Mortgagors on a
commercial loan defaulted and, as a result, the mortgagee sued on the
note and
also initiated foreclosure proceedings. The note was partially
secured by
a first mortgage. The note also laid out the terms under which the
mortgagee could recover the debt in the event of a default.
In the
action on
the note, the mortgagee sought the principal due at the time of default,
plus
late charges, insurance, escrowed taxes, and interest accrued from the
time of
default through the date of judgment. The mortgagor failed to
respond, and
the mortgagee was awarded the amount it sought along with attorneys'
fees on its
claim against the promissory note.
Although both the
suit on the note and the foreclosure suit were filed about the same day,
they
were heard in different divisions. The foreclosure action, in the
equity
division, ultimately proceeded to judgment about a year and a half
after
the judgment in the suit on the note in the law division. In the
foreclosure action, the lower court in the foreclosure proceedings
awarded, over
the objection of the mortgagors, an amount that was nearly two hundred
thousand
dollars more than what had been awarded by the lower court that had
heard the
note collection matter. The foreclosure award included the same
unpaid
principal as owned at the time of the default on the loan, but included
a larger
amount of interest and taxes because they had accrued over a longer
period of
time. The mortgagees also sought a prepayment penalty and default
interest, items that had not been part of their earlier claim.
The
mortgagors
appealed the foreclosure decision, arguing that the foreclosure award
should not
have exceeded the amount of the decision that enforced the note.
Applying
issue preclusion priniciples of collateral estoppel, The Appellate
Division
affirmed the lower court's decision and had found that the foreclosure
ruling
was not precluded by the ruling on the note enforcement. The
Appellate
Division also found that principles disallowing a matter that has been
resolved
from being re-litigated did not apply because legal actions and remedies
to
enforce the terms of a note were different than legal actions and
remedies for
adjudicating a foreclosure. The mortgagors appealed the Appellate
Division's decision.
Before
the New
Jersey Supreme Court, the mortgagors argued that the amount awarded to
the
mortgagee in the note enforcement action fixed the amount to be awarded
in the
foreclosure proceedings. First, the Court noted that the relief
sought in
the foreclosure was more extensive than the relief sought in the
enforcement of
the note, but that the underlying claim for relief was largely the
same.
It concluded that the lender was limited to the recovery already granted
as to
matters that had in fact been litigated in the earlier action. For
instance, in the earlier action, the court had established a certain
figure for
per diem interest. The foreclosure court, studying the same
documents,
came up with a different conclusion. But the Supreme Court held
that the
foreclosure court was precluded from reexamining that issue, and rolled
back the
per diem interest to that determined by the original court in the suit
on the
note. That issue had been resolved, albeit by default
judgment.
. But the Court held that a foreclosure
action
adjudicated following the adjudication of note enforcement is bound by
the first
decision only as to damages that are similar to those claimed in the
second
action. Damages of a different type, not sought in the first
proceeding, could still be awarded in a subsequent
adjudication. In
the case at hand, the mortgagee had not asked for a prepayment penalty
or
default in interest in its claim for relief in the law court action on
the
note., and they were not essential to recovery of the
amounts that the trial
court in that action did award. So the mortgagee was free to
raise
these issues in the foreclosure action.
Further the Court
held that issue preclusion does not bar a lender from recovering monies
in
excess of the first judgment where further charges are later accrued
such as for
interest, costs, and attorneys' fees.
The
Court
reversed the Appellate Division's decision that the foreclosure action
was not
precluded at all by the note enforcement action, and held that the
foreclosure
was precluded only as to those issues that were the same in both
proceedings.
Note:
The court
does not mention in any detail the question of late charges. The
mortgagee
had included an item for late charge in the first proceeding, but there
was a
much large item for late charges in the foreclosure award. The
court notes
in a footnote that the appeals court had lowered the amount, but still
it does
not appear to have lowered the amount back to what had been in the first
award. So far as the editor understands the case, there should be
no
additional award for late charges, as a late charge can only be imposed
once,
and the amount of that charge had been resolved in the suit on the
note.
The editor is concerned that the court doesnt explain the
apparent discrepancy
in the two claims on this score, but it does indicate that on remand the
principles it dictates may result in further changes.
Comment: Of
course, the question of procedure for judicial recovery on notes secured
by
mortgages varies dramatically from one jurisdiction to another.
Some
courts would permit only one lawsuit to run at a time. It may be
that some
courts would require that all actions that reasonably could be included
in a
suit between the parties on basically the same facts should be included
or be
forever barred. In is interesting that New Jersey, apparently
because a
foreclosure suit is for different relief in a different court, takes
such a
generous view toward the mortgagee on the question of issue preclusion.