SUMMIT BUSINESS CAPITAL CORP. v. QUINN-WOODBINE REALTY & LEASING CO., L.L.C.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4997-04T24997-04T2

SUMMIT BUSINESS CAPITAL

CORP.,

Plaintiff-Appellant,

v.

QUINN-WOODBINE REALTY &

LEASING CO., L.L.C.,

Defendant-Respondent.

_______________________________________

 

Submitted May 8, 2006 - Decided June 8, 2006

Before Judges Fall, Yannotti and Newman.

On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No F-16397-01.

Gregory & Reed, attorneys for appellant (Steven J. Reed and Barbara A. Karpowicz, on the brief).

Flaster/Greenberg, attorneys for respondent (J. Philip Kirchner and Vincent J. Nolan, III, of counsel and on the brief).

PER CURIAM

Plaintiff Summit Business Capital Corp. appeals from an order entered by the Chancery Division in this foreclosure action on March 18, 2005 denying its motion to amend the foreclosure judgment to allow reimbursement of certain post-judgment advances. Plaintiff also appeals from an order entered on April 22, 2005 denying its motion for reconsideration. We affirm in part, reverse in part, and remand for entry of an amended judgment of foreclosure.

I.

On March 3, 1998, plaintiff entered into a credit agreement with defendants Quinn-Woodbine Realty & Leasing Co., L.L.C. (QWR) and Quinn-Woodbine, Inc. (QWI). On the same date, plaintiff and QWR entered into a mortgage contract, to secure repayment of any indebtedness under the credit agreement. QWR provided a mortgage for certain real property in Woodbine, New Jersey along with all furniture, fixtures, equipment and other items of personal property used in connection with the operation of the property. In addition, Michael Quinn (Quinn) entered into an agreement with plaintiff guaranteeing payment when due of amounts owed by QWR and QWI under the credit agreement. QWR and QWI defaulted under the credit agreement and, on March 26, 2001, QWI filed a petition in bankruptcy.

In August 2001, plaintiff brought an action on the loan against QWR and Quinn in the Law Division. Plaintiff also commenced this foreclosure action against QWR in the Chancery Division. On January 15, 2002, a default judgment was entered in the Law Division action against QWR and Quinn finding that $899,477.55 was due and owing under the credit agreement as of January 10, 2002, along with interest accruing after that date.

On September 4, 2002 a final judgment of foreclosure by default was entered in the action, which states that plaintiff is entitled to $655,760.20, plus interest thereon, with attorneys' fees in the amount of $6,707.60, to be "raised and paid out of the mortgaged premises" as described in the complaint. The final judgment ordered the sale of the mortgaged property and directed that an execution for that purpose issue to the Sheriff of Cape May County, with the proceeds of the sale applied to plaintiff's debt and any surplus remaining paid into court.

QWR moved in July 2003 to set aside the foreclosure judgment and also sought a stay of the foreclosure and any related collection actions. At or about this time, Quinn moved in the Law Division action to set aside the default judgment entered in that case. The Law Division judge denied Quinn's motion by order entered on October 29, 2003. The Chancery Division judge denied QWR's motion by order entered on November 14, 2003, however the judge ordered a change in the amount of the judgment to correct an error in the calculation of interest.

On November 21, 2003, Quinn sought reconsideration of the Law Division's October 29, 2003 order and on December 10, 2003, QWR filed a motion for reconsideration of the Chancery Division's November 14, 2003 order. The Law Division judge denied Quinn's motion by order entered on December 18, 2003 and QWR's motion for reconsideration in this case was denied by an order entered on April 30, 2004.

Meanwhile, on February 23, 2004, Quinn filed a motion in the Law Division action seeking an accounting in respect of the amounts found due and owing under the terms of the credit agreement. The Law Division judge granted the motion by order entered on April 2, 2004 and in response to that order, plaintiff filed a certification detailing the amounts due. On August 17, 2004, the Law Division judge entered an order which amended the default judgment based on the information contained in plaintiff's certification.

Quinn moved again in September 2004 for reconsideration of the Law Division's October 29, 2003 order which had denied his motion to set aside the default judgment. On October 1, 2004, Quinn filed a notice of appeal from the order entered on August 17, 2004. In light of the filing of that appeal, Quinn's motion for reconsideration was dismissed on October 7, 2004. Quinn withdrew his appeal and on October 20, 2004, the Law Division reinstated the motion for reconsideration. The Law Division judge denied Quinn's motion by order entered on November 5, 2004. Quinn filed an additional motion to vacate the default judgment in the Law Division, which the judge treated as a motion for reconsideration and denied on December 3, 2004.

