United Savings & Loan Ass'n v. Scruggs
United Savings & Loan Ass'n v. Scruggs
Opinion of the Court
On July 28, 1978 defendant Annette Scruggs executed a bond and a mortgage in favor of plaintiff United States Savings and Loan Association to secure a debt of approximately $14,000. The mortgage was duly recorded on the same day. Alleging that Miss Scruggs had defaulted on payments due on the obliga
Plaintiff is now before the court on motion for an order permitting the filing of a nonstatutory notice of lis pendens as a result of a decision of the United States District Court holding the procedures set out in the New Jersey lis pendens statute, N.J.S.A. 2A:15-6 et seq., to be unconstitutional under the Due Process clause of the United States Constitution. Chrysler Corp. v. Fedders Corp., 519 F.Supp. 1252, 1264 (D.N.J. 1981).
As Judge Ackerman noted in Chrysler, the doctrine of lis pendens prevents a party to litigation from conveying the property in dispute in derogation of the potential rights of his opponent in the land and in obstruction of the administration of justice. 519 F.Supp. at 1260. Filing a notice of lis pendens serves as constructive notice to the world that an action involving real property is pending, so that any subsequent purchaser or lienor of that property will take subject to the outcome of the litigation. N.J.S.A. 2A:15-7; Wendy’s of So. Jersey, Inc. v. Blanchard Management Corp., 170 N.J.Super. 491, 496 (Ch.Div. 1979).
The New Jersey statute permits a notice of lis pendens to be filed on the basis of plaintiff’s unverified complaint, nor need the notice itself be in affidavit form. N.J.S.A. 2A-.15-6. Once filed, the notice of lis pendens may not be discharged under the statute except by: (1) plaintiff’s failure to prosecute the action
The fixed and persistent nature of the notice has been underscored by two recent cases: Polk v. Schwartz, 166 N.J.Super. 292 (App.Div. 1979), and O’Boyle v. Fairway Prod., Inc., 169 N.J.Super. 165 (App.Div. 1979). As noted in Polk, unless the complaint clearly recites a cause of action which, under the statute, does not permit the filing of a notice of lis pendens (e. g., an action to recover judgment for money or damages only, N.J.S.A. 2A:15-6), it is not appropriate for a defendant to move directly to discharge the notice. 166 N.J.Super. at 299. Rather, defendant should move “either to dismiss the complaint or pertinent counts thereof for failure to state a claim upon which relief can be granted or for summary judgment, which motion would [include] a request to discharge the notice of lis pendens.” Id. at 299-300.
O’Boyle added this footnote to Polk:
The adversely affected party would be entitled to have the notice of lis pendens discharged if on motion he could demonstrate and obtain a determination by partial summary judgment to the effect that plaintiff in fact and in law had no right to a lien or to a claim affecting the title to the realty in question but only, if at all, some different claim or right against the defendant as for damages. [169 N.J.Super. at 167].
N.J.S.A. 2A:15-6 provides that a notice of lis pendens may be filed where the object of the action is “to enforce a lien . . . upon real estate or to affect the title to real estate or a lien or encumbrance thereon. . . . ” In General Electric Credit Corp. v. Winnebago of N.J., 149 N.J.Super. 81 (App.Div. 1977), this language was construed to permit filing a notice of lis pendens not only to enforce an existing lien, but also to establish an interest or right in real property.
*56 Our statute providing for the filing of a notice of lis pendens ... was not adopted to limit the common law doctrine of lis pendens to situations where an existing lien exists. The express language “to affect the title to real estate,” negates even the suggestion of any such statutory purpose. [Id. at 85-86].
See, also, 54 C.J.S., Lis Pendens, § 9 at 577.
Filing a notice of iis pendens therefore may serve two separate and distinct purposes. Where plaintiff has an existing lien or interest of record, the notice of lis pendens provides constructive notice to the world that an action to enforce such lien or interest has been begun. In this situation the filing serves a notice function only. However, General Electric Credit Corp., supra, makes it clear that a plaintiff seeking to obtain title to real estate or to impose a lien or restriction thereon may likewise file a notice of lis pendens. The filing then takes on a substantive aspect as well, giving notice to the world not merely that a pre-existing lien is being foreclosed but that a new lien has been asserted which will be deemed superior to all subsequently obtained interests in the property.
In Chrysler the latter situation obtained. There, an out-of-state plaintiff brought an action whose favorable outcome would affect the title of defendant Fedder’s New Jersey property, even though at the commencement of the suit Chrysler had no present vested interest, claim or lien in or on the property it sought to charge. Apparently concerned about its eventual ability to recover a money judgment against Fedders, Chrysler filed a notice of lis pendens as to defendant’s real estate. Fedders, on its part, was seeking to sell the subject property but, because of the notice of lis pendens, could not convey title free from plaintiff’s claims. Fedders argued that the lis pendens must be discharged because it operated to deprive Fedders of its property without due process of law.
