Brief Opposition to Equitable Subordination Motion

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                                        CHANCERY DIVISION:
              Plaintiffs,               BERGEN COUNTY

 Vs.                                    DOCKET NO.: F-6331-09

 CHARLES P. FOX, SHIRLEY FOX, JP        Civil Action



On the brief:
Glenn R. Reiser

                                       LOFARO & REISER, L.L.P.
                                       55 Hudson Street
                                       Hackensack, New Jersey 07601
                                       Tel: (201) 498-0400
                                       Attorneys for Defendants,
                                       Charles P. Fox, and Shirley Fox
                                  PRELIMINARY STATEMENT

         Defendants, Charles P. Fox and Shirley Fox (the “Fox Defendants”) submit this

Brief in opposition to plaintiff’s motion to vacate settlement and for equitable

subrogation.1      In addition, to establish facts pertinent to this motion record the Fox

Defendants rely upon the Certification of Shirley Fox dated February 22, 2010 and

previously filed on February 25, 2010 (the “Fox Cert.”).               For the convenience of the

Court and opposing counsel, a copy of the previously filed Fox Cert. is submitted


        The Fox Defendants are the title owners to the residential property which is the

subject of this action (the “Property”). The defendants, Kenneth Van Den Houten and

Jane Van Den Houten (the “Life Tenants”), hold life estates (“Life Estates”) in the

Property as reflected in deeds recorded with the Bergen County Clerk’s Office. The

Van Den Houtens did not sign the mortgage that plaintiff seeks to foreclose, and thus

the mortgage is inferior to the previously recorded Life Estates.                   Plaintiff correctly

reports that the Fox Defendants along with Jane Van Den Houten and her two (2)

children reside at the Property.

         According to plaintiff’s moving papers, plaintiff is seeking a legal determination

as to whether its mortgage is entitled to equitable subrogation of a prior mortgage held

by Champion Mortgage – the first recorded mortgage that was signed by both the Fox

Defendants and Life Tenants, but which subsequently was refinanced first by a

mortgage issued by Ameriquest, and thereafter refinanced with the proceeds of

plaintiff’s mortgage. In the absence of obtaining a judgment of equitable subordination,

  The Fox Defendants are not challenging the portion of the motion to vacate the alleged settlement.
They object only to plaintiff’s summary request for equitable subordination based entirely on the hearsay
statements of its co-counsel Linda Snyder, Esq.

plaintiff is left with the prospect of attempting to sell a home at a sheriff’s sale that is

subject to superior Life Estates.             Recognition that such a defect in title would chill

anyone from bidding on the property at a sheriff’s sale is what fueled plaintiff to

negotiate a settlement with the Fox Defendants.

         Although the Fox Defendants believe that a settlement was reached in

negotiations between counsel, the Fox Defendants understand that the Court would be

required to hold an evidentiary hearing in order to determine whether or not a settlement

was in fact reached.         See Amatuzzo v. Kozmiuk, 305 N.J.Super. 469 (App. Div.1997).

In view of the statements contained in the Certification of Linda Snyder, Esq., as baffling

as her statements are,2 the Fox Defendants do not believe they will prevail on this issue

in the absence of a full evidentiary hearing.              In any event, the Fox Defendants do not

have the resources to pay the substantial counsel fees that an evidentiary hearing

would necessitate.         Accordingly, the Fox Defendants are not cross-moving to enforce

the settlement; they simply concede this issue for economic reasons.

            As to the issue of equitable subrogation, however, plaintiff falls woefully short

of meeting its evidentiary burden. In essence, plaintiff is asking this Court to award

summary judgment on this issue despite the fact that the Court previously denied

plaintiff the same relief by Order entered on March 5, 2010, and plaintiff has not

complied with R. 4:46-1, et. seq. governing summary judgment procedure. Specifically,

    If Ms. Snyder’s Certification accomplishes anything, it creates confusion and doubt about who her firm’s
client is. While Meyner and Landis, LLP identifies itself in the motion pleadings as Co-Counsel to Plaintiff,
it is believed that the firm truly represents the real estate title company who issued the title policy insuring
plaintiff’s lien as a first mortgage on the Property. Otherwise, why would North Fork Bank find it
necessary to hire a second law firm as co-counsel when it already employs very experienced and
knowledgeable foreclosure attorneys - the law firm of Phelan Hallinan & Schmieg? Ms. Snyder says she
initially believed she had authority from the title company to negotiate a settlement, yet subsequently says
that she discovered that authority to be lacking. She also states that her firm was retained by North Fork
Bank despite the fact that the bank already appeared through highly experienced foreclosure counsel.

plaintiff has not presented an Affidavit from anyone having personal knowledge of the

facts that would justify application of the extraordinary remedy of equitable subrogation,

instead choosing to rely solely on the Certification of its co-counsel Ms. Snyder who

merely offers copies of publicly recorded deeds and mortgages.           Furthermore, plaintiff

has not provided a statement of material facts as required by R. 4:46-2(a).            In sum,

plaintiff has not demonstrated the absence of a genuine issue of material fact that

entitles plaintiff to receive the extraordinary relief of equitable subrogation.

