Alert October 16, 2012

New Jersey State Court Rejects Borrower Appeal Challenging Foreclosure

A New Jersey state appellate court held that a borrower could not challenge the standing of a bank in a foreclosure proceeding in a last ditch effort to re-litigate the case. The borrower filed an application to vacate the default judgment entered against him, arguing that because the mortgage on the property was not assigned to the bank until after the bank filed the foreclosure complaint, the bank lacked standing. The borrower sought to vacate the judgment based on a recent New Jersey state court opinion, Deutsche Bank National Trust Co. v. Mitchell, 27 A.3d 1229 (N.J. Ct. App. 2011), which held that either possession of the note or an assignment of the mortgage that preceded the complaint conferred original standing. The lower court refused to vacate the judgment; the appellate court affirmed. 

In reaching its decision, the Court rejected plaintiff’s argument that Mitchell applied.  The Court noted that unlike in Mitchell, where the “defendant actively engaged in the litigation” and challenged the bank’s standing to file the foreclosure complaint “long before the end of the litigation,” here, the borrower “did not raise the standing issue or contest the foreclosure in any way, until two years after default judgment was entered and three and one half years after the complaint was filed.” Further, the Court held that the borrower did not “definitively” demonstrate a lack of standing, holding that the bank could have held possession of the note at the time it filed the complaint.  The Court’s ruling shows a general apprehension to allow borrowers to sit on their rights during foreclosure proceedings, and should serve as a reminder that courts may hold borrowers accountable for their inaction during foreclosure proceedings.