NJ Foreclosure Ruling - Final Judgment Merges Mortgage

In a case that merits attention by banks and lawyers practicing debtor and creditors' rights, the Chancery Division in Middlesex County held that upon satisfaction of a final judgment of foreclosure a mortgagor is entitled to receive only a warrant of satisfaction of judgment, not a discharge of the mortgage in the County recording office.

Washington Mutual, FA v. Wroblewski, F-1865-05. In this case, the bank sought reconsideration of an order issued by the Chancery Court requiring that it provide a discharge of mortgage to the defendant mortgagor based on the mortgagor's satisfaction/payment of the final judgment of foreclosure. The applicable statute, N.J.S.A. 2A:50-32 provides that when a judgment of foreclosure is satisfied, a warrant of satisfaction shall be entered. The defendants argued that upon satisfaction of a final judgment of foreclosure the lender should no longer have a claim for monies due and the mortgage should therefore be discharged.

The bank's counter argument centered on the merger doctrine (where it has been held that the mortgage merges into the final judgment of foreclosure) and N.J.S.A. 2A:50-32 which clearly states that a warrant of satisfaction "shall be entered" when a final judgment of foreclosure is satisfied. More specifically,

the bank contented that the purpose of New Jersey's merger doctrine is to avoid the inequitable result of a defaulting mortgagor paying the lesser amount of a foreclosure judgment, while also receiving the same benefit as a non-defaulting mortgagor who pays the full contractual obligation.

Finding in favor of the bank, the trial court reasons that when a judgment is entered, a final foreclosure judgment in New Jersey establishes rights in property distinct from those conferred by the mortgage. For example, "the judgment fixes the amount due under the mortgage and directs the sale of the real estate to raise funds to satisfy that amount. Further, all the terms, including the rights and obligations under the mortgage merge into the foreclosure judgment and the only thing remaining is the foreclosure judgment itself," the court rermarked. The trial court was persuaded by the bank's equitable argument,

that granting a discharge of the mortgage would "reward" a defaulting mortgagor who ultimately redeems the mortgage simply by paying the sheriff because it gives the defaulting mortgagor what a party who contractually pays its obligations in full received.

LoFaro & Reiser, LLP represents lenders and borrowers in foreclosure cases throughout the State of New Jersey. The firm did not represent either party to this action. This article is not intended to be a full description of the case, but rather just a brief informative summary.