Plaintiff thereafter filed a motion in the Chancery Division on December 22, 2004 for permission to enter upon the property to conduct a Phase II environmental study. QWR filed a cross-motion for post-judgment relief seeking to have the judgment marked satisfied because plaintiff allegedly sold QWR's equipment and machinery in a commercially unreasonable manner.

Plaintiff thereafter filed what it called a cross-motion seeking an order directing the sheriff to pay additional sums to reimburse plaintiff for certain funds it had advanced respecting the mortgaged property, specifically: 1) $48,551.41 for taxes; 2) $15,929.26 for property insurance; 3) $28,832.71 for utilities (water, electric and gas); and 4) $8,250 for a site inspection, appraisals and a Phase I environmental study. Plaintiff additionally sought reasonable attorneys' fees and costs related to QWR's various motions for relief from the default judgment.

After hearing argument on the motions, the judge rendered a decision on March 18, 2005. The judge denied plaintiff's application to amend the foreclosure judgment to include the advances. The judge rejected plaintiff's application for payment of the Phase I environmental testing, finding that the obligation to pay for the environmental studies arose under the mortgage and was merged into the foreclosure judgment. The judge additionally found that the cost of the environmental studies was to allow plaintiff to value the property for sale, not to protect the mortgaged premises. The judge stated, "[I]f the defendant is uninterested in making sure the property brings the highest value at sale, the plaintiff should not be able to force him to do so."

The judge also denied plaintiff's application to amend the judgment to reimburse plaintiff for its payment of taxes, utilities and insurance. The judge stated:

The foreclosure judgment was decided in 2002. I don't know why the foreclosure sale hasn't been held sooner, but if the foreclosure sale had been held within six months, these taxes and additional payments would have been incurred by the then owner, and there's no reason for me to impose them on a mortgagee who, as far as I can tell, has not resisted the scheduling of the property for sale.

Plaintiff's counsel pointed out that QWR and Quinn had filed numerous motions in the Chancery Division and the Law Division seeking relief from the judgment. But the judge stated that such motions did not preclude plaintiff from scheduling a sale of the property. The judge also denied plaintiff's application for counsel fees. An order was entered on March 18, 2005 denying plaintiff's motion.

Plaintiff moved for reconsideration, again noting the various applications that QWR and Quinn made seeking relief from the judgments entered in the Law Division and the Chancery Division. The judge denied the motion and set forth the reasons for his decision on the record on April 22, 2005.

The judge recognized that amending a final judgment of foreclosure before the sheriff's sale to include advances for taxes "and the like" are "routinely granted." However, the judge stated that the motion made in this case was "completely different from the normal, run-of-the-mill applications that are granted." The judge stated:

First, [the application] seeks an addition of substantial sums expended for environmental testing which are really not justified under the judgment.

The mortgage document is . . . merged, and with it the requirement that the defendant cooperate in environmental testing and to pay for that environmental testing.

. . . .

The second issue deals with the issue of taxes and the like. And I had determined that because of the delay in scheduling the sheriff's sale I would not require the . . . defendant to . . . be responsible.

I stress that none of the actions in the Law Division stay the sheriff's sale. I recognize [defendant's] candid concession, . . . that if the sale was scheduled the defendant would be in here requesting that I stay the sale pending a determination of the effect of the auction on the amount that's due.

The judge entered an order on April 22, 2005 denying the motion for reconsideration and this appeal followed.

II.

Plaintiff argues that the judge erroneously refused to amend the final judgment of foreclosure to allow reimbursement for its post-judgment advances of monies for taxes, utilities, insurance and the environmental studies. Plaintiff contends that it has become routine practice in foreclosure matters to allow advances for taxes, utilities and insurance and the judge erred in this case by departing from that common practice. Plaintiff further asserts that the judge incorrectly found that an amendment of the final judgment was not warranted in this case because plaintiff delayed in scheduling the sheriff's sale.

