New Jersey Predatory Lending Practices Associated with NJ Foreclosure Bailout Questioned by NJ Appellate Court
Score a victory for homeowners in New Jersey who have been duped by “white knight” lenders on the eve of sheriff’s foreclosure sale! In a published opinion issued by the New Jersey Appellate Division on May 19, 2008, Nowoleska vs. Steele, et als., Appellate Div. 2008, Docket No.: A-5759-06T15759-06T1, the Court came to the rescue of an elderly lady and her daughter and son-in-law who unwittingly gave up title to their family home in order to avoid a sheriff’s sale thinking they would be able to get the property back.
In this case, the Appellate Division was presented with the question of whether to vacate a default judgment entered against defendants that resulted in awarding possession of the family home to a subsequent purchaser who acquired title to the property based upon prior predatory lending practices of predecessors in title. Defendants, including an 83-year old woman named Marjorie Steele, faced ejectment from the house that was occupied as the family home for 43 years. Originally, the property was occupied as Ms. Steel’s marital residence, and thereafter ownership was shared with her daughter and son-in-law. Defendants lost title to the house through a series of questionable lending transactions.
In June 2003, defendants borrowed $95,000 to make home improvements and repairs, and to consolidate other debts. The loan was secured by a mortgage. At some point in time, defendants defaulted on this mortgage by failing to make regularly scheduled payments. The mortgage holder filed a foreclosure suit, obtained a judgment, and received a sheriff's sale date of February 7, 2006. Defendants avoided the sheriff’s sale, however, by borrowing funds from an entity known as Property Vestors. In exchange for this “white knight” loan, defendants executed a promissory note with Property Vestors requiring them to pay back the loan plus interest within 30 days (or by February 28, 2006 which was 21 days from the date of the scheduled sheriff’s sale). Defendants expected to repay this loan by borrowing from their 401(k) accounts. In any event, defendants believed that Property Vestors would be required to commence a new foreclosure case if they failed to repay the monies within 30 days. However, as part of the transaction with Property Vestors, the defendants signed a Deed in Lieu of Foreclosure to Property Vestors as security for the loan. The promissory note provided that if the monies were not paid by February 28, 2006, Property Vestors would pay defendants $20,000 and, upon payment of an outstanding mortgage, would have all rights to the property.
Once again faced with the prospect of losing their property, on February 24, 2006 defendants obtained new financing through Lenny Hernandez and Michael Figler of Equity Solutions, L.L.C. (collectively “Equity Solutions”) and paid off their prior loan to Property Vestors As a result this transaction with Equity Solutions, Figler took title to the property, paid off Property Vestors’ mortgage along with other liens and judgments against the property, which totaled approximately $145,000, plus title and closing costs of approximately $10,000. In addition, Figler included as part of his "purchase price" for the property the sum of $50,000 representing a fee to his company Equity Solutions. Defendants signed a use and occupancy agreement with their new lender allowing them to remain on the premises for 1 year provided they made monthly payments of $2,200 to Figler, and they had an option to buy back the property for $202,400 within one year (before February 24, 2007).
On April 24, 2006, after defendants defaulted on the payments to Figler, he transferred title to the property to plaintiff Ewelina Nowosleska for $260,000. Nowosleska subsequently transferred title to Jean Sidibe for $405,000, and a mortgage in that amount was recorded with the County clerk’s office. Defendants asserted that both parties (plaintiff Nowosleska and Sidibe) were connected with Figler's business. Assuming that $405,000 represents the value of the property, defendants were thus induced to part with title to property valued at $405,000 in order to pay off debts totaling a mere $145,000
Since defendants made no payments under the use and occupancy agreement with Figler, plaintiff (who had acquired the property from Figler) commenced an action to eject or remove defendants from the property. Defendants were served with the lawsuit on August 24, 2006, but failed to file an answer. Consequently, default was entered against them, and plaintiff's unopposed motion for a default judgment was granted. The default judgment entered on January 9, 2007, gave plaintiff possession of the premises.
