Opinion
DOCKET NO. A-2032-13T3
01-08-2016
HSBC BANK USA, NATIONAL ASSOCIATION as Trustee for Wells Fargo Asset Securities Corporation, Mortgage Pass-Through Certificates, Series 2007-14, Plaintiff-Respondent, v. JOY LIA, her heirs, devisees and personal representatives, and her or any of their successors in right, title, and interest; ANTHONY LIA, his heirs, devisees and personal representatives and his or any of their successors in right, title and interest; and WELLS FARGO BANK, N.A., Defendants-Appellants.
Joseph A. Chang & Associates, LLC, attorneys for appellants (Joseph A. Chang, of counsel and on the brief; Jeffrey Zajac, on the brief). Zucker, Goldberg & Ackerman, LLC, attorneys for respondent (Douglas J. McDonough, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges St. John and Rothstadt. On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-40615-09. Joseph A. Chang & Associates, LLC, attorneys for appellants (Joseph A. Chang, of counsel and on the brief; Jeffrey Zajac, on the brief). Zucker, Goldberg & Ackerman, LLC, attorneys for respondent (Douglas J. McDonough, of counsel and on the brief). The opinion of the court was delivered by ROTHSTADT, J.A.D.
In this foreclosure action, defendants Joy Lia and Anthony Lia appeal from three orders entered by the Chancery Division denying their attempts to vacate the default entered against them when they failed to respond to the complaint filed by plaintiff HSBC Bank USA, National Association, as Trustee for Wells Fargo Asset Securities Corporation, Mortgage Pass-Through Certificates Series 2007-14. Defendants argue the default should have been vacated because they were not properly served with process and the court erred because they established a factual question regarding service of process that required a plenary hearing to resolve. They also contend the court failed to apply the appropriate standard to their motion to vacate, or to recognize they made the required showing of a meritorious defense to the complaint. Finally, they assert that plaintiff was not entitled to the entry of default because of its unclean hands and that, in any event, plaintiff would not be prejudiced if the default were vacated. Plaintiff disagrees and contends the Chancery Division properly denied defendants' three motions seeking to vacate the default.
We have considered the parties' arguments in light of our review of the record and applicable legal principles. We affirm.
We discern the facts from the motions' records, many of which are not contested by defendants. In July 2007, Joy delivered to Wells Fargo Bank, N.A. (Wells Fargo) a note promising to repay a one-million-dollar loan it made to her in connection with refinancing her existing residential mortgage loan. To secure that note, Joy and Anthony executed and delivered a mortgage in favor of Wells Fargo. Two years later, after Joy defaulted by failing to make the payments required under the terms of the note, Wells Fargo assigned the mortgage to plaintiff in its fiduciary capacity.
We use "defendants" to refer to them collectively, but use only their first names when we refer to them individually to avoid any confusion arising from their common surname. We intend no disrespect.
On July 31, 2009, after the assignment, plaintiff filed a complaint seeking foreclosure, which it sent to a process server for personal service on defendants. The process server attempted to serve defendants at their home on three occasions in early September 2009, but was ultimately unable to serve either of them. According to the process server's affidavit, he confirmed with one of defendants' neighbors that they lived at the property, which was consistent with plaintiff's earlier confirmation from the United States Postal Service that both defendants received mail at that address.
Prior to the process server's final attempt to serve defendants at their home, plaintiff mailed a summons and a copy of the complaint to each of them at the same address by certified mail, return receipt requested, and by regular mail. After three attempts to deliver the certified mail — the final on September 22, 2009 — it was returned to plaintiff as unclaimed. The regular mail was never returned.
On April 9, 2010, plaintiff sought an entry of default. In support of its request, plaintiff filed with the court its attorney's "certification of inquiry and substituted service pursuant to Rule 4:4-3(a)." The certification detailed plaintiff's attempts to serve defendants personally and by mail. Based on that certification, the court entered default against defendants.
In May 2012, defendants filed a motion to dismiss the complaint or, in the alternative, to set aside the default. Neither defendant filed a certification in support of the motion. At oral argument on June 15, 2012, the court rejected defendants' argument that they were never properly served. In doing so, the court noted that defendants did not demonstrate excusable neglect for their failure to respond to the complaint, especially given that, as counsel informed the court, they had been negotiating a loan modification with Wells Fargo for three years and must have known the foreclosure was pending. According to defendants' counsel, it was during those negotiations that defendants began to question whether they were "interacting with the right party." Counsel suggested to the court that a plenary hearing on the issue of plaintiff's standing might be necessary. The judge disagreed.