It is well established that upon foreclosure, the mortgage agreement merges with the final judgment of foreclosure and "such decree represents the final determination of the debt." Virginia Beach Fed. v. Bank of New York/Nat'l Comm. Div., 299 N.J. Super. 181, 184 (App. Div. 1997) (quoting Colonial Bldg.-Loan Ass'n v. Mongiello Bros., 120 N.J. Eq. 270, 276 (Ch. 1936)). "What had been a private claim under the mortgage contract becomes a special form of judgment [which] entitle[s] the plaintiff to a writ of execution to sell the designated property to satisfy the amount determined to be due." Resolution Trust Corp. v. Griffin, 290 N.J. Super. 88, 91 (Ch. Div. 1994) (citing Colonial Bldg.-Loan Ass'n, supra, 120 N.J. Eq. at 276). See also Realty Asset Prop. v. Oldham, 356 N.J. Super. 16, 21 (App. Div. 2002), certif. denied, 176 N.J. 71 (2003) (holding that, under the doctrine of merger, the mortgage agreement is merged into the final foreclosure judgment and the contract interest rate is superceded by the rate for judgments permitted under the court rules).

Although strict application of the merger doctrine would bar any amendment of the final judgment to include post-judgment advances to meet a mortgagor's obligations under the mortgage, case law permits recognition of advances if the foreclosing party moves to amend the judgment prior to the sheriff's sale. In Resolution Trust Corp., supra, the foreclosing mortgagee sought reimbursement from surplus funds derived from the sheriff's sale of mortgaged property as reimbursement for taxes and insurance premiums paid after entry of the final foreclosure judgment. 290 N.J. Super. at 89. The court determined that under the doctrine of merger, after the entry of the final judgment, the "mortgage itself no longer has legal vitality." Id. at 91. The court further determined that it had authority under R. 4:50-1(f) to amend the judgment to include real estate taxes and insurance premiums, "provided there is no adverse effect on intervening rights of other parties." Id. at 92. "However, once the sale takes place, the Sheriff must comply with the terms of the writ in disbursing the money received." Ibid.

In Virginia Beach we considered the same question that had been addressed in Resolution Trust Corp. In Virginia Beach, supra, the foreclosing mortgagees sought reimbursement from surplus funds for post-judgment payments of real estate taxes, insurance premiums and certain property inspection costs. 299 N.J. Super. at 183. We noted that under N.J.S.A. 2A:50-37, the monies derived from the sheriff's sale of mortgaged property "shall be applied to pay off and discharge the moneys ordered to be paid, and the surplus, if any, shall be deposited with the court" and, upon application, paid to those entitled to those monies. Id. at 184. We further noted that under R. 4:64-3, petitions for surplus monies in foreclosure actions may be presented after the sale, on notice "to all defendants whose claims are not directed in the execution to be paid out of the proceeds of sale. . . ." Ibid.

In Virginia Beach, we approved the reasoning and conclusion reached in Resolution Trust Corp. and held that in view of the "well-settled principle that a mortgage merges into the judgment of foreclosure," and a "fair construction" of N.J.S.A. 2C:50-37 and R. 4:64-3, the mortgagees were not entitled to the expenses they had incurred after the final judgment of foreclosure "unless that judgment has been amended prior to the sheriff's sale." Id. at 188.

In addition to our decision in Virginia Beach, our court rules recognize the court's authority to amend a final judgment of foreclosure to include certain advances for additional sums paid by a mortgagee. The Office of Foreclosure (OF) in the Administrative Office of the Courts is established by R. 1:34-6. The OF has responsibility for recommending the entry of orders or judgments in uncontested foreclosure matters, subject to the approval of a Judge of the Superior Court. Ibid. The OF is expressly permitted to recommend the entry of orders "authorizing [the] sheriff to collect additional lawful sums." Ibid.

Acting pursuant to the rule, the OF has recommended the entry of orders allowing the mortgagee to obtain reimbursement for taxes, insurance and "other amounts for the preservation of property." Myron C. Weinstein, Court Voids Post-Judgment Advances for Mortgagees, 148 N.J.L.J. 176 (April 14, 1997). See also 30A New Jersey Practice, Law of Mortgages, 31.47 at 211-12 (Mylon C. Weinstein) (2d ed. 2000)(noting that orders are entered pursuant to R. 1:34-6 "in tremendous volume" by the OF and allow the mortgagees to obtain advances for taxes and insurance if the order is entered and delivered to the sheriff before the sale).