        Through separate counsel, the Life Tenants filed an Answer contesting the

foreclosure.     If this matter is restored to the active trial calendar, then plaintiff and the

Life Tenants can continue litigating the priority of plaintiff’s mortgage and the life

tenancies.     In this regard, plaintiff is correct in stating that the position of the Van Den

Houtens remains unchanged whether the case is settled or not. “If they did not sign the

North Fork mortgage, their interest cannot be foreclosed out, and any bidder at the

sheriff sale would take title to the Property subject to their Life Estates.” Certification of

Linda Snyder, Esq., at ¶17.

                                  PROCEDURAL HISTORY

        Plaintiff filed its initial Complaint on February 3, 2009. On May 5, 2009, plaintiff

filed an Amended Complaint to add a judgment creditor.

        On August 7, 2009, the Life Tenants filed a contesting Answer and

Counterclaim. On October 16, 2009, the Fox Defendants filed a contesting Answer and

Counterclaim. Pursuant to a Case Management Order on September 23, 2009, a trial

date was set for April 12, 2010.

         On or about October 20, 2009, plaintiff, through its foreclosure counsel Phelan

Hallinan & Schmieg, P.C., filed a motion for summary judgment seeking to strike the

defendants’ contesting Answers and Counterclaims. By Order entered on March 5,

2010, the Court granted plaintiff’s motion for summary judgment against the Fox

Defendants, in the process striking the Fox Defendants’ contesting Answer and entering

default against them.        However, the Court denied the balance of plaintiff’s summary

judgment as to the Life Tenants.

         Pursuant to a Letter Order dated April 8, 2010, the Court cancelled the April 12,

2010 trial date and instructed defendants to present a payment proposal by April 23,

2010.    Thereafter, counsel for the Fox Defendants and plaintiff’s co-counsel Linda

Snyder, Esq. of the firm of Meyner and Landis, LLP engaged in a series of settlement

discussions and e-mail exchanges throughout the latter part of April and continuing

through May 2010, culminating in an agreement in principal whereby plaintiff would

complete a sheriff’s sale for the purpose of extinguishing the junior mortgage liens and

judgment lien, and thereafter sell the property back to the Fox Defendants and provide

them with a mortgage at prevailing rates.                 Specific negotiations ensued between

counsel as to the amount of the mortgage, term, and interest rate with several proposals

being sent back and forth by e-mail.3

         During a telephone conference call with the Court in the latter part of May, 2010,

counsel informed the Court as to the status of negotiations, the Court instructed counsel

to submit a proposed form of Order that afternoon, and thereafter the Court marked the

  Due to some caustic “off the cuff” statements made by plaintiff’s counsel in one of her e-mails where she
expressed her personal frustration about the predicament she found herself in because of her client’s
refusal to commit to a settlement after it was 90% negotiated, counsel for the Fox Defendants has chosen
not to include the e-mails in this motion record in order to spare plaintiff’s counsel from any

case “settled. Plaintiff’s counsel did submit a draft form of order to counsel for the Fox

Defendants, who requested that she make a revision.      The revision was agreed upon,

and to the best of counsel’s knowledge plaintiff’s co-counsel Snyder submitted the

proposed form of order to the Court by fax.      To date, however, counsel for the Fox

Defendants is unaware whether the order was ever entered. In fact, Ms. Snyder never

provided a copy of an entered order.

                               STATEMENT OF FACTS

      The relevant facts are essentially not in dispute as far as concerns the pre-

existing Life Estates appearing in a 1993 Deed and Indenture recorded in the Bergen

County Clerk’s Office on December 1, 1993 in Book 7654 at Page 674, et seq., see

Exhibits A and B to Fox Cert., as well as the subsequently recorded mortgages issued

by Champion Mortgage, Ameriquest Mortgage, and thereafter U.S. Mortgage.

      Whereas the Fox Defendants and Life Tenants signed the initial mortgage with

Champion Mortgage, when that mortgage was refinanced with Ameriquest only the Fox

Defendants signed it.   The same mistake was repeated a second time when only the

Fox Defendants were asked to sign the mortgage with U.S. Mortgage. As set forth in

paragraph 16 of the Fox Cert., on January 30, 2009 the mortgage held by U.S.

Mortgage was assigned to plaintiff.    The Fox Defendants disclaim any responsibility for

the negligence of the mortgage closing agents who represented Ameriquest and

plaintiff’s predecessor U.S. Mortgage. See Fox Cert., at ¶¶12, 15.

