Court Opinion

ID: 9754557
Source: CourtListenerOpinion
Date Created: 2023-08-28 20:03:56.572485+00
Date Added: 2024-06-11T07:27:54.621667
License: Public Domain

Francis, J.
(concurring). I concur in the result announced in Justice Hall’s opinion. The discussion therein with respect *537to possible differences in the rights and obligations of mortgagors who have executed notes and mortgages to secure loans on their property vis-a-vis those who have given bonds and mortgages for the purpose, impels me to add some further observations.
In the run-of-the-mill mortgage transactions, a great mass of which involves ordinary homeowners, the factor motivating the lender is the value of the property offered as security for the loan. It is common knowledge that persons and corporations in the mortgage lending business usually limit the size of their loans to a certain percentage of the market value of the property. This practice has a twofold purpose: (1) to furnish reasonable assurance to the lender that in the event of default, the security provided by the property will probably be sufficient to make him whole, and (2) to leave the mortgagor sufficient equity in the property above the mortgage to provide substantial incentive for the making and continuance of payments toward satisfaction of the obligation. In short, from its inception the basic nature of the transaction is such that the parties regard the land as the primary security for the debt, and primarily answerable for its satisfaction. Since the land plays such a paramount role it seems reasonable to say in terms of equitable principles that a defaulting mortgagor-owner ought to have an equity in the transaction calling for utilization of the fair value of the land in diminution of the debt.
The Legislature has recognized the equity where the loan to the property owner is represented by a bond and mortgage. In this situation, in the event of default, not only must the mortgage be foreclosed first and the premises sold, but in the event of a deficiency on a bona fide sale thereof, and a suit to obtain a judgment for the amount of the deficiency, the mortgagee must give credit to the mortgagor in such suit for the fair market value of the premises. N. J. S. 2A :50-2 and 3.
The statute gives recognition to the true character of the transaction and the usual intention of the parties in entering into it. Also it establishes that the public policy of the State *538is to require mortgagees to look primarily to the property for the satisfaction of the obligation, and to protect property owners as far as possible from deficiency judgments.
It is fair to say that at the time of enactment of the statute the prevalent practice of mortgage money lenders was to secure themselves by a bond and mortgage. That undoubtedly accounts for the fact that the law was cast in terms of bond and mortgage transactions, and contained no reference to the very same kind of a loan evidenced by a note and mortgage. I cannot believe that a Legislature, motivated as it was by considerations affecting the general welfare of homeowners, and intending to safeguard them against deficiencies on foreclosure sales in excess of the fair value of their property, deliberately set out to protect only those mortgagors who had given bonds and mortgages to secure loans on their property, and to exclude from the protection those whose identical obligations were secured by notes and mortgages. I cannot attribute such a motive to the lawmakers; it had to be inadvertent. If the legislative policy is applicable to one instrument, clearly it ought to be applicable to the other. See Tischler, “Note or Bond With Mortgage—Whither the Difference?,” 86 N. J. L. J. 572 (1963).
We can take judicial notice that the statute is being emptied of its salutary public purpose at a constantly increasing pace. Mortgage lenders are turning away from the time-honored custom of bond and mortgage. Now to avoid and to circumvent the strictures of the statute they alter the form of the loan transaction. The note, with an acceleration clause, is being substituted for the bond and by that simple change the beneficent effect of the legislation is said to be extinguished. On default in payments there is no statutory obligation to foreclose the mortgage before proceeding on the note. Taking advantage of the acceleration provision in the note, suit is brought thereon and judgment taken for the full amount of the debt then due. The noteholder-judgment creditor’s thesis is that after execution is levied, the mortgaged premises may be sold subject to the mortgage; the sale is *539deemed to cut off the mortgagor’s equity of redemption, and the only obligation of the judgment creditor to the mortgagor is to give credit on the judgment for the sum produced at the execution sale. Further the position of the noteholder-judgment creditor is that the purchaser at the sale is substituted in effect for the original mortgagor. Or if the judgment creditor buys in himself at the execution sale, he may prevent a merger of the mortgage and the deed, and continue the mortgage as an open encumbrance against the property. Cf. Silver v. Williams, 72 N. J. Super. 564, 570 (App. Div. 1962).
The many inequities and financial burdens which may be imposed upon a note and mortgage debtor as contrasted with a bond and mortgage debtor, are obvious. Such burdens and inequities are visited upon homeowner mortgagors, the vast majority of whom do not have the slightest appreciation of the difference between signing a note and signing a bond, to secure which they are giving the mortgage. Nor do they realize that the mortgage holders are employing a form of transaction aimed at nullifying the legislative policy designed to give property owners a measure of protection, and at increasing substantially the burden being assumed.
Without discussing remedies at length, and the means of accomplishing them, it seems sufficient for present purposes to say that absent additional legislation to equate bond and note in the ordinary mortgage transaction, fair application of equitable principles demands:
(1) That if a third person buys in, subject to the mortgage, at an execution sale of the mortgaged premises under the judgment creditor’s (noteholder’s) judgment, it should be assumed that the sum paid for the mortgagor’s equity of redemption represents its value above the outstanding indebtedness on the mortgage. Consequently the mortgage and the judgment should be deemed discharged as between the original parties;
(2) If the mortgagee-judgment creditor buys in at the sale, thereby cutting off the equity of redemption, it should be deemed that the security equals the mortgage or judgment *540debt, and thus both become satisfied. See Lydecker v. Bogert, 38 N. J. Eq. 136, 141—142 (Ch. 1884); Osborne, Mortgages, § 300, p. 862 (1951); 4 American Law of Property (Casner ed. 1952), § 16.167;
(3) As a minimum measure of relief in either (1) or (2), equity should require that in any execution sale on a judgment resulting from the usual note and mortgage transaction, the mortgagor should be given a credit of the fair value of the property at the time of the entry of judgment.
Many commentators have said that when injustice presents itself, the ingenuity of equity in devising means of achieving justice is almost boundless. I have no doubt-that in appropriate cases involving notes and mortgages the genius of equity will assert itself to the proper end. The remedy could be facilitated, of course, by the hand which recognized the public need for N. J. S. 2A:50-2 and 3. But that type of remedy rests entirely in the judgment and discretion of the legislative branch of the government.
Eeaecis, J., concurring in result.
For affirmance — Chief Justice Weintbaub, and Justices Jacobs, Ebancis, Pbootoe, Hall, Schettino and Haneman —7.
For reversal—None.