Approximately 4 months later, on April 25, 2007, defendant filed an emergency application before the trial court asking to vacate the default judgment. The trial court denied their application on May 11, 2007. Defendants filed a motion for reconsideration, which the trial court also denied. Thereafter, defendants appealed and the trial court issued a stay of the ejectment pending the outcome of the appeal.
In their appeal, defendants argued that Figler misrepresented that the monthly payments would be only slightly higher than their current $1,200 mortgage payment and that a portion of their home equity would be used to make these payments. They contend that they signed the documents understanding that they were obtaining a loan and that only later did they discover that they had signed a deed transferring title to the house to Figler. Figler arranged for an attorney to represent defendants for the transaction and, not surprisingly, argued that defendants understood the nature of the transaction and agreed to it.
Defendants maintained that the trial court should have vacated the judgment for ejectment pursuant to subsection (f) of New Jersey Court Rule 4:50-1, which allows the court to set aside a judgment in “exceptional situations.” In determining whether relief is warranted under this section of the rule, courts focus on equitable considerations. Hous. Auth. of Morristown v. Little, 135 N.J. 274, 294 (1994). In Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 100-01 (App. Div. 1998), certif. denied, 158 N.J. 686 (1999), this court stated, in the context of an application to vacate a default judgment, that:
As the Appellate Division explained, R. 4:50-1(f) calls for the exercise of sound discretion, "guided by equitable principles, and in conformity with the prescription that 'any doubt should be resolved in favor of the application to set aside the judgment to the end of securing a trial upon the merits.'" (quoting Goldfarb v. Roeger, 54 N.J. Super. 85, 92 (App. Div. 1959). An application for relief from a default judgment under subsection (f) is treated "indulgently." Mancini v. EDS, 132 N.J. 330, 335 (1993). The decision on whether to vacate a judgment under the terms of this rule is left to the sound discretion of the trial court and will not be overturned on appeal absent a mistaken exercise of that discretion. Mancini v. EDS, 132 N.J. at 334.
In this case, the Appellate Division was presented with the question of whether to vacate a default judgment entered against defendants that resulted in awarding possession of the family home to a subsequent purchaser who acquired title to the property based upon prior predatory lending practices of predecessors in title. Defendants, including an 83-year old woman named Marjorie Steele, faced ejectment from the house that was occupied as the family home for 43 years. Originally, the property was occupied as Ms. Steel’s marital residence, and thereafter ownership was shared with her daughter and son-in-law. Defendants lost title to the house through a series of questionable lending transactions.
In June 2003, defendants borrowed $95,000 to make home improvements and repairs, and to consolidate other debts. The loan was secured by a mortgage. At some point in time, defendants defaulted on this mortgage by failing to make regularly scheduled payments. The mortgage holder filed a foreclosure suit, obtained a judgment, and received a sheriff's sale date of February 7, 2006. Defendants avoided the sheriff’s sale, however, by borrowing funds from an entity known as Property Vestors. In exchange for this “white knight” loan, defendants executed a promissory note with Property Vestors requiring them to pay back the loan plus interest within 30 days (or by February 28, 2006 which was 21 days from the date of the scheduled sheriff’s sale). Defendants expected to repay this loan by borrowing from their 401(k) accounts. In any event, defendants believed that Property Vestors would be required to commence a new foreclosure case if they failed to repay the monies within 30 days. However, as part of the transaction with Property Vestors, the defendants signed a Deed in Lieu of Foreclosure to Property Vestors as security for the loan. The promissory note provided that if the monies were not paid by February 28, 2006, Property Vestors would pay defendants $20,000 and, upon payment of an outstanding mortgage, would have all rights to the property.
Once again faced with the prospect of losing their property, on February 24, 2006 defendants obtained new financing through Lenny Hernandez and Michael Figler of Equity Solutions, L.L.C. (collectively “Equity Solutions”) and paid off their prior loan to Property Vestors As a result this transaction with Equity Solutions, Figler took title to the property, paid off Property Vestors’ mortgage along with other liens and judgments against the property, which totaled approximately $145,000, plus title and closing costs of approximately $10,000. In addition, Figler included as part of his "purchase price" for the property the sum of $50,000 representing a fee to his company Equity Solutions. Defendants signed a use and occupancy agreement with their new lender allowing them to remain on the premises for 1 year provided they made monthly payments of $2,200 to Figler, and they had an option to buy back the property for $202,400 within one year (before February 24, 2007).