                                  LEGAL ARGUMENT


       Summary judgment motions are governed by R. 4:46-1 and R. 4:46-2. Pursuant

to R. 4:46-2(a), a summary judgment motion must be supported by a statement of

material facts.   In addition, R. 1:6-6 requires that for motions based on facts not

appearing of record be supported by affidavits made on personal knowledge.

       The plaintiff in the instant case falls far short of satisfying these most basic

requirements, for plaintiff is truly asking this Court to award summary judgment yet

plaintiff fails to submit a statement of material facts or an affidavit from a bank employee

having personal knowledge of the circumstances that would give rise to application of

the extraordinary remedy of equitable subordination.

       Furthermore, by Order entered on March 5, 2010 the Court previously denied

plaintiff’s prior motion for summary judgment made on the same grounds.             Plaintiff

presents nothing new in its newly filed motion which is nothing more than a “second bite

at the apple.”

       R. 4:46-2(c) of the New Jersey Civil Practice Rules provides that summary

judgment “shall be rendered forthwith 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.” “An issue of fact is genuine only if,

considering the burden of persuasion at trial, the evidence submitted by the parties on

the motion, together with all legitimate inferences therefrom favoring the non-moving

party, would require submission of the issue to the trier of fact.” R. 4:46-2(c).

       The standards to be applied by the courts of New Jersey in applying this Rule

and in reviewing motions for summary judgment have also been enunciated by the New

Jersey Supreme Court in its opinion in Brill v. Guardian Life Ins. Co. of America, 142

N.J. 520 (1995). According to the Brill decision, “a Court should deny a summary

judgment motion only where the party opposing the motion has come forward with

evidence that creates a “genuine issue as to any material fact challenged. That means a

non-moving party cannot defeat a motion for summary judgment merely by pointing to

any fact in dispute.” (Emphasis of the Court). Id. at 529.

       Here, if the Court agrees that the summary judgment standard applies then the

Court should find that plaintiff has failed to carry its burden as to the issue of equitable


       As a general proposition, New Jersey is a race-notice state. This means that

when there are two competing interests for a particular property, the interest of the party

who records the instrument will prevail so long as that party had knowledge of the other

party’s previously acquired interest.    See generally, Cox v. RKA Corp., 164 N.J. 487,

496 (2000). Knowledge can be inferred when a lien (such as the life estate in this case)

is properly recorded.” See Id.

       In the present matter, the Life Tenants’ interests were recorded in 1993 when title

to the property was transferred to Shirley Fox.     Plaintiff’s Note and Mortgage were not

recorded until June 1, 2006 – more than 13 years after the life tenancies were recorded!

By gross negligence or otherwise, plaintiff failed to complete an accurate title search of

the property, either misread the title policy, and otherwise failed to secure the

signatures of the Life Tenants before entering into the refinance mortgage with the Fox


      Indeed, as plaintiff concedes in its brief, “[T]he new lender is not entitled to

subrogation . . . if it possesses actual knowledge of the prior encumbrance.” First Union

National Bank v. Nelkin, 354 NJ.Super., 557, 565-566 (App. Div. 2002). Plaintiff’s brief,

at p. 10. In Metrobank v. National Com. Bank, 262 N.J.Super. 133 (App.Div.1993), the

Appellate Division denied equitable subordination to a subsequent lender whose loan

proceeds were used to satisfy a pre-existing mortgage because the new lender knew of

the prior encumbrances. The Court remarked that . . . “[a] mortgagee who accepts a

mortgage whose proceeds are used to pay off an old mortgage is subrogated to the

extent of the loan only where the new mortgagee lacks knowledge of other

encumbrances.” Id. at 143-44 (emphasis added). The Court concluded that,

              plaintiff was not ignorant, through negligence or otherwise.
              To the contrary, the plaintiff in that action admittedly knew of
              the two intervening mortgages.           Where there is actual
              knowledge, the new lender is not entitled to subrogation
              absent a stipulation of subrogation or formal assignment.

Id. at 144 (emphasis added).     Accord Trus Joist Corp. v. Nat'l Union Fire Ins. Co., 190

N.J.Super. 168, 179 (App.Div.1983), rev'd on other grounds sub nom. Trus Joist Corp.

v. Treetop Assoc., Inc., 97 N.J. 22, 477 (1984).

      Moreover, as an equitable doctrine, subrogation is applied only in the exercise of

the court's equitable discretion. Goldome Realty Credit Corp. v. Harwick, 236 N.J.

Super. 118, 126 (Ch. Div.1989). Courts will apply the doctrine to prevent unjust

enrichment of junior encumbrances, Trus Joist, 190 N.J.Super. at 179, or where there is

both fraud and unjust enrichment, Equity Savings and Loan Ass'n v. Chicago Title Ins.

