neither enlarged nor diminished but retained, meaning their claims cannot rise higher than they were before the defective sale. The court rejected Pessin's argument that Citicorp should have been compelled to satisfy his mortgage and seek redress from its title searcher, as this would improperly elevate the second mortgage to a position superior to the first. The equitable remedy afforded by the trial court, allowing Pessin 60 days to redeem the full senior debt, was deemed consistent with foreclosure statutes and recording acts, preserving the original priorities.
Analysis:
This case significantly reaffirms the continued viability and equitable nature of strict foreclosure as a remedy for senior mortgagees in New Jersey. It clarifies that the inadvertent omission of a junior lienholder from an initial foreclosure action does not automatically elevate the junior lien's priority but instead preserves the junior lienholder's original right to redeem the senior debt. This decision provides a crucial mechanism for clearing title defects arising from such omissions, ensuring that good faith purchasers at foreclosure sales can perfect their ownership without being unfairly burdened by previously subordinate liens, provided the omitted party is afforded the opportunity to protect their interest by redemption.
