WASHINGTON MUTUAL BANK, F.A. v. LUCIAN A. TEODORESCU et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1778-04T21778-04T2

WASHINGTON MUTUAL BANK, F.A.,

successor by merger to

Washington Mutual Home Loans, Inc.,

Plaintiff-Respondent,

v.

LUCIAN A. TEODORESCU and

ELENA TEODORESCU, h/w,

Defendants-Appellants.

___________________________________

 

Submitted: October 18, 2005 - Decided:

Before Judges Axelrad and Payne.

On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, F-6024-03.

Franco & Franco, attorneys for appellants (Robert A. Franco, of counsel and on the brief).

Norris, McLaughlin & Marcus, attorneys for respondent (Alison L. Galer, on the brief).

PER CURIAM

In this foreclosure action, defendants Lucian and Elena Teodorescu appeal from orders granting plaintiff lender's motion to strike defendant's answer and counterclaim, entering default and transferring the matter to the foreclosure unit as an uncontested case, awarding counsel fees on the motion, and denying defendant's cross-motion to compel discovery and transfer the case to the federal court. Judge MacKenzie concluded that defendant had failed to satisfy the procedural requirements for removal imposed by 28 U.S.C.A. 1446, and the case was not removable even if he had satisfied those requirements. The trial court also concluded that defendant could not assert as a defense or counterclaim the lender's failure to satisfy certain regulations of the United States Department of Housing and Urban Development (HUD) applicable to the servicing of loans governed by the Federal Housing Administration (FHA). Thus, defendant's motion to compel discovery was irrelevant because his claims failed as a matter of law. We affirm.

On November l5, 200l defendant Lucian Teodorescu applied for a purchase money mortgage with Integrity Home Funding, LLC (Integrity) and signed a floating rate option. He did not pay for a committed rate. The December 13, 200l mortgage commitment letter provided for the rate to be set at least three days before closing. The December l9, 200l closing instructions set the rate at 7.5%. On December 19, 2001 Integrity assigned the note and mortgage to Washington Mutual Home Loans, Inc., and advised defendant in writing of the assignment at closing. At the December 20 closing defendant signed a note and mortgage for $216,854, with a thirty-year payout beginning February 1, 2002 at a 7.5% interest rate. The mortgage was insured by the FHA. The note and mortgage permitted the lender and its successors to accelerate the debt upon default of any monthly installment payment. The note contained a provision that "[i]n many circumstances regulations issued by the Secretary [of HUD] will limit Lender's rights to require immediate payment in full in the case of payment defaults. This Note does not authorize acceleration when not permitted by HUD regulations." The mortgage was recorded on January 9, 2002. The assignment was recorded on February l5, 2002. Plaintiff Washington Mutual Bank is a successor in interest to Washington Mutual Home Loans, Inc.

Defendant defaulted after the October 2002 payment, having apparently lost his job. Plaintiff accelerated the mortgage and filed a foreclosure in March 2003 against defendant. Defendant set forth as affirmative defenses and counterclaims in a pro se pleading the lender's failure to satisfy certain HUD regulations concerning loss mitigation prior to foreclosure. More specifically, his answer claimed the Secretary's regulations limited plaintiff's right to accelerate and foreclose, and under HUD regulations plaintiff was obligated to accept payments for taxes and homeowners insurance even though the borrower could not pay the principal and interest installment. His affirmative defenses were plaintiff's failure to comply with the following HUD regulations: conduct a face to face interview or visit at his property before foreclosing, citing 24 C.F.R. 203.604(b) & (d); review its file and determine compliance with regulations before foreclosing, citing 24 C.F.R. 203.606(a); extend the mortgage for ten years because of circumstances beyond defendant's control, citing 24 C.F.R. 203.650(a)(6); and have a loss mitigation specialist return his calls and provide him with information on programs to reduce his monthly mortgage payments and avoid foreclosure. Defendant counterclaimed for $500,000 for plaintiff's failure to respond to his multiple requests seeking information related to HUD programs and solutions to foreclosure, citing 12 U.S.C. 2605(e)(1)(a) & (e)(2)(c); the lender's refusal to reduce the monthly mortgage payment to avoid default; and the lender's failure to implement loss mitigation initiatives, citing 12 U.S.C. 203.501. He also asserted emotional distress claims based on the lender's alleged fraudulent practices and violation of the regulations.

Plaintiff filed a motion to strike defendant's answer and counterclaim, enter default and transfer the matter to the foreclosure unit as an uncontested case. The motion also requested attorney fees. Plaintiff's motion was supported by a certification of default and copies of the loan documents. Plaintiff argued there was no private cause of action available to a borrower for a lender's violation of HUD regulations concerning loss mitigation.

