NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4888-14T1
EMIGRANT MORTGAGE COMPANY,
INC.,
Plaintiff-Respondent,
v.
KAREN COSTA,
Defendant-Appellant.
____________________________
Telephonically argued May 24, 2017 – Decided September 18, 2017
Before Judges Nugent, Currier, and Geiger.
On appeal from Superior Court of New Jersey,
Chancery Division, Burlington County, Docket
No. F-043930-08.
Roosevelt N. Nesmith argued the cause for
appellant.
Carol Ann Slocum argued the cause for
respondent (Klehr Harrison Harvey Branzburg,
LLP and Hartlaub, Dotten & Mezzacca, PC,
attorneys; Ms. Slocum, Michael D. Mezzacca and
Robert P. Johns, III, on the brief).
PER CURIAM
The New Jersey Home Ownership Security Act of 2002, N.J.S.A.
46:10B-22 to -35 (HOSA), authorizes a homeowner who has borrowed
money for home improvements to assert against the loan creditor
all affirmative claims and defenses the borrower may have against
the home improvement contractor if the contractor arranged the
loan. In the case now before us, a home improvement contractor,
with the knowing or unknowing assistance of a mortgage broker and
title company, swindled defendant Karen Costa out of money she
borrowed from plaintiff Emigrant Mortgage Company, Inc., to pay
for home improvements.1 Emigrant then filed an action to foreclose
on Costa's home.2 Costa asserted affirmative defenses and
counterclaims against Emigrant.
On cross-motions for summary judgment, the trial court
dismissed the consumer fraud claim Costa had purportedly asserted
against Emigrant under HOSA for the consumer fraud committed by
the home improvement contractor, the mortgage broker, and the
title company. The court determined Costa had not pleaded or
otherwise raised HOSA and further determined her HOSA claim was
barred by the applicable statute of limitations. The court also
dismissed several of Costa's affirmative defenses and three other
counts of Costa's counterclaim. Following the close of plaintiff's
1
Costa has since changed her name.
2
Emigrant actually assigned the note and mortgage to an affiliate,
Emigrant Residential, LLC. The assignment is not at issue on this
appeal.
2 A-4888-14T1
proofs at trial, the court dismissed Costa's remaining affirmative
defenses and claims against Emigrant.
We conclude Costa pleaded in her complaint the elements of a
consumer fraud claim authorized by HOSA, even though she did not
cite the statute. Under those circumstances, and considering our
Legislature's strong pronouncement of HOSA's policy underpinnings,
N.J.S.A. 46:10B-23, the trial court should not have dismissed her
claim on summary judgment. We further conclude the trial court
erred by dismissing all Costa's remaining claims at the close of
her proofs at trial. For these reasons, we reverse those parts
of the court's orders barring Costa from asserting claims through
HOSA, vacate the foreclosure judgment, and remand for further
proceedings.
This action's procedural history began when Emigrant filed a
foreclosure action against Costa on November 5, 2008. Defendant
did not plead or otherwise respond to the complaint, so a default
was entered against her. Thereafter, plaintiff obtained final
judgment and a writ of execution. Following numerous stays or
postponements of sheriff's sales, mediation, Costa's filing of
Chapter 13 bankruptcy petitions, and a sale of Costa's home, the
trial court set aside the sheriff's sale and vacated the final
default judgment.
3 A-4888-14T1
Costa filed an answer, twelve affirmative defenses, a
counterclaim, and a third-party complaint against the home
improvement contractor, Full Spectrum Remodeling; Professional
Abstract and Assurance Title Company, Inc.; and Merit Finance, a
mortgage broker. In her counterclaim's seven counts, Costa pleaded
causes of action for consumer fraud, common law fraud, negligence,
breach of contract, predatory lending, violation of the Truth in
Lending Act, and violation of the Truth in Consumer Contract
Warranty and Notice Act.
Following discovery, Emigrant filed a motion for summary
judgment. Costa filed opposition and a cross-motion for summary
judgment. On May 30, 2014, the court entered an order and
memorandum of decision granting Emigrant's motion in part. The
court found that Emigrant had established the elements of a prima
facie case for foreclosure, dismissed six of Costa's affirmative
defenses, and dismissed her counterclaim counts alleging predatory
lending, violation of the Truth in Lending Act, and violation of
the Truth in Consumer Contract Warranty and Notice Act. The court
denied Emigrant's motion as to the remaining counts after
determining genuinely disputed facts existed as to whether an
agency relationship existed between Emigrant and either Merit
Finance or Professional Abstract. The court denied Costa's cross-
motion for summary judgment.
4 A-4888-14T1
Emigrant filed a motion to reconsider, or, alternatively,
clarify that the court's May 30, 2014 order precluded defendant
from asserting a consumer fraud claim against it as permitted by
HOSA. On October 24, 2014, the trial court issued an order and
memorandum of decision barring Costa from asserting a consumer
fraud claim against Emigrant based on the provisions of HOSA.
The case proceeded to trial on the remaining counts. At the
close of Costa's case, Emigrant moved for judgment. The court
granted the motion. The court entered default judgments against
the third-party defendants. This appeal followed.
Construed in the light most favorable to Costa, the party
opposing Emigrant's summary judgment motion, Davis v. Brickman
Landscaping, Ltd., 219 N.J. 395, 406 (2014), the motion record
establishes the following facts. On September 6, 2007, after
responding to a newspaper advertisement for home improvement work
and a loan for repair and remodeling, Costa entered into a home
improvement installment contract with Full Spectrum. Full
Spectrum's representative, Bill Markum ("Markum"), promised to
arrange financing for the home improvements. The contract price
for the work was $83,649.
