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New Jersey’s Appellate Division Rejects Foreclosure Defendant’s Argument that a Reinstatement Quote Is an Enforceable and Binding Settlement Agreement

On March 27, 2019, in a case handled by PIB, New Jersey’s Appellate Division affirmed a trial court decision denying the defendant’s eleventh-hour motion to vacate a sheriff’s sale and restrain delivery of the deed to a third-party purchaser predicated on a novel – but incorrect – theory that a reinstatement quote constituted a binding contract.  The decision is significant because, had Defendant’s argument been successful, it could have created the threat of potential litigation based solely upon routine communications between servicers and borrowers.

In U.S. Bank, N.A. v. Edward G. Petraglia, et al., Defendant Edward G. Petraglia (“Defendant”) executed a Note and Mortgage in June 2006 (the “Mortgage Loan”) and subsequently defaulted in January 2009.  Plaintiff U.S. Bank NA, Successor Trustee to Bank of America, NA, Successor in Interest to LaSalle Bank NA as Trustee, on Behalf of the Holders of the WAMU Mortgage Pass-Through Certificates, Series 2006-AR9 (“Plaintiff”) filed a foreclosure complaint in the Superior Court of New Jersey, Monmouth County – Chancery Division in March 2015 (the “Foreclosure Action”).  Defendant failed to appear in the Foreclosure Action and final judgment was entered in August 2016.  On the eve of the sheriff’s sale, Defendant sought to reinstate the loan and made several requests for payoff quotes and reinstatement quotes.  Plaintiff, through its servicer, Select Portfolio Servicing, Inc. (“SPS”), provided a reinstatement quote that included language making clear that it was not an agreement to suspend the foreclosure.  SPS’s ombudsman also sent Defendant an email stating that “[p]roof of funding, for the entire amount is required in order to consider any reinstatement.”  On May 8, 2017, the day of the sale, Defendant sought the trial court’s intervention to stay the sale and provide additional time to reinstate.  The trial court denied Defendant’s application and the property was sold to a third-party bidder.

Defendant subsequently sought to restrain the sheriff’s delivery of the deed and set aside the sale to permit reinstatement.  On May 30, 2017, the trial court denied Defendant’s order to show cause to vacate the sale and restrain delivery of the sheriff’s deed, finding that “there was no obligation for plaintiff to provide defendant with an opportunity to reinstate after entry of judgment” and that “[D]efendant had never tendered the funds nor demonstrated the ability to do so.”  The trial court further determined that “proof of funding was always necessary” and had not been provided.  As no enforceable contract existed between the parties, there was no basis to set aside the sale or stay transfer of the deed.  On September 29, 2017, the trial court denied Defendant’s motion for a stay of eviction pending appeal.

On appeal, Defendant relied upon the New Jersey Supreme Court’s opinion in GMAC Mortg., LLC v. Willoughby, 230 N.J. 172 (2017) to support his argument that “the issuance of a reinstatement quote by [P]laintiff . . . in the days before the sale constituted a binding settlement agreement.”  In Willoughby, the parties reached a settlement agreement at a foreclosure mediation session that was subsequently memorialized in a “Foreclosure Mediation Settlement Memorandum”.  See 230 N.J. at 177.  This document contained certain terms evidencing that it was a final agreement, including that “[t]he parties agree that when executed this mediation settlement memorandum shall be final, binding, and enforceable upon all parties.”  Id. (emphasis in original.)   The Willoughby Court, finding that contract law governs the interpretation of a settlement agreement, held that “[a]lthough the Agreement in this case is not free of all ambiguity, the terms are nevertheless sufficiently definite and detailed to indicate, with reasonable certainty, that the parties intended a permanent loan modification.”  Id. at 185.

In the Petraglia matter, by Order dated October 31, 2017, the Appellate Division first rejected Defendant’s initial application to stay his ejectment proceeding pending appeal, finding that there was no reasonable probability of success on the merits under Willoughby.  The Court explained that “unlike in Willoughby, there is no mutually executed loan modification agreement.  The . . . correspondence from the mortgage servicer specifies that ‘Issuance of this Reinstatement Quote does not constitute an agreement . . . to suspend pending or future legal action. . .”  The New Jersey Supreme Court likewise denied Defendant’s request for emergent relief on November 3, 2017.

The Appellate Division did not change its opinion after review of the entire record.  The Court affirmed the trial court decision, finding that “the parties never agreed to allow defendant to reinstate his loan after entry of final judgment.”  The Court further determined that the record was clear that proof of funding was always necessary to reinstate, and that the Defendant did not deposit the funds necessary to reinstate into his attorney’s trust account.  In conclusion, the Appellate Division held that “[b]ecause there was no settlement agreement between the parties post-judgment, Willoughby is not applicable here.”

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