Defendant cross-moved through counsel to compel discovery and to transfer the action to the United States District Court for the District of New Jersey on the grounds that the Chancery Division lacked subject matter jurisdiction over the action. Defendant certified that shortly after receiving the pre-approval letter on November 27, 2001, he was orally advised by Mr. Lifshin, Integrity's loan officer, that his interest rate would be 7%. He also certified that the lender failed to send in writing the rate lock confirmation at least three days before closing. At closing, defendant alleged he told his attorney he would not sign the documents, and the attorney spoke with Lifshin, who said the lender would execute a written modification to 7% within thirty days of the closing. He further asserted as a defense to the foreclosure that the assignment pre-dated the signed mortgage and note, and summary judgment was premature as he had not received the requested discovery. Defendant indicated a desire to join Integrity as an additional defendant. Defendant provided no response to the lender's argument that the alleged HUD violations could not be asserted as a cause of action.

Following oral argument, by orders of October 22, 2004, the court granted all of the relief sought by plaintiff and denied defendant's motion. The court found plaintiff "established a prima facie case for foreclosure, i.e. execution and timely recording of the mortgage, failure to pay according to its terms, acceleration of amount due, and notice of intention." It further found "[t]he Answer, Defenses and Counterclaim all rest in HUD loss mitigation allegations which are not cognizable in this foreclosure action." After reviewing plaintiff's counsel's affidavit of services, on November 15, 2004 the court entered an order awarding plaintiff counsel fees and costs in the amount of $4,443.53, pursuant to N.J.S.A. 2A:15-59.1 and Rule 4:42-9(a)(4).

Following defendants' appeal, the court issued an amplified statement of reasons for its decision pursuant to Rule 2:5-1(b). The court discussed the legal basis for its conclusion that defendant did not have a "private cause of action [against the lender] under loss mitigation guidelines, and no remedy or duty from the bank to the borrower created by the HUD regulations." The court also found that defendant was precluded from asserting a claim that the loan was improperly issued at the rate of 7.5%, rather than the 7% rate he was allegedly promised, because he had not raised the claim in his pleadings, which were based only on HUD loss mitigation arguments. Even if he had, such claim would fail as a matter of law, as extrinsic and parol evidence would not be admissible to alter the terms of the complete and unambiguous loan documents. Wellington v. Estate of Wellington, 359 N.J. Super. 484, 495 (App. Div. 2003).

The court also found defendant's cross-motion for removal to be meritless based on the untimely and non-compliant application and the absence of a federal question. Pursuant to 28 U.S.C.A. 1446, in order to remove the matter from state court to federal court, defendant was required to file a notice of removal in the federal court, with a statement of the grounds for removal and copies of all pleadings and orders served upon him in the state action, within thirty days of receipt of the summons and complaint. Defendant was served with the summons and complaint on May 29, 2003, and did not seek to remove this matter until almost seventeen months later. In addition to being time-barred, the trial court found defendant did not follow the proper removal procedures, as he did not file a notice of removal with the federal court but only filed a motion in the Superior Court. Even had defendant satisfied the statutory procedural requirements for removal of the action to federal court, the trial court concluded that such application would have been denied on its merits as defendant failed to establish the existence of a federal question sufficient to support removal of the foreclosure action to federal court. The court stated, "[a]lthough [d]efendants assert that their defenses involve interpretation of HUD regulations and that such defenses support federal question jurisdiction, it is well settled that a defense (as compared to plaintiff's claims) cannot give rise to federal question jurisdiction. (citations omitted)."

Defendants advance the following arguments on appeal:

Point I

The Plaintiff/Respondent Washington Mutual Bank, F.A.'s, Motion for Summary Judgment relief relative to striking the Answer, separate Defenses and Counterclaim of the Defendants should not have been granted by the lower State Court.

Point II

Summary Judgment and all other relief requested should have been denied because of the existence of multiple issues of fact and since the discovery requests had not been answered by the Plaintiff although the Defendant had previously served written demands for responses to Interrogatories and Production of Documents.

a) The legal positions advocated in the Defendant's Answer and Affirmative Defenses are viable and are not frivolous as believed by the Plaintiff/Respondent, herein.

Point III

This matter should have been transferred to the Federal District Court because the lower State Court lacked subject matter jurisdiction.

We are not persuaded by any of these arguments and affirm substantially for the reasons set forth by Judge MacKenzie. We add the following comments and observations.

