On June 21, 2010, a Federal District Court in New Jersey addressed the issue of what claims need to be included in a foreclosure action to prevent them from being waived. Zebrowski v. Wells Fargo Bank, N.A. 2010 WL 2595237 (D.N.J. 2010)
Underlying Facts and Procedure
In that case, “Plaintiff James Zebrowski procured a mortgage and note from Defendant on December 13, 2002. The loan documents prescribed that Defendant would pay Plaintiffs' real estate taxes from an escrow account. Under the terms of the loan, Mr. Zebrowski was required to make monthly payments of principal and interest totaling $1,307.07 until February 2010. He was also initially responsible for making monthly escrow payments to fund property taxes and insurance.
Plaintiffs alleged that the Bank failed to carry out its duties to administer the loan properly. They alleged that “accounting and servicing obligations were performed in violation of RESPA leading to the improper assessments discussed, including, inter alia, the escrow, and third-party disbursements such as for taxes or insurance.” Id. at 6.
However, they only asserted this as a claim against the lender. They did not assert it as a defense to the foreclosure itself. The question was whether the debtor Zebrowski could do one without doing the other.
Does Negligent Accounting and Servicing by the Lender Need to Be Asserted as a Defense to the Foreclosure to Allow it to Subsequently be Asserted as a Claim for Damages Against the Same Lender
The Court answered that Zebrowski could not do that. The reason was based on the entire controversy doctrine. That principal of law applies to “virtually all causes, claims, and defenses relating to a controversy between the parties engaged in litigation.” Fields v. Thompson Printing Co., Inc., 363 F.3d 259, 265 (3d Cir.2004) (quoting Cogdell v. Hospital Center, 116 N.J. 7, 560 A.2d 1169, 1173 (1989)). Courts have explicitly held this doctrine applicable in the foreclosure context. See In re Mullarkey, 536 F.3d at 228 (interpreting New Jersey law). Federal courts in New Jersey have applied New Jersey's entire controversy doctrine to bar claims that were actually litigated or could have been litigated in previous state court actions. See Bernardsville Quarry v. Borough of Bernardsville,929 F.2d 927, 930 (3d Cir.1991); Heir v. Del. River Port Auth.,218 F.Supp.2d 627, 632 (D.N.J.2002); Dowdell v. Univ. of Medicine and Dentistry of New Jersey,94 F.Supp.2d 527, 534 (D.N.J.2000). Morever, under the Full Faith and Credit Clause of the United States Constitution, “the judicial proceedings of a state court shall have the same full faith and credit within every court in the United States as they have by law or usage in the courts of the issuing state.” Paramount Aviation Corp. v. Agusta,178 F.3d 132, 141 (3d Cir.1999).
“In New Jersey, the entire controversy doctrine is limited, in the foreclosure context, to those counterclaims deemed “germane” under New Jersey Rule 4:64-5. That rule provides that “[o]nly germane counterclaims and cross-claims may be pleaded in foreclosure actions without leave of court.” N.J.R. 4:64-5. Courts have considered several types of claims germane to a New Jersey foreclosure action, including those challenging the circumstances surrounding origination of the loan, see Bank of New York v. Ukpe,2009 WL 4895253, *7 (D.N.J. Dec.9, 2009), challenging the validity of the loan itself, see id., and challenging the amount due on the mortgage, see Associates Home Equity Svcs., Inc. v. Troup,343 N.J.Super. 254, 778 A.2d 529, 540 (N.J.Super.Ct.App.Div.2001). Indeed, the Appellate Division has been “clear that any conduct of a mortgagee known to the mortgagor prior to the institution of a foreclosure that could be the basis of an independent action for damages by reason of the mortgagee having brought the foreclosure could be raised as an equitable defense in the foreclosure.” Sun NLF Ltd. Partnership v. Sasso,313 N.J.Super. 546, 713 A.2d 538, 540 (N.J.Super.Ct.App.Div.1998).” Id. at 6.
The Court Holds that the Claims Were Waived
Based upon all of this, the Court determined that “the claims Plaintiffs have asserted are germane and could have been raised in the foreclosure proceeding. Plaintiffs' remaining claims are precisely the sort of claims that have been deemed germane by courts in that those claims challenge the origination and validity of the mortgage, arise out of the mortgage transaction, and dispute the amount due on the loan. See In re Mullarkey, 536 F.3d at 230 (describing the doctrine as applicable where a plaintiff alleges that the mortgagee breached the parties' underlying agreement) (discussing Leisure Technology-Northeast, Inc. v. Klingbeil Holding Co., 137 N.J.Super. 353, 349 A.2d 96, 99 (N.J.Super.Ct.App.Div.1975)). … . Th[e] alleged improprieties occurred prior to the foreclosure proceedings, and should have been raised as defenses or counterclaims there. The entire controversy doctrine applies to Plaintiff's remaining claims; accordingly, they will be dismissed.
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