After oral argument, the court entered an order conditionally denying defendants' motion. The order stated:
Defendant's Motion is denied in its entirety conditioned upon plaintiff's presentation of "a true copy of the original note" within 30 days. If not served within 30 days, defendant may file and serve a paper motion to vacate default, accompanying it with arguments on "excusable neglect" and "meritorious defense."The order also noted the required notice of intention had been "produced in court" and required plaintiff to submit a certification "as to when plaintiff had possession or control of the mortgage and note, within 30 days."
Despite the court's order, and its granting of extensions to July 30, 2012, plaintiff did not produce the required certification by July 26, 2012, although it produced a copy of the original note endorsed by Wells Fargo. Contending plaintiff had not yet complied with the June order, defendants filed a second motion to vacate the default. The motion was supported by defendants' certifications, in which they stated they were never personally served with a summons or complaint and "d[id] not recall receiving a copy . . . through the mail." Defendants confirmed they lived at the property but stated they were not home on the days the process server attempted service. They challenged the process server's statements about confirming their residence with a neighbor, as none of their neighbors matched the description of the individual referred to in the process server's affidavit. They also informed the court that they had been in negotiations with Wells Fargo since 2009 in an attempt to modify their mortgage, but that nobody informed them during those negotiations that their "house was in active foreclosure." The certifications did not state, however, that defendants were unaware of the pending foreclosure action.
After considering the matter without oral argument, the court entered an order on August 13, 2012, denying defendants' second motion, denying without condition the earlier motion, and directing the matter proceed as an uncontested action. In its order, the court explained that plaintiff had complied with the June order by providing "'a true copy of the original note'" and that defendants' second motion was identical to their first.
Four months later, defendants filed a third motion to vacate the default, which they supported with more-detailed certifications. In the certifications each defendant then stated definitively that they never received the certified or "first class mail" informing them "that a foreclosure had been filed." They also stated that, in their many conversations with Wells Fargo during their three-year negotiation, they were "never informed that a foreclosure had been filed or that . . . a default [had been] entered against [their] home as far back as 2009," and that "[h]ad [they] been made aware that [they] were being foreclosed [they] would have sought an attorney." The certifications also provided more details as to why the process server's description of their neighbor was incorrect.
Defendants also described the history of their purchase and rehabilitation of their home, and the facts surrounding the refinance of their mortgage loan, focusing on concerns raised by the conduct of their lender's representative in that process. They detailed their attempts to renegotiate the loan with Wells Fargo after, "[b]eginning in 2008, [they] experienced financial hardship after a decrease in [Anthony's] construction business and a loss of rental income from [their] rental properties." Finally, they explained they were shocked when, in 2012, they learned of the default from their attorney, whom they hired after Wells Fargo's inexplicable denial of their loan-modification application.
At oral argument on February 22, 2013, defendants' counsel confirmed the court had previously disposed of defendants' arguments regarding service of process. The judge observed that a "presumption of service" arose when the regular mail sent to defendants was not returned, even though the certified mail was returned unclaimed. The judge stated:
I know that it is the defendant[s'] argument that the personal service [of] process has to have been completed before the certified mail and regular mail form of service has been effectuated. But the rule doesn't say that. It just says a reasonable attempt has to be made . . . .The court also noted the service by mail in this case was made on September 7, 2009, "after the attempted service on September 5th, which complies with the rule." According to the judge, this service was not "substituted service" under the Rules.
After further arguments by counsel, the judge identified the standard she was applying to defendants' motion and questioned their delay in seeking relief, stating,
while you only have to show good cause to vacate entry of default and not the meritorious defense or excusable neglect that you have to on [a motion] to vacate a default judgment, my question is what are we doing here almost 4 years after the default.
Defendants again contended they were entitled to relief because, in addition to not being served, the parties were involved in modification negotiations for an extended period. In so arguing, their counsel relied upon another trial court's unpublished opinion addressing an arguably similar situation. The court rejected counsel's argument, noting that defendants' reliance on that opinion was inapposite because the facts were clearly distinguishable and unique to the circumstances of that case, and because the opinion was not precedential.