Defendants essentially make the same arguments on appeal as were advanced in the trial court, with the exception that they now cite the case of Heritage Bank v. Ruh, 191 N.J. Super. 53 (Ch. Div. 1983), as a basis for their claim that the lender's failure to satisfy HUD regulations is an equitable defense to the foreclosure action even if it is not a private right. Contrary to plaintiff's assertion, defendants are not precluded from citing case law on appeal that was not cited below. The Ruh case, however, lends no support to defendants' argument. In Ruh, an assignee mortgagee brought an action to foreclose a federally-insured mortgage, administered under the HUD rules and regulations. The defendant maintained that the lender's failure to follow the regulations and procedures precluded the lender from foreclosing the mortgage, or alternatively, the "plaintiff's conduct in this respect is so unconscionable and inequitable as to preclude it from relief in equity." Ruh, supra, 191 N.J. Super. at 59. The court analyzed the loss mitigation and servicing regulations pertaining to FHA mortgages, including the l980 amendment to 24 C.F.R. 203.500, concluding that

the HUD Regulations and procedures in the HUD Handbook are discretionary, not mandatory, and are not a legal prerequisite to foreclosure which is determined by state law. Further, a private cause of action may not be implied against a mortgagee for violation of the HUD regulations and the procedures outlined in the HUD Handbook.

[Id. at 66.]

Thus the cited provision in defendant's mortgage that it "does not authorize acceleration and foreclosure when not permitted by the [HUD] Secretary's regulations" does not limit plaintiff's right to foreclose under the circumstances of the present case.

Moreover, although the Chancery Court recognized that a mortgagor may assert a mortgagee's failure to satisfy the HUD regulations as an equitable defense, it did not find the lender's conduct under the facts of the case "in failing to comply with the regulations and procedures [was] so unconscionable and inequitable as to preclude [the borrower] from relief and bar its right to foreclosure." Id. at 66-67. Nor do we in the present case. Based on our broad reading of notice pleadings, it is not fatal that the equitable defense was not particularly framed as such in the pro se answer. However, defendants only asserted in bald, generalized terms that plaintiff's motion was not ripe for determination because there were material issues of fact and the need for discovery. Defendants failed to articulate the type of equitable defense to a foreclosure addressed in Ruh. Also, defendant did not make a proffer as to how Washington or its predecessor's conduct in servicing the loan and failing to follow the steps recommended by HUD to avoid foreclosure would be "'monstrously harsh' or 'shocking to the conscience'" rather than mere inept handling of defendant's account, which would not be unconscionable so as to equitably bar its right to foreclosure. Ruh, supra, 191 N.J. Super. at 71.

Defendants also fail to state a basis for discovery regarding the terms of the loan or a defense based on the claimed misrepresentation as to the interest rate. As a matter of law, the parol evidence rule would bar extrinsic evidence of an oral agreement to reduce the interest rate after closing to 7% based on all the documents that clearly indicate otherwise, including the signed closing statement from defendant's attorney. We note the absence of any certification from defendant's closing attorney attesting to the alleged conversation at closing with Lifshin to support defendant's claim of fraud or misrepresentation. Moreover, the fact defendant made his first payment on February l, 2002, based on the 7.5% interest rate set forth in the mortgage, after not having gotten the allegedly-promised modification, and continued to pay through October, belies his fraud claim.

Nor was there any legal deficiency in the assignment being executed the day before closing. "To be effective, [an] assignment must be clear and unequivocal and must be noticed to the obligor." Tirgan v. Mega Life and Health Ins., 304 N.J. Super. 385, 390 (Law Div. 1997) (citing Berkowitz v. Haigood, 256 N.J. Super. 342, 346 (Law Div. 1992)). The assignment in this case satisfied all these requirements. The right Integrity assigned came to fruition when defendant chose to execute the mortgage at closing. Defendant was clearly advised of this assignment at closing.

As to defendant's cross-motion, we emphasize that the party attempting to invoke federal jurisdiction bears the burden of establishing "that federal jurisdiction exists and that removal is proper." Weinberg v. Spring Corp., 165 F.R.D. 431, 435 (D.N.J. 1996) (citing Boyer v. Snap-on-Tools, 913 F.2d 108, 111 (3d Cir. 1990)). The party seeking removal must also establish the existence of federal subject matter jurisdiction. State of New Jersey v. City of Wildwood, 22 F. Supp. 2d 395, 400 (D.N.J. 1998). This defendant failed to do.

Additionally, although defendants asserted a challenge to the trial court's award of counsel fees and costs to plaintiff in its Notice of Appeal, they did not include any arguments in their brief regarding the issue. Therefore, the issue has been waived on appeal. In re Bloomingdale Convalescent Ctr., 233 N.J. Super. 46, 48 n.1 (App. Div. 1989).

 
Affirmed.

Defendant Lucian Teodorescu was the sole mortgagor. His wife was named as a defendant in the foreclosure action based on a potential interest in the property. Only Lucien filed responsive pleadings. This appeal, however, was filed by both parties. The term "defendant" in this opinion will refer to Lucian.

The mortgage contains similar language; it could not be quoted because a portion was cut off in the copy reproduced in the appendix.

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A-1778-04T2

November 22, 2005