GINO 2002 IRREVOCABLE TRUST v. CURRAN CONSTRUCTION JEFFREY CURRAN PRO BUILD EAST RED LION INSULATION MASCO COMPANY THE STATE OF NEW JERSEY (2013)

In this foreclosure action, defendant Putnam at Deptford, L.L.C., a developer of homes, appeals from a July 8, 2011 order of the Chancery Division granting summary judgment to plaintiff and also transferring title to the subject property to plaintiff.   We affirm in part and reverse in part.

Viewed most favorably to defendant as the non-prevailing party, see R. 4:46–2(c);  Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), the summary judgment record reveals the following facts and procedural history.

Defendant Putnam was the owner of a tract of land in Deptford and the developer of lots and homes on that land.   Richard Annunziata is the principal of defendant Putnam.   Plaintiff Gino's 2002 Irrevocable Trust, whose beneficiary is Gino Palazzolo, is the mortgagee.   In March 2008, plaintiff and defendant entered into two loan transactions secured by the mortgage:  an acquisition loan of $3,396,000 for the land and a “revolving” construction loan of $1,000,000.

At about the same time, Annunziata and Palazzolo entered into a separate joint venture to develop another property in Tinton Falls with age-restricted residential units.   In 2009, however, they had a dispute about the Tinton Falls property.   Defendant alleges the dispute caused Palazzolo to withhold construction funds for the Deptford development under the revolving construction loan.   Defendant alleges further that, as a result of plaintiff's failure to advance funds for continued development of the Deptford property, defendant fell into arrears in making mortgage payments and paying property taxes.

Plaintiff filed a foreclosure complaint in November 2010.   Defendant filed an answer, but then it failed to respond to discovery demands made by plaintiff.   In particular, it did not respond to plaintiff's request for admissions pursuant to Rule 4:22–1.   Plaintiff immediately moved for summary judgment, alleging there was no dispute that defendant had defaulted on installment payments on the mortgage loans for more than a year, that defendant caused contractors' liens to be filed against the property, and that defendant failed to pay taxes, thus requiring plaintiff to advance more than $75,000 for those purposes.   Plaintiff's motion sought summary judgment and remedies in accordance with section 17, paragraph B, of the mortgage, which permitted plaintiff as mortgagee to:

Enter upon and take possession of the mortgaged premises, and complete construction of the Improvements thereon and let the same, and receive the rents, issues and profits thereof, and apply the same, after payment of all necessary charges and expenses, on account of the amount hereby secured․

In opposition to plaintiff's motion for summary judgment, Annunziata filed a certification in which he made allegations pertinent to the Tinton Falls property;  asserted that Palazzolo had purposely caused defendant to default on the Deptford mortgage;  claimed that Palazzolo had attempted to intimidate Annunziata by physically assaulting him, which resulted in Annunziata seeking to have criminal charges brought against Palazzolo;  stated that the parties discussed a “forbearance” agreement by which Annunziata agreed to dismiss his criminal complaint in exchange for plaintiff's forbearing on any delinquency in the mortgage payments;  and claimed that plaintiff had reneged on the forbearance agreement after Annunziata withdrew his criminal complaint.   Nowhere in the opposition did defendant dispute that the mortgage payments were substantially in arrears and the mortgage was in default.   He also did not provide any proof of the alleged forbearance agreement other than his undocumented assertion and an email from plaintiff's attorney indicating that Palazzolo was amenable to a ninety-day forbearance of foreclosure on the property to give defendant an opportunity to become current on payments.   More than ninety days had passed since the email and defendant was not current on its payments.

On July 8, 2011, the Chancery Division ruled that plaintiff was entitled to summary judgment on its foreclosure complaint, but the particulars of the court's oral ruling are not available for this appeal because the tape recording of the proceedings on that date is unintelligible.   On the same date as its oral decision, the court executed an order prepared by plaintiff's attorney granting to plaintiff summary judgment, contractual remedies in accordance with section 17 as we previously quoted, and more.   The first decretal paragraph of the order permitted plaintiff “to enter and take possession of the premises and move forward with construction, improvements and take all action permitted under Paragraph 17 of the Mortgage.”   The second decretal paragraph was crossed out and a note in the margin indicated that it had been “withdrawn.”   As drafted, the second decretal paragraph would have permitted plaintiff to “sell off parcels of the mortgaged property” and to disburse the funds to pay expenses of the sales, retaining any net proceeds in an escrow account maintained by plaintiff's counsel.   The third decretal paragraph, which remained in the order, permitted plaintiff to pay from “such escrow account” taxes, contractors' fees, and other expenses of the property.   The last and disputed decretal paragraph of the order stated:  “plaintiff is granted Summary Judgment and title of the property be and is hereby transferred to plaintiff.”

In May 2012, on a limited remand from this court, the Chancery Division attempted to re-create the record of the summary judgment proceedings.   The court heard oral argument again, and it examined the relevant documents filed in support of and in opposition to plaintiff's summary judgment motion.   The court also heard counsel's representations of the nature of the prior proceedings that were indiscernible on the tape recording.

Significant for purposes of the appeal, the court stated that it had determined in the prior proceeding that there was no disputed issue as to defendant's default, and that the court had “only entered a judgment that allowed a transfer of the property to the ․ mortgagee, which was clearly provided for in the contract between the parties.”   The court acknowledged that issues remained as to “amounts due,” but it stated its “understanding from ․ the mortgage contract and the order that the plaintiff intended to take possession, complete the project and hopefully earn some money as the result of it to apply against the loans.”