Defendants' counsel argued next that the court should not apply the holdings in published, appellate court opinions that affirmed denials of motions to vacate default judgments based on extensive passages of time from service of process to entry of default judgment. The judge rejected that argument as well, and observed that, even at that late date, defendants never stated their defense to plaintiff's claim. According to defendants counsel, the defense related to the issue of standing and plaintiff's alleged failure to make diligent inquiry as to defendants' whereabouts prior to serving them by mail without a court order. Counsel also questioned whether there was any proof plaintiff had possession of the note when it filed its complaint in July 2009, and argued plaintiff came into court with "unclean hands" because it conducted lengthy modification negotiations with defendants before suddenly denying their request and pursuing foreclosure. According to counsel, this conduct constituted an act of "consumer fraud."
After considering defense counsel's extensive oral argument, the court found "no reason . . . to vacate the entry of default even under a [bare] good cause standard." In denying the motion, the court also observed that, in light of recent case law, there was no need for plaintiff to file or serve the certification required by its June 2012 order. The court entered an order memorializing its decision on the same day.
The court subsequently entered a final judgment of foreclosure on November 25, 2013. This appeal followed.
Our standard of review warrants substantial deference to a trial court's determination on a motion to vacate a default or a default judgment, which "should not be reversed unless it results in a clear abuse of discretion." U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012). An abuse of discretion occurs when a decision "is made without a rational explanation, inexplicably depart[s] from established policies, or rest[s] on an impermissible basis." Ibid. (citation omitted). In our review, we do not "decide whether the trial court took the wisest course, or even the better course, since to do so would merely be to substitute our judgment for that of the lower court. The question is only whether the trial judge pursue[d] a manifestly unjust course." Gillman v. Bally Mfg. Corp., 286 N.J. Super. 523, 528 (App. Div.), certif. denied, 144 N.J. 174 (1996) (internal quotation marks and citation omitted); see also Burns v. Hoboken Rent Leveling & Stabilization Bd., 429 N.J. Super. 435, 443 (App. Div. 2013).
Applying these principles, we first address defendants' contention that the court incorrectly applied the more stringent burden applicable to a motion seeking to vacate a default judgment. We disagree.
"Our Rules prescribe a two-step default process, and there is a significant difference between the burdens imposed at each stage." Guillaume, supra, 209 N.J. at 466. When a party seeks to vacate a default judgment, he or she must satisfy the standard set forth in Rule 4:50-1, which usually requires "a showing of excusable neglect and a meritorious defense." Id. at 468; see also R. 4:50-1(a). That standard is more stringent than the requirement of establishing good cause when seeking to vacate a default under Rule 4:43-3. See id. at 467; N.J. Div. of Youth & Family Servs. v. M.G., 427 N.J. Super. 154, 171-72 (App. Div. 2012) ("[O]nly a 'mere showing of good cause is required for setting aside an entry of default.'" (quoting N.J. Mfrs. Ins. Co. v. Prestige Health Grp., LLC, 406 N.J. Super. 354, 360 (App. Div.), certif. denied, 199 N.J. 543 (2009))).
Although motions to vacate a default or default judgment "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)), a showing of a meritorious defense is typically still necessary to establish the "good cause" contemplated by Rule 4:43-3. See Pressler & Verniero, Current N.J. Court Rules, comment on R. 4:43-3 (2016) ("[T]he showing of a meritorious defense is a traditional element necessary for setting aside both a default and a default judgment . . . ."). This is because, as with a motion to vacate a default judgment, there is no point in setting aside an entry of default if the defendant has no meritorious defense. "The time of the courts, counsel and litigants should not be taken up by such a futile proceeding." Guillaume, supra, 209 N.J. at 469 (quoting Schulwitz v. Shuster, 27 N.J. Super. 554, 561, (App. Div. 1953)).
The requirement for establishing a meritorious defense is especially applicable in foreclosure cases. As we have previously observed:
[I]n a foreclosure case . . . the mere denominating of the matter as a contested case moves it from the expeditious disposition by the Office of Foreclosure in the Administrative Office of the Courts, R. 1:34-6 and R. 4:64-1(a), to a more protracted treatment by the Chancery Division providing discovery and raising other problems associated with trial calendars. If there is no bona fide contest, a secured creditor should have prompt recourse to its collateral.
[Trs. of Local 478 Trucking & Allied Indus. Pension Fund v. Baron Holding Corp., 22 4 N.J. Super. 485, 489 (App. Div. 1988).]