We are convinced that the judge in this matter misapplied his discretion in denying plaintiff's motion to amend the final judgment to allow plaintiff to be reimbursed for the taxes, utilities and insurance premiums it has paid in respect of the mortgaged property. Here, plaintiff moved prior to the sheriff's sale to amend the judgment and in doing so, followed the procedure sanctioned in Virginia Beach and routinely followed by the OF in uncontested matters. The judge concluded that plaintiff should not be reimbursed for the taxes, utilities and insurance premiums it paid in respect of the property because plaintiff delayed in scheduling the sheriff's sale.

However, the record shows that the delay in scheduling the sheriff's sale was due in large part to the many applications filed by QWR in this matter and by Quinn in the Law Division action seeking relief from the default judgments entered in these related cases. We recognize that QWR's motions for relief from the judgment did not effect a stay of the sheriff's sale. However, we cannot fault plaintiff for delaying the sale until these various challenges had been resolved. In fact, as counsel for QWR conceded in the trial court, had plaintiff endeavored to schedule the sale, it would have moved for a stay.

In the meantime, plaintiff advanced payments for real property taxes, which served to avoid a tax sale of the property and the accrual of interest on unpaid taxes. Plaintiff paid utilities which protected the property from damage. In addition, plaintiff paid insurance premiums which insured the property against loss or damage. Based on these facts, we are convinced that the judge mistakenly exercised his discretion in denying the motion to amend the judgment to include the advances for taxes, utilities and insurance.

We reach a different conclusion with regard to plaintiff's application to include the cost of the environmental studies in the judgment. Section 23(iii) of the mortgage provides in pertinent part that the mortgagor or any lessee of the premises shall not permit the intentional or unintentional "releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of any" hazardous substances or wastes onto the waters or lands of the State of New Jersey and the mortgagor is required to promptly clean up any such spill or leak in accordance with the applicable environmental laws. In addition, section 23(xiv) provides that the mortgagee has the right to conduct any environmental inspections that the mortgagee reasonably deems "necessary or advisable from time to time" at the sole cost and expense of the mortgagor so long as the mortgagee has a "reasonable basis to believe that the Premises contains hazardous wastes or hazardous substances in excess of that permitted by applicable law."

Clearly, under the doctrine of merger, QWR's contractual obligation to pay for these environmental inspections does not survive the entry of the final judgment of foreclosure. The contractual duties, like other provisions of the mortgage agreement, have been replaced by the judgment which entitles "plaintiff to a writ of execution to sell the designated property to satisfy the amount determined to be due." Resolution Trust Corp., supra, 290 N.J. Super. at 91. Nevertheless, as we pointed out previously, the court may amend the judgment under R. 4:50-1(f) if it is equitable to do so.

Here, the judge did not misapply his discretion in refusing to amend the judgment and require payment of the cost of environmental studies out of the proceeds of the sale. As the judge pointed out, these are extraordinary costs, unlike taxes, utilities and insurance, which are routinely permitted by way of amendments to foreclosure judgments. Id. at 92. The cost of the environmental studies also is not the sort of "additional lawful sums" typically considered appropriate for payment by amending the final judgment under R. 1:34-6.

Moreover, as the judge pointed out, the expenditures for environmental studies related primarily to the valuation of the property for sale. The expenses were not made to preserve the property. The judge properly determined that if QWR was not interested in obtaining the highest value for the property, it was not required to expend monies for this purpose. In our view, the judge properly determined that in these circumstances it would not be equitable to grant plaintiff relief from the judgment to allow reimbursement for the costs of the environmental studies.

The judge also denied plaintiff's application for reimbursement of costs for appraisals and a site inspection. In addition, the judge denied plaintiff's application for attorney's fees. Plaintiff did not argue either point in its brief and therefore is deemed to have abandoned these issues. Noye v. Hoffmann-La Roche, 238 N.J. Super. 430, 432 n.2 (App. Div.), certif. denied, 122 N.J. 146 (1990).

Affirmed in part, reversed in part, and remanded for entry of an amended judgment of foreclosure. We do not retain jurisdiction.

 

On January 14, 2005, Quinn filed a notice of appeal from the Law Division orders entered on December 3, 2004, November 5, 2004, August 17, 2004, December 18, 2003, October 29, 2003 and January 15, 2002. The appeals were docketed under A-2338-04T3 and were dismissed by order filed July 20, 2005 at Quinn's request.

(continued)

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A-4997-04T2

June 8, 2006