Defendant challenges the court's ruling primarily on the ground that nothing gave the court authority to transfer title in the property to plaintiff.   We agree.   We do not find any merit, however, in defendant's additional argument that the court improperly entered summary judgment in favor of plaintiff on the question of defendant's default on the mortgage and loans.

Neither the mortgage nor any other document provided for a transfer of title to plaintiff without normal foreclosure proceedings and a sheriff's sale.   As we have quoted, the remedies section of the mortgage permitted plaintiff to enter the land, to complete construction of the homes, and to retain the proceeds of the sale of the homes and lots for purposes of paying the expenses of the development and repaying the loans it had extended to defendant.   The Chancery Division was mistaken in interpreting section 17, paragraph B, as providing for a remedy of transfer of title to the entire parcel without formal judicial proceedings.

Defendant argues accurately that default on a mortgage does not entitle the mortgagee to take title in the property without a foreclosure judgment and a sheriff's sale.   See Guttenberg Sav. & Loan Ass'n v. Rivera, 85 N.J. 617, 630 (1981) (“Obviously a mortgagee is not an owner and does not become an owner until and unless there is a foreclosure and sale of the premises to the mortgagee.”);  Woodview Condo.   Ass'n, Inc. v. Shanahan, 391 N.J.Super. 170, 175 (App.Div.2007) (“legal title remains in the mortgagor and the mortgagee in possession does not obtain an unfettered interest akin to fee simple ownership”);  McCorristin v. Salmon Signs, 244 N.J.Super. 503, 508 (App.Div.1990) (“After default ․ a mortgagee has the right of possession, subject to the mortgagor's equity of redemption.   The mortgagee is not the owner of the property unless there is a foreclosure and sale to the mortgagee.” (citation omitted)).

Plaintiff attempts to justify the transfer of title to it without a sheriff's sale as an “old fashioned strict foreclosure,” citing Steffel v. Grissler, 129 N.J. Eq. 425, 427 (E. & A.1941), and Citicorp Mortgage, Inc. v. Pessin, 238 N.J.Super. 606, 612 (App.Div.), certif. denied, 127 N.J. 141 (1990).   We have reviewed those cases and find nothing in them that supports plaintiff's argument.   Both cases involved transfers of interest in the subject properties that are not evidenced in this case.

We cannot tell from the re-created record why the second decretal paragraph of plaintiff's proposed order was crossed out, and why the fourth decretal paragraph transferring title was included and then granted by the Chancery Division.   There is simply no legal authority cited by the court or by plaintiff that authorized transfer of title to the property, and the remedy was not sought in plaintiff's submissions in support of summary judgment.   The Chancery Division apparently intended to provide a remedy by which plaintiff, as mortgagee, could take control of the development project, complete construction of homes, and sell individual homes and lots to recoup its loan.   It mistakenly granted a remedy that was neither authorized nor required to accomplish that result;  it transferred title to the entire property to plaintiff without the benefit of a foreclosure judgment and a sheriff's sale.   That provision of the Chancery Division's July 8, 2011 order was legally erroneous and must be reversed.

Plaintiff argues the appeal is moot because the property has since been sold to a third party.   We do not agree that the appeal is moot.   It is true that defendant failed to perfect a stay of the Chancery Division's judgment in accordance with Rules 2:9–5 and 2:9–6 because it did not post the $1,000,000 bond that the trial court required as a condition of granting a stay.   It also appears that a deed was issued on September 30, 2012, transferring the Deptford property from plaintiff to a newly-formed entity called Kenro Development, LLC. It also appears, however, that defendant filed a notice of lis pendens on the Deptford property on May 17, 2012, and that Kenro Development was otherwise aware of the pending litigation between the parties pertaining to the property.   In its registration with the State Department of the Treasury dated August 23, 2012, Kenro Development designated the attorney for plaintiff as its registered agent.   Clearly, Kenro Development was aware of this litigation, defendant's claims to the property, and the pendency of the appeal.

Finally, we reject defendant's argument that summary judgment should have been denied to plaintiff because discovery was not completed and factual issues existed regarding plaintiff's responsibility for causing defendant's default on the mortgage.   While summary judgment is often inappropriate when discovery has not been completed and “critical facts are peculiarly within the moving party's knowledge,” Velantzas v. Colgate–Palmolive Co., 109 N.J. 189, 193 (1988) (quoting Martin v. Educ. Testing Serv., Inc., 179 N.J.Super. 317, 326 (Ch. Div.1981)), defendant has not shown that further discovery would have changed the relevant facts.   See Wellington v. Estate of Wellington, 359 N.J.Super. 484, 496 (App.Div.), certif. denied, 177 N.J. 493 (2003);  Auster v. Kinoian, 153 N.J.Super. 52, 56 (App.Div.1977).   In fact, defendant did not make discovery demands and, therefore, will not be heard to complain about the granting of summary judgment because of incomplete discovery.

Defendant did not present sufficient evidence in opposition to plaintiff's summary judgment motion to refute the essential facts regarding the mortgage and defendant's defaults under its terms.   Plaintiff was entitled to summary judgment on the issue of defendant's default.   In addition, there was no error in the Chancery Division granting the remedies contained in the first and third decretal paragraphs of its order so that plaintiff could take possession and control of the property, proceed with the development, and use the proceeds to pay expenses and recoup portions of its loans.   Before defendant is deprived of title, however, and any equitable interest it may still have in the property, the court must conduct normal foreclosure proceedings leading to a sheriff's sale if appropriate.

Affirmed in part, reversed in part, and remanded for further proceedings on plaintiff's foreclosure complaint in conformity with this opinion.   We do not retain jurisdiction.

PER CURIAM