However, a defendant need not establish a meritorious defense if he or she was not served with process. Midland Funding LLC v. Albern, 433 N.J. Super. 494, 501 (App. Div. 2013) (citing Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 86, 108 S. Ct. 896, 899-900, 99 L. Ed. 2d 75, 81-82 (1988)) ("In seeking relief from a void judgment, however, a movant is not required to demonstrate a meritorious defense."); Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 425 (App. Div. 2003) ("A default judgment will be considered void when a substantial deviation from service of process rules has occurred, casting reasonable doubt on proper notice."), certif. denied, 179 N.J. 309 (2004). Even if there is actual notice of the suit comporting with due process, the default judgment must be set aside if there is a substantial deviation from our rules. Sobel v. Long Island Entm't Prods., Inc., 329 N.J. Super. 285, 293 (App. Div. 2000).
Accordingly, in order to determine if the Chancery judge applied the correct standard by requiring defendants to establish a meritorious defense in support of their motion, we must first determine whether she correctly found defendants were properly served with process. We conclude the judge was correct.
"An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Rosa v. Araujo, 260 N.J. Super. 458, 463 (App. Div. 1992) (quoting O'Connor v. Altus, 67 N.J. 106, 126 (1975)), certif. denied, 133 N.J. 434 (1993). As we have explained:
"Where due process has been afforded a litigant, technical violations of the rule [as compared to substantial violations] concerning service of process do not defeat the court's jurisdiction." Thus, "not every defect in the manner in which process is served renders the judgment upon which the action is brought void and unenforceable."
[Citibank, N.A. v. Russo, 334 N.J. Super. 346, 352-53 (App. Div. 2000) (quoting Rosa, supra, 260 N.J. Super. at 262-63).]
"[T]he court rules which describe the manner in which process is to be served must be read in the context of effecting due process." Rosa, supra, 260 N.J. Super. at 463. Rule 4:4-3 permits service by registered or certified mail, return receipt requested, "[i]f personal service cannot be effected after a reasonable and good faith attempt," which must be "described with specificity in the proof of service required by R[ule] 4:4-7." R. 4:4-3(a). If the certified mailing is refused by a defendant and a simultaneous or subsequent ordinary mailing is not returned, the mailing "constitute[s] effective service." Ibid.; see also City of Passaic v. Shennett, 390 N.J. Super. 475, 483 (App. Div. 2007) ("Service by mail is not effective, however, unless plaintiff first made 'a reasonable and good faith attempt' to serve defendant personally." (quoting R. 4:4-3(a))).
If service is made by mail, the party making service shall make proof thereof by affidavit which shall also include the facts of the failure to effect personal service and the facts of the affiant's diligent inquiry to determine defendant's place of abode, business or employment. With the proof shall be filed the affidavit or affidavits of inquiry, if any, required by R[ule] 4:4-4 and R[ule] 4:4-5.Contrary to defendants' contention, the Rules did not require a court order prior to making service by mail. They require only the appropriate proof of service and affidavit of inquiry applicable under the circumstances.
[R. 4:4-7.]
We recognize the implicated Rules have changed slightly throughout the years. Suffice it to say, however, that the rules governing service in 2009 provided, as they do today, that a court order is required only when "service cannot be made by any of the modes provided by [Rule 4:4-4]." R. 4:4-4(b)(3). While Rule 4:4-4(c) prohibits entry of default when personal service is required but the plaintiff chooses instead to effect service by mail, it also makes clear this prohibition does "not apply to mailed service authorized by any other provision of these rules," R. 4:4-4(c) — including service by mail pursuant to Rule 4:4-3, which Rule 4:4-4(a) confirms is sufficient to establish in personam jurisdiction over a defendant. R. 4:4-4(a) ("[I]n personam jurisdiction may be obtained by mail under the circumstances and in the manner provided by [R.] 4:4-3."). Rule 4:4-4(b)(1), upon which defendants rely for their claim that plaintiff was required to file an affidavit of inquiry prior to attempting service by mail, is New Jersey's long-arm statute, applicable to substituted service "[b]y mail or personal service outside the State." R. 4:4-4(b)(1) (emphasis added); see also Patel v. Karnavati Am., LLC, 4 37 N.J. Super. 415, 424 (2014) (describing Rule 4:4-4(b)(1) as "providing methods of serving and obtaining in personam jurisdiction over out-of-state defendants").