Co., 190 N.J.Super. 340, 343 (App.Div.1983). Here, even if plaintiff could show unjust

enrichment, there is no showing of fraud.

         The key question which confronts this Court is whether the plaintiff North Fork

Bank had actual knowledge of the previously recorded Life Estates or was merely

negligent in failing to discover the Life Estates. As plaintiff correctly cites, mere

negligence by the party asserting the right to subrogation will not defeat the remedy.

Plaintiff’s brief at page 10, citing Kaplan v. Walker, 164 N.J.Super. 130,139 (App. Div.


         However, as noted above, the new lender’s actual knowledge of a prior

encumbrance will generally defeat application of equitable subordination.             National

Bank v. Nelkin, supra.        Plaintiff states in conclusive fashion that it “had no actual

knowledge of the Van Den Houtens’ life estate in the Property.”         Plaintiff’s Brief, at p.

12.      In the absence of a full evidentiary hearing, can plaintiff establish that it did not

possess actual knowledge by relying exclusively on the hearsay statements and

conclusions offered by its attorneys? Clearly, the answer is no.

         In the absence of a full evidentiary hearing, it is respectfully submitted that the

Court is not in a position to determine application of the doctrine of equitable

subrogation which is a fact sensitive issue.         Discovery is required in the form of

depositions from fact witnesses and the production of documents to see whether prior to

closing its loan with the Fox Defendants plaintiff possessed a title report that revealed

the existence of the previously recorded Life Estates.       A sampling of some important,

but unanswered questions are: (i) was there a mortgage broker involved in the

transaction who committed fraud? (ii) Who was responsible for reviewing the title policy

for plaintiff?   (iii) Does plaintiff possess the title policy that it relied upon in closing this

loan? (iv) Who was the settlement agent for plaintiff in this loan transaction? (v) Would

the Life Tenants have agreed to encumber their Life Estates by signing plaintiff’s

mortgage had it been presented to them in the first place? (vi) Would the Life Tenants

suffer prejudice by application of the doctrine of equitable subordination under these


        In Home Owners' Loan Corp. v. Collins, 120 N.J. Eq. 266, 267, 270 (Ch.1936), a

lender's instructions to its attorney regarding an earlier lien on the subject property,

“through inadvertence” were ignored, and so the court ordered subrogation.

Therefore, “where, through fraud or mistake, the new security turns out to be defective,”

the court will allow subrogation. Id. at 268. The court also noted that in other cases

where subrogation had been granted, it was “on the ground that a state of facts

fraudulently concealed from the lender, or of which he was ignorant, impaired the lien of

the new mortgage.” Ibid.;  See also Chichi & Lombardo Bldg. Co. v. Herrmann, 121

N.J.Eq. 252, 253 (Ch.1937) (second mortgagee who had no knowledge of existence of

a prior mortgage and who had no reason to know because of his “inexperience in such

transactions” was given a priority, as all equities were deemed to be in the second

mortgagee's favor).

        The motion record in the instant case does not contain such allegations by North

Fork Bank. Plaintiff is not accusing the Fox Defendants or the Life Tenants of engaging

in fraud or misrepresentation. Nor is plaintiff arguing that it was ignorant of the Life

Estates. In point of fact, there is no sworn statement from an employee or officer of

plaintiff expressing personal knowledge of ignorance or mistake. Instead, we are simply

left to ponder how plaintiff and/or its authorized agents could possibly have overlooked

the existence of the previously recorded Life Estates clearly reflected in the chain of



         For the foregoing reasons and authorities cited, the Court should deny plaintiff’s

request for application of the doctrine of equitable subrogation. Plaintiff’s motion is

tantamount to one for summary judgment and plaintiff has not carried its evidentiary

burden based strictly on the hearsay certification of its co-counsel.

         Not only has plaintiff failed to comply with the procedural requirements in seeking

summary judgment due to the bank’s failure to submit the required Affidavits based on

personal knowledge and a statement of material facts, plaintiff has failed to demonstrate

the absence of a genuine issue of material fact. Couple this with the fact that back in

March 2010 the Court previously denied plaintiff’s prior summary judgment motion filed

on the same issue. Accordingly, the motion should be denied.

                                                  Respectfully submitted,

                                                  LOFARO & REISER, L.L.P.
                                                  Attorneys for Defendants,
                                                  Charles P. Fox, and Shirley Fox

                                                        Glenn R. Reiser
Dated: November ____, 2010


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Description: This brief addresses the standards to apply the remedy of equitable subordination in the context of competing liens in a New Jersey foreclosure estate, in particular whether a mortgage issued without the signatures of the life tenants can take priority over the life estate.