Foreclosure Defendant May Not Fail to Pursue a Germane Defense and Then Sue for Fraud by Foreclosure

Adelman v. BSI Fin. Services, ___ N.J. Super. ___ (App. Div. 2018).  This case, which was the subject of Judge Koblitz’s decision today, arose out of a foreclosure action.  Plaintiff, the defendant in the foreclosure case, belatedly (after the sheriff’s sale of the property of her husband, who had died after the sale, leaving plaintiff, his wife, as executrix of his estate) raised in the foreclosure action a defense that a loan modification had been granted to her.  The court there denied her application and gave possession to the lender, Wells Fargo.  Plaintiff appealed, but then dropped her appeal.

Instead, plaintiff then filed this case, alleging that Wells Fargo had modified the mortgage and then wrongfully pursued the foreclosure case.  She asserted claims of breach of contract and consumer fraud. Wells Fargo moved for summary judgment, which the Law Division granted.  In affirming that ruling after plaintiff appealed, Judge Koblitz said that “[p]laintiff could have pursued her appeal of the denial of this germane claim in the foreclosure litigation rather than raising the same issue in other litigation.  Because plaintiff attempted to litigate the same issue in two forums, [the panel] affirmed the grant of summary judgment.”

Applying the de novo standard of review, Judge Koblitz cited Rule 4:30A, which embodies New Jersey’s entire controversy doctrine, and Rule 4:64-5, which states that only “germane counterclaims” may be interposed in a foreclosure action.  Non-germane claims, which cannot be raised in a foreclosure case, are not precluded from being the subject of another suit.  But germane claims, such as that of plaintiff here, which was “a fundamental defense to Wells Fargo’s right to foreclose,” had to be pursued in the foreclosure action or be barred.

Judge Koblitz then discussed the inter-related doctrines of entire controversy, res judicata, and collateral estoppel.  The Law Division had relied on all three of those ideas in granting summary judgment.  Judge Koblitz agreed that those principles all barred plaintiff’s subsequent lawsuit.  In summary, therefore, as the very first sentence of the panel’s opinion stated, “[a] defendant in a foreclosure case may not fail to diligently pursue a germane defense and then pursue a civil case against the lender alleging fraud by foreclosure.”



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