We conclude plaintiff validly served defendants with process by certified and regular mail in accordance with the Rules. Defendants' arguments challenging service cannot be legally or factually sustained. Legally, we have previously rejected a defendant's claim in a foreclosure action that service accomplished in the very same manner as completed here was ineffective. See Russo, supra, 334 N.J. Super. at 348-49, 352. Factually, defendants admitted residing at the mortgaged premises. There was never an issue as to their place of residence, as might compel the need for substituted service and the filing of an affidavit prior to mail service as defendants argue was required. They claimed only that they were not home on the days personal service was attempted. Their challenge to the process server's statements about their neighbor did not alter the fact that attempts were made to serve them at the residence where they admittedly were living.
Further, defendants' initial statements that they "did not recall" receiving the mailed service are hardly persuasive and insufficient to establish that service was ineffective or improper. This lack of recollection also undermines their later certifications in which they changed their statement and claimed they were certain they never received the mail service. Moreover, defendants never challenged the fact that they received mail at that address, as confirmed by the post office. In sum, the Chancery judge's rejection of defendants' bald allegations and her finding that service was made did not constitute an abuse of the court's discretion.
As a result of the court's proper determination that service was effected, the entry of default was not "void" and defendants were obligated to demonstrate a meritorious defense.
In a foreclosure action, a meritorious defense must challenge the validity of the mortgage, the amount due thereon, or the right of the plaintiff to foreclose. See Joan Ryno, Inc. v. First Nat'l Bank of S. Jersey, 208 N.J. Super. 562, 570 (App. Div. 1986); Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37 (App. Div. 1952); Great Falls Bank v. Pardo, 263 N.J. Super. 388, 394 (Ch. Div. 1993), aff'd, 273 N.J. Super. 542 (App. Div. 1994); Central Penn Nat'l Bank v. Stonebridge Ltd., 185 N.J. Super. 289, 302 (Ch. Div. 1982). In order to have standing to foreclose, a party "must own or control the underlying debt." Deutsche Bank Nat'l Tr. Co. v. Mitchell, 422 N.J. Super. 214, 222 (App. Div. 2011) (quoting Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011)). Absent "a showing of such ownership or control, [a] plaintiff lacks standing to proceed with the foreclosure action and the complaint must be dismissed." Ibid. (quoting Ford, supra, 418 N.J. Super. at 597).
An assignee can establish standing to foreclose by presenting a properly "authenticated assignment indicating that it was assigned the note before it filed the original complaint." Id. at 225. Therefore, a plaintiff has the right to pursue foreclosure if it had "either possession of the note or an assignment of the mortgage that predated the original complaint." Deutsche Bank Tr. Co. Ams. v. Angeles, 42 8 N.J. Super. 315, 318 (App. Div. 2012).
We conclude defendants failed to establish any defense to the complaint and the Chancery judge correctly determined that plaintiff satisfied its obligation to establish its right to foreclose. Defendants did not dispute signing the loan documents or defaulting on the payments due under the mortgage loan. Neither defendant came forward with any proof that plaintiff did not have possession of the original note endorsed by Wells Fargo and, significantly, they did not challenge the validity of the recorded assignment that predated the filing of the complaint. Defendants' concern that they were not dealing with the right party when Wells Fargo terminated its modification negotiations did not give rise to a meritorious defense.
Defendants merely raised a question as to when plaintiff came into possession of the note.
Notably, defendant did not certify that any entity other than plaintiff sought repayment of the mortgage loan.
We find defendants' remaining arguments to be without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We note only that, as to their claim that plaintiff's "unclean hands" deprived it of the right to pursue relief, "[t]he clean hands doctrine is 'an equitable principle which requires a denial of relief to a party who is himself guilty of inequitable conduct in reference to the matter in controversy,'" Hageman v. 28 Glen Park Assocs., L.L.C., 402 N.J. Super. 43, 48 (Ch. Div. 2008) (quoting Glasofer Motors v. Osterlund, Inc., 180 N.J. Super. 6, 13 (App. Div. 1981)), and defendants' contention that Wells Fargo's refusal to enter into a modification after a long period of negotiation amounted to such inequitable conduct is without any support in law or fact under the circumstances. Wells Fargo was not compelled to end its negotiations with defendants earlier or offer them a proposed modification.
In their later certifications, defendants point out that, in fact, rather than offering them a modification, Wells Fargo's representative suggested to them that they would not be able to meet their financial obligation and should instead seek relief through bankruptcy. --------
Finding no abuse of the court's discretion, we have no reason to disturb the Chancery Division's determination that the default should not have been vacated in this matter.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION