In a decision approved for publication, New Jersey’s Appellate Division recently remanded an action to the Chancery Division in order to determine whether a lender improperly collected more than one-hundred percent of the debts owed to it. See Brunswick Bank & Tr. v. Heln Mgmt. LLC, 2018 WL 987809 (N.J. Super. Ct. App. Div. Feb. 21, 2018). In the case, the lender made five construction loans to two entities, which were guaranteed by the entities’ principal and his daughter. After default, the lender commenced an action in the Law Division on four of the loans, and received judgments against the defendants in excess of $2 million. While the Law Division actions were pending, the lender commenced foreclosure actions against the four properties defendants had mortgaged to secure the loans. The lender obtained final judgments of foreclosure on the four properties and either allowed them to be sold in short sales or took them via a sheriff’s sale. Defendants then filed an appeal, arguing that the loans were over-collateralized and the lender had obtained a windfall because it had not given a fair market value credit on two of the foreclosed properties. In a 2015 decision, the Appellate Division held that the record was too muddled to make that determination and ordered the Chancery Division to conduct a hearing to determine the amounts owed on the loans, the amounts collected by the lender, and the value of the properties.

Based on the evidence from that hearing on remand, the lender was owed about $250,000 as of June 2013. Subsequently, the lender obtained title to two of the properties via sheriff’s sale, and then received $147,387.37 via a short sale. Nonetheless, the trial court judge found that defendants’ evidence regarding the property values was “incompetent” and that it could not find that the lender had collected a windfall. Defendants again appealed this decision.

Again, the Appellate Division remanded the action. The Court had concerns about why the Chancery Division found the evidence to be incompetent, and ordered that the lower court make a final determination of the fair market value of these properties. Although the Court acknowledged that defendants had not called an expert to opine on the property values and that they had the burden of proving the fair market value, it still held that the fact that the lender received $147,387.37 and two properties on a $250,000 debt “suggest[s] a likelihood that [the lender] gathered through its collection efforts more than that to which it was entitled.” Additionally, the Court noted that defendants had presented at least one witness who testified based on personal knowledge that he had contracted to purchased one of the properties for $335,000 the year before the sheriff’s sale. Although the Court found that this was not conclusive, it nonetheless was admissible evidence regarding the property value. Finally, the Court stated that “nothing we have said today would preclude the judge from requiring a party or the parties, to whatever extent the judge deems appropriate, to retain an independent expert of the judge's choosing to opine on the fair market value of these properties.”