On April 24, 2006, after defendants defaulted on the payments to Figler, he transferred title to the property to plaintiff Ewelina Nowosleska for $260,000. Nowosleska subsequently transferred title to Jean Sidibe for $405,000, and a mortgage in that amount was recorded with the County clerk’s office. Defendants asserted that both parties (plaintiff Nowosleska and Sidibe) were connected with Figler's business. Assuming that $405,000 represents the value of the property, defendants were thus induced to part with title to property valued at $405,000 in order to pay off debts totaling a mere $145,000
Since defendants made no payments under the use and occupancy agreement with Figler, plaintiff (who had acquired the property from Figler) commenced an action to eject or remove defendants from the property. Defendants were served with the lawsuit on August 24, 2006, but failed to file an answer. Consequently, default was entered against them, and plaintiff's unopposed motion for a default judgment was granted. The default judgment entered on January 9, 2007, gave plaintiff possession of the premises.
Approximately 4 months later, on April 25, 2007, defendant filed an emergency application before the trial court asking to vacate the default judgment. The trial court denied their application on May 11, 2007. Defendants filed a motion for reconsideration, which the trial court also denied. Thereafter, defendants appealed and the trial court issued a stay of the ejectment pending the outcome of the appeal.
In their appeal, defendants argued that Figler misrepresented that the monthly payments would be only slightly higher than their current $1,200 mortgage payment and that a portion of their home equity would be used to make these payments. They contend that they signed the documents understanding that they were obtaining a loan and that only later did they discover that they had signed a deed transferring title to the house to Figler. Figler arranged for an attorney to represent defendants for the transaction and, not surprisingly, argued that defendants understood the nature of the transaction and agreed to it.
Defendants maintained that the trial court should have vacated the judgment for ejectment pursuant to subsection (f) of New Jersey Court Rule 4:50-1, which allows the court to set aside a judgment in “exceptional situations.” In determining whether relief is warranted under this section of the rule, courts focus on equitable considerations. Hous. Auth. of Morristown v. Little, 135 N.J. 274, 294 (1994). In Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 100-01 (App. Div. 1998), certif. denied, 158 N.J. 686 (1999), this court stated, in the context of an application to vacate a default judgment, that:
As the Appellate Division explained, R. 4:50-1(f) calls for the exercise of sound discretion, "guided by equitable principles, and in conformity with the prescription that 'any doubt should be resolved in favor of the application to set aside the judgment to the end of securing a trial upon the merits.'" (quoting Goldfarb v. Roeger, 54 N.J. Super. 85, 92 (App. Div. 1959). An application for relief from a default judgment under subsection (f) is treated "indulgently." Mancini v. EDS, 132 N.J. 330, 335 (1993). The decision on whether to vacate a judgment under the terms of this rule is left to the sound discretion of the trial court and will not be overturned on appeal absent a mistaken exercise of that discretion. Mancini v. EDS, 132 N.J. at 334.
In this instance, the Appellate Division put down its foot on these types of predatory lending practices by reversing the trial court’s decision and vacating the judgment of ejectment. “Since the loss of the home may have resulted from predatory lending practices, in the interests of justice and due to these extraordinary circumstances, the default judgment should be set aside under Rule 4:50-1(f), so that the dispute can be resolved on the merits, and, if necessary, appropriate legal and equitable adjustments be made,” the Appellate Division held. “Allowing the default judgment to stand in this case may result in a grave injustice. These defendants may have been the victims of predatory lending practices,” the Appellate Division further remarked.It remains to be seen whether the defendants will ultimately prevail on their predatory lending claims at a trial on the merits, but the Appellate Division determined that they at least deserve the opportunity.
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