A recent decision from the Appellate Division drives home (1) the duty of sellers at sheriff's sales to announce all material information about the property being sold at the sale, (2) the duty of bidders at sheriff's sales to perform independent due diligence about the property notwithstanding that announcement, and (3) the flexibility of Chancery Division courts to fashion remedies when both fail to fully satisfy their obligations.
In Wells Fargo Bank Bank, N.A. v. Torney, plaintiff foreclosed on property owned by defendant, obtained final judgment against defendant, and proceeded to sheriff's sale. In advance of the sheriff's sale, plaintiff submitted its "sheriff's sale package" to the Camden County Sheriff. Included in the package was a short form property description (required under N.J.S.A. 2A:61-1), which, among other things, disclosed that the property was subject to a $94,000 first mortgage. The existence of this prior mortgage was also disclosed in the conditions of sale attached to the short form property description, and in the Affidavit of Consideration submitted by plaintiff in connection with the foreclosure. Finally, the short form property description also contained the following disclaimer: "all interested parties are to conduct and rely upon their own independent investigation to ascertain whether or not any outstanding interest remain[s] of record and/or have priority over the lien being foreclosed and, if so[,] the correct amount due thereon."
Edward Shuman, who would eventually be the winning bidder at the sheriff' sale, learned about the sale through the sheriff's website, which did not mention the prior mortgage. Also, at the sheriff's sale, plaintiff did not announce, as part of its "general announcements," that the property was subject to a prior mortgage. And, on the "printed condition of sale, the box next to 'subject to a first mortgage' was not checked." Shuman claims that he did not know about the prior mortgage when he placed his winning bid on the property, and did not learn about it until later that day when he inquired about the existence of any tax liens on the property. Once he learned about the mortgage, he contacted plaintiff and requested that the sale be vacated and his deposit returned. When plaintiff refused, Shuman filed a motion seeking the same relief.
Plaintiff opposed the motion, arguing that Shuman was "not a first time purchaser at a sheriff's sale and was required to do his own independent investigation prior to the sale." It argued that, had he read the packet submitted by plaintiff to the sheriff, he would have know about the mortgage. Shuman argued that the sale should be vacated because the conditions of sale read at the actual sale did not disclose the mortgage. The trial court granted Shuman's motion and vacated the sheriff's sale, but found that "Shuman himself had fallen short in his obligation, as a bidder, to conduct diligent inquiry," therefore the trial court only returned $7,500 of the $10,000 deposit that Shuman paid at the sale. The court reasoned that plaintiff could use the remaining $2,5000 for the costs of relisting the property and paying any property taxes and interest that accrued pending a new sale. Shuman appealed.
On appeal, Shuman argued that the trial court abused its discretion by not returning the full $10,000. The Appellate Division disagreed. It first noted that, under New Jersey statutory law, a sheriff's sale can be vacated if, among other reasons, there exists "any lien or encumbrance [on the property], unless a reasonable description of the estate or interest to be sold, and of the . . . liens or encumbrances thereon, with the approximate amount of such liens and encumbrances . . . [is] inserted in the notices and advertisements required by law, and in the conditions of sale." The purpose of this statute was to "shift the burden of unearthing the existence and approximate amount of superior liens from bidders to the selling mortgagee." But, it does not relieve the bidder of its duty to "make independent investigation into the property prior to the sale." In Torney, the Appellate Division agreed with the trial court that Shuman failed to satisfy this obligation because, "had [he] made any inquiry about the property, he would have learned of the prior mortgage." Therefore, both parties were partially at fault -- while the conditions of sale announced at the sheriff's sale should have included an announcement about the prior mortgage, Shuman "should have made an independent inquiry about the property prior to sale." Accordingly, it was appropriate to only return some of the deposit to Shuman.
Finally, the Appellate Division rejected Shuman's argument that the trial court lacked the discretion to only refund some, but not all, of his deposit. In doing so, the Appellate Division reiterated the great flexibility that courts in the Chancery Division enjoy when fashioning remedies. The Appellate Division noted that "[c]ourts of equity are not restricted to issue only known remedies." Instead, they have the discretion to balance the equities and fashion individualized remedies to fit difficult situations. In Torney, both parties "shoulder[ed] responsibility" for what happened, therefore it was not an abuse of discretion for the trial court to balance the equities and fashion the remedy it did.