In Wells Fargo Bank, N.A. v. Rivera, 2016 WL 3129234 (N.J. App. Div. June 6, 2016), the New Jersey Appellate Division affirmed a trial court order denying a third-party’s post-judgment motion to intervene in a mortgage foreclosure action. Appellant Artem Rybakow sought the reversal of the trial court’s order so that he could challenge a previouslyexecuted consent order that allowed various affordable housing restrictions on the mortgaged property to remain in place once the mortgage foreclosure was complete.
In 2007, Dawn Rivera purchased a condominium unit in Freehold, New Jersey. The purchase was financed by a purchase money mortgage loan assigned to Wells Fargo. As part of the purchase, Rivera entered into an affordable housing agreement on July 9, 2007 with the municipality and the administrator of its affordable housing program (the “Authority”). The agreement was recorded in Monmouth County with the deed.
The agreement imposed various restrictions on the sale or transfer of the property intended to maintain the property’s status as an affordable housing unit and prevent the homeowner, mortgagee, or subsequent purchasers from receiving windfall profits by selling the property at full market value. The terms of the agreement stated that a purchaser at a foreclosure sale conducted by the holder of the first purchase money mortgage would be permanently released from the affordable housing restrictions and covenants imposed by the agreement and that the Authority was required to execute and record evidence that the restrictions were released upon a judgment of foreclosure. Rivera defaulted on her mortgage with Wells Fargo in 2011. She had also fallen behind with condominium association fees. The condominium association obtained a judgment against Rivera for the delinquent fees in October 2012. The following month, Wells Fargo filed a foreclosure complaint and recorded a notice of lis pendens.
In 2013, Wells Fargo entered into a settlement agreement with the municipality and the Authority, whereby, the parties agreed that the affordable housing restrictions on the property would not be lifted in the event of a foreclosure sale. A consent order memorializing that settlement was filed on June 10, 2013. Meanwhile, the condominium association executed its judgment and brought the property to a sheriff’s sale in February 2014. Appellant was the successful bidder at that sale and received a sheriff’s deed to the property, which noted that the property was still subject to Wells Fargo’s first mortgage lien.
On July 1, 2014, a final judgment of foreclosure was entered in favor of Wells Fargo in its foreclosure action. Appellant, realizing that the affordable housing restrictions were still in place, moved on an emergent basis on November 14, 2014 to intervene in the mortgage foreclosure action post-judgment, seeking to have the consent order vacated. The trial court denied the motion on the grounds that Appellant lacked standing to contest the consent order since he was not a party to the litigation at the time it was entered. The property subsequently sold at a second sheriff’s sale in January 2015 to Wells Fargo. Consequently, Appellant’s interest in the property was extinguished.
On appeal, Appellant asserted he had a right to intervene on the grounds that he was unaware of the consent order keeping the affordable housing restrictions on the property in place because it was not recorded in the title search. Appellant claimed that he was under the impression that he could circumvent the various affordable housing restrictions on resale by purchasing the property at the sheriff’s sale, and then wait for the restrictions to be lifted after the conclusion of Wells Fargo’s foreclosure action. Appellant then planned to redeem the property to avoid losing it, leaving him with what he thought would be a condominium unit free of the affordable housing restrictions.
The Appellate Division agreed with the trial court that Appellant lacked standing to contest the consent order and, therefore, did not have an interest in the matter that would permit him to intervene. The Court explained that Appellant’s ownership interest could not be impaired or impeded by Wells Fargo’s foreclosure action at the time he acquired it, because as a matter of law he took his ownership interest subject to the terms of the consent order.
Lastly, the Court rejected Appellant’s argument that the notice of lis pendens should have prevented Wells Fargo and the Authority from entering into a settlement that he contends is contrary to the affordable housing agreement. The Court explained that the notice of lis pendens served as a warning to Appellant that any interest he chose to take in the property would be bound by the outcome of the foreclosure action. The warning did not serve to protect the quality of title for his benefit, and did not prevent the parties to the foreclosure action from resolving the affordable housing issue in a manner that Appellant apparently did not expect.