The Chrysler court weighed plaintiff’s interest in its ability to recover on a potential judgment against defendant’s property and the governmental interest in assuring court control over the subject matter of real property disputes, against the severity of the restriction imposed by the filing of the notice of lis pendens
. .. [T]he present procedures do not satisfy the requirements of due process, either on their face or in the circumstances of the case before me, because of their failure to require the plaintiff to make even a minimal showing of entitlement to the rights created by the filing of the notice of lis pendens at a meaningful time either before or closely following the filing of the notice. [519 F.Supp. at 1264],
In effect, the very filing of the notice of lis pendens with the county clerk or register of deeds and mortgages amounts to a taking of defendant’s property by state action, since it “destroys the ability of a property holder to convey marketable title if the litigation has any possibility of success.” 519 F.Supp. at 1260. See 13A N.J. Practice (Lieberman, Abstracts and Titles) (3 ed. 1966), § 172 at 218—219. Since the statute provides for neither a prefiling nor an effective and rapid postfiling hearing at which defendant might challenge plaintiff’s claim, the property owner’s only other recourse is to move to dismiss or for summary judgment. As Judge Ackerman further noted in Chrysler, this requires the property owner to bear a heavy burden in order to prevail. See Muniz v. United Hospitals Med. Center, 153 N.J. Super. 79 (App.Div. 1977); Judson v. Peoples Bank & Trust Co., 17 N.J. 67 (1954). Thus, when tested against the procedural protections against arbitrary seizures mandated in Sniadach v. Family Financial Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), and the line of U.S. Supreme Court cases which followed,
Since Chrysler was heard and decided by the United States District Court, its holding is not binding on New Jersey state courts. State v. Shapiro, 122 N.J.Super. 409, 436 (Law Div. 1973); State v. Coleman, 46 N.J. 16, 36 (1965). Nevertheless, because the Chrysler decision is grounded in federal constitutional issues, and has ramifications which could profoundly affect mortgage and tax sale certificate foreclosures as well as other lien enforcement proceedings in the State, it is necessary to examine the effect of Chrysler on the present foreclosure action.
Unlike Chrysler, plaintiff here was not seeking to use the filing of a notice of lis pendens as a means to impose a new restriction on real property to which it had no present, publicly ascertainable claim. Rather, United Savings & Loan Association had a recorded mortgage of three years’ standing on defendant’s property. By filing its notice of lis pendens, plaintiff merely sought to give notice to any further purchaser, lienor or mortgagee that its pre-existing lien was being foreclosed. Since plaintiff’s interest in the property had been established earlier by recorded instrument, the filing implicated only the notice aspect of the lis pendens statute and therefore did not amount to a taking of defendant’s property. The due process concerns voiced in Chrysler, which centered on the substantive aspect of lis pendens, i. e., the creation through insufficient process of a restriction on defendant’s property in favor of plaintiff, simply do not arise here.
The court in Chrysler, however, accurately identified the constitutional infirmities inherent in the substantive aspect of filing under the New Jersey lis pendens statute. This aspect arises when plaintiff institutes an action the object of which is, in the statutory language, “to affect the title to real estate. ...” N.J.S.A. 2A:15 6. Filing a notice of lis pendens then effectively asserts a previously unnoticed interest or priority in defendant’s property on behalf of the plaintiff. Since such an interest or priority may be imposed simply by filing a notice based on an unverified complaint, it is the risk that defendant may erroneously be deprived of property rights that triggers the need for due process protections which Chrysler found lacking in New Jersey lis pendens procedures.
The Chrysler opinion itself, however, points the way toward a solution which procedurally would validate the New Jersey lis pendens statute, even when employed to create a claim on defendant’s property. “Virtually any type of rapid hearing, either before or after filing, requiring the plaintiff to make even a minimal showing [of entitlement to the rights created by the filing of the notice of [is pendens], would reduce the risk of erroneous deprivations.” 519 F.Supp. at 1263. Such a hearing would allow for the fair and meaningful accommodation among the legitimate interests of the State and the parties mandated by the 14th Amendment. Mathews v. Eldridge and Finberg v. Sullivan both supra.
Although Judge Ackerman found it “inappropriate . .. to describe in dicta a procedure that would satisfy due process 519 F.Supp. at 1264, this court suffers from no such disability. It is properly the role of Chancery to provide guidance, subject, of course, to the rule-making power of the New Jersey Supreme Court.
An ex parte order giving leave to file a priority creating notice of lis pendens may be issued only if the court finds, from specific facts shown by affidavit or verified complaint, that providing defendant with notice of the motion is likely to defeat the purpose of the notice of lis pendens. See R. 4:60-5(b). In this situation, plaintiff should proceed as if applying ex parte for an order to show cause with temporary restraints, pursuant to R. 4:52-1(a). Such a procedure, adapted to accommodate an application to file a notice of lis pendens, would allow defendant
The procedures outlined above provide sufficient safeguards against possibly arbitrary and erroneous incursions by a plaintiff on a defendant’s property rights. Thus, the due process concerns properly raised in Chrysler are satisfied and the procedures of the New Jersey lis pendens statute may be validly employed to file a notice of lis pendens not only to enforce an existing lien on real property but also to impose a restriction de novo upon defendant’s property. Since this procedure is provisional only, this court suggests that the Civil Practice Committee consider the problem and recommend to the New Jersey Supreme Court more permanent and binding procedures by way of Rule amendments.
Plaintiff should present an order pursuant to R. 4:42-l(a) declaring valid its previously filed notice of lis pendens.
The matter is now on appeal to the Third Circuit Court of Appeals.
Sniadach, supra; Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.26. 556 (1972); Mitchell v. W.T. Grant, 416 U.S., 600, 94 S.Ct. 1895, 40 L.Ed.26 406 (1974), and North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.26 751 (1975). Each of these cases dealt with the constitutionality of various state prejudgment seizure statutes. The holdings of these cases have been summarized in Finberg v. Sullivan, 634 F.2d 50, 58
Reference
- Full Case Name
- THE UNITED SAVINGS & LOAN ASSOCIATION OF TRENTON, N. J., A CORP. OF THE STATE OF N. J. v. ANNETTE SCRUGGS, SINGLE
- Cited By
- 6 cases
- Status
- Published