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DOCKET NO. A-0948-13T1







November 14, 2014


Submitted October 8, 2014 Decided

Before Judges Ashrafi and O'Connor.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7372-12.

Thomas Espinosa, attorney for appellant.

Law Offices of Tae H. Whang, L.L.C., attorney for respondent (Tae Hyun Whang, on the brief).


Defendant David Appello appeals the denial of his motion to vacate a default judgment entered against him and in favor of plaintiff Roma Bank. We affirm.

In 2006, defendant and plaintiff s predecessor in interest, Sterling Bank (Sterling), entered into a construction loan and security agreement (agreement). Under the terms of theagreement Sterling loaned defendant $650,000 to finance the purchase and renovation of a small apartment building, as well as construct a duplex on an adjoining lot. The sum of $375,000 wasto beimmediately disbursed for the purchase of the property and the balance of $275,000 was to be released as follows.

The sum of $59,000 was to be used to renovate three units in the apartment building and convert them into twocondominiums. After the renovation was completed, $206,500 was to be advanced for the construction of the duplex in five separate increments in accordance with a "construction draw schedule" attached to the agreement. When defendant reached any one of the five stages of construction, he was to receive a specific sum of money as set forth in the schedule. After signing the agreement, defendant gave Sterling a note for $650,000 and executed a mortgage pledging the property.

After purchasing the property, defendant renovated and converted the three apartments into two condominiums. He did not use the $59,000 available to him under the loan agreement, choosing instead to use his own funds to renovate the existing building. In 2009, defendant finally completed the renovation project but was unable to sell any of the condominiums. Defendant never commenced construction of the duplex.

In May 2009, the parties agreed to modify the mortgage and make it a three-year "mini-permanent" mortgage. Defendant executed a modified note and mortgage indicating he was borrowing $404,227.53 from Sterling. Plaintiff claims the modified note and mortgage extinguished Sterling s obligation to advance $206,500 toward the construction of the duplex. We disagree. The language in the modified mortgage did state that the parties agreed to revise the loan to reflect a reduction in the principal amount of the loan from $650,000 to 404,227.53,1 and the modified note stated that the 2006 note evidencing a loan to defendant of $650,000 was of "no further force and effect." However, these documents also noted that the terms of the 2006 note, mortgage, and associated loan documents remained in effect unless otherwise stated. The modified note and mortgage did not mention, let alone alter, the provision in the agreement that allowed defendant to borrow $206,500 for the construction of the duplex.

However, in early 2011, defendant contacted plaintiff, which by then had merged with Sterling,2 and filled out an application to convert the loan into a thirty-year mortgage. A mortgage in the amount of $411,517.94 was approved and, in June 2011, defendant executed a thirty-year mortgage and note evidencing he borrowed this latter sum. This note and mortgage were not modifications of the 2006 or 2011 note and mortgage. This time plaintiff converted the loan of $404,227.53 into a new loan for $411,517.94, executing a new note and mortgage unrelated to any previous loan.

Defendant made only two monthly payments toward the new loan before he defaulted, in October 2011. In March 2012, plaintiff sent defendant a letter advising he was in default and that it was accelerating the balance due. Defendant neither responded to the letter nor took any action to cure the default. On September 24, 2012, plaintiff filed the within action. Defendant did not file a responsive pleading and, ultimately, a final judgment by default was entered on February 21, 2013, for $468,441.79.

On March 27, 2013, plaintiff served defendant with an information subpoena. Defendant did not respond. On June 28, 2013, plaintiff filed a motion to compel defendant to comply with the information subpoena. Defendant filed a cross motion to vacate the default judgment on the grounds his failure to file an answer to the complaint was excusable neglect and, further, that he had a meritorious defense. Plaintiff's motion was granted, but defendant's motion was denied because he did not show he had a meritorious defense.


An order denying a motion to vacate a default judgment "should not be reversed unless it results in a clear abuse of discretion." U.S. Bank Nat. Ass'n v. Guillaume, 209 N.J. 449, 467 (2012). An abuse of discretion exists when a decision is "made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002) (quoting Achacoso-Sanchez v. Immigration and Naturalization Serv., 779 F.2d 1260, 1265 (7th Cir. 1985)). But applications seeking relief from default judgments are to be "'viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached.'" Prof'l Stone, Stucco & Siding Applicators, Inc. v. Carter, 409 N.J. Super. 64, 68 (App. Div. 2009) (quoting Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964)). Any doubts about an application to vacate a default judgment should be resolved in favor of the party seeking relief. Mancini v. Eds ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330, 334 (1993) (citing Arrow Mfg. Co., Inc. v. Levinson, 231 N.J. Super. 527, 534 (App. Div. 1989)).

A motion to vacate a default judgment is governed by Rule 4:50-1. See R. 4:43-3. Here, defendant seeks to vacate the default judgment on the grounds of excusable neglect. See R. 4:50-1(a). A party seeking to vacate a default judgment under this subsection of the rule must show, in addition to excusable neglect, that he has a meritorious defense. Guillaume, supra, 209 N.J. at 468 (citing Marder, supra, 84 N.J. Super. at 318.) We need not address whether defendant's failure to file an answer and allow this matter to progress to the entry of default judgment constituted excusable neglect, because defendant has not demonstrated he has a defense that is meritorious.

Defendant asserts Sterling fraudulently induced him to enter into the 2006 loan agreement by promising to advance $275,000 toward improving the property, when in fact the bank had no intention of disbursing any of this money to him. In reliance upon Sterling s promise, defendant borrowed from and became indebted to Sterling for $375,000 and, eventually, to plaintiff for $411,517.94 when it refinanced the loan. Although he acquired property with the money he borrowed, he complains the property was less marketable without the duplex and as a result he could not sell it. Unable to meet the carrying costs of the property, he eventually defaulted on the mortgage. He contends Sterling s motive for withholding the funds was to cause him to default so that it could foreclose upon the mortgage and obtain the property. As its successor interest, defendant argues plaintiff is responsible for Sterling s fraudulent conduct.

Plaintiff does not dispute it is responsible for Sterling s actions. But plaintiff does point out defendant never qualified for an advance of any of the funds for the construction of the duplex. As part of the loan agreement, defendant was entitled to take a draw after he completed any one of the five stages of construction; however, defendant did not commence construction on the duplex. Therefore, Sterling could not release any of the money earmarked for that project.

While defendant certified he obtained plans and permits for the construction of the new building, he did not certify he completed even the first stage of construction, which was to clear the site, excavate, and put in the footings and foundation. In fact, defendant did not proffer any evidence he fulfilled any of the conditions necessary to qualify for any of the subject funds.

Further, the original loan was extinguished when defendant refinanced the loan with plaintiff for $411,517.94. Defendant, who chose to borrow the latter sum, defaulted within four months of closing on this loan. As defendant did not show that either Sterling or plaintiff engaged in the alleged wrongful conduct, we are constrained to conclude defendant does not have a meritorious defense and, therefore, the trial court did not abuse its discretion when it denied defendant's motion to vacate the default judgment.


1 The $404,227.53 included the balance of the $375,000 defendant had borrowed in 2006, plus an additional amount he borrowed to pay overdue property taxes and other miscellaneous expenses.

2 The record is unclear when Sterling Bank merged with Roma Bank.