The next day, Costa received an unsolicited telephone call
from Merit Finance, a company she had never heard of. Merit
Finance was already aware of her meeting with Full Spectrum and
5 A-4888-14T1
asked her questions for a mortgage loan application. Several days
later, Merit Finance submitted to Emigrant a loan application
package that included documents purportedly signed by Costa on
September 7, 2007 — the day she spoke to a person from Merit
Finance on the telephone. According to Emigrant, it had entered
into a "Broker Direct Agreement" with Merit two years earlier, but
Merit had produced only a handful of applications.
In any event, after receiving an appraisal of Costa's home
as well as a closing service letter and title insurance commitment
from Professional Abstract and Assurance Title Co., ("Professional
Abstract"), Emigrant approved the loan. Emigrant sent Merit
documents, which Merit returned after Costa purportedly signed
them. Thereafter, on October 26, 2007, Emigrant extended a
mortgage loan to Costa in the principal amount of $115,000. Costa
executed a note and a mortgage, which was duly recorded.
Meanwhile, becoming increasingly concerned about the amount
of the home improvement contract, Costa had her husband call Full
Spectrum and ask for a detailed breakdown of the work. On
September 21, 2007, Full Spectrum's Vice President, Josh
Schneider, wrote to Costa and said, among many other things, Full
Spectrum did not charge Costa for "my personal efforts to obtain
the mortgage loan." A few weeks later, a Full Spectrum
representative notified Costa the loan had been approved and Full
6 A-4888-14T1
Spectrum would start the work the next day, October 19, 2007. Full
Spectrum began the work as promised, but never took out a permit.
The following week, a woman from Professional Abstract
telephoned Costa, said the loan had been approved, and asked to
come to Costa's home the next day for a closing. The next day,
Debra Davis from Professional Abstract appeared at Costa's home,
where Costa signed numerous closing documents. Davis instructed
Costa to come to Professional Abstract's Pennsylvania office five
days later to get the loan check. On the scheduled day, Costa
received a check for $23,056.87 rather than the full loan balance.
She learned the remaining money had been disbursed to Full
Spectrum.
A day or two later, someone from Full Spectrum appeared at
her house and demanded she endorse three checks or he would
immediately pull his men off the job. She complied. Full Spectrum
cashed the checks but did not finish the work. Their workers left
the site on March 24, 2008, and never returned.
Costa defaulted on the loan and Emigrant commenced the
foreclosure action in November 2008. After Costa filed a complaint
with the New Jersey Department of Banking and Insurance, she
learned most of the documents generated during the mortgage
application process had been forged. The forged documents included
7 A-4888-14T1
a Refinance Certification that represented that no part of the
loan would be used to finance a home improvement.
In the first sixty-three paragraphs of her counterclaim and
third-party complaint, Costa set forth the factual allegations on
which she based her counterclaim and third-party complaint. She
alleged Emigrant and "its agents," Full Spectrum, Merit Finance,
and Professional Abstract, "acting in concert, employed unfair
trade practices to deceive [Costa] into engaging in a sham home
improvement financing transaction." She further alleged "Full
Spectrum represented that they would arrange financing for the
home improvements" and Full Spectrum arranged for Merit Finance
to process her loan application. Lastly, she summarized the facts
she later developed on the summary judgment record as set forth
above.
In her counterclaim against Emigrant, Costa alleged in the
first count the conduct of Emigrant, Full Spectrum, Merit Finance,
and Professional Abstract constituted multiple violations of the
Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20. Costa also
alleged that "as a direct result of the conduct of Emigrant, [she]
suffered an ascertainable loss."
In the counterclaim's third count, Costa alleged, among other
things, Emigrant breached its duty of good faith and fair dealing
"by failing to employ appropriate managerial control over the loan
8 A-4888-14T1
closing process." In the sixth and seventh counts, Costa
specifically identified and alleged violations of the Truth in
Consumer Contract Warranty and Notice Act and violations of the
Truth in Lending Act.
In the same pleading, Costa asserted a third-party complaint
against Full Spectrum, Merit Finance, and Professional Abstract.
She repeated by reference her factual allegations and then pleaded
five causes of action against each third-party defendant:
violations of the CFA, common law fraud, breach of contract,
predatory lending, and violation of the Consumer Contract Warranty
and Notice Act.
Costa argued in opposition to Emigrant's summary judgment
motion, and in support of her own, that, among other reasons for
denying Emigrant's motion, Emigrant was liable for the acts and
omissions of the third-party defendants under HOSA and under
principles of agency. Emigrant responded that Costa had not raised
HOSA in her counterclaim and third-party complaint. Emigrant
argued there was no evidence to support Costa's agency theories
of liability, Costa did not address her affirmative defenses in
her motion pleadings, and Costa produced insufficient proofs to
support any of her counterclaims against Emigrant.
The court granted Emigrant's motion in part. The court
found Costa had established no genuine issues of material fact to
9 A-4888-14T1
support six of her affirmative defenses or her counterclaims
alleging predatory lending and violation of the Truth in Lending
and violations of the Truth in Consumer Contract Warranty and
Notice Acts. The court also rejected Costa's HOSA arguments,
stating
to the extent [Costa] tries to raise issues
under [HOSA, she] does not contend that this
is a high cost loan and in any event based
upon the [p]laintiff's arguments, it was not.
A violation of HOSA was not even raised in
these pleadings. Finally, the statute of
limitations with respect to New Jersey HOSA
has run.
The court denied Emigrant summary judgment on Costa's
remaining affirmative defenses and counterclaim counts, finding
that the disposition of those claims depended on whether Emigrant
had an agency relationship with the third-party defendants, an
issue which depended upon resolution of genuinely disputed
material facts.
Emigrant moved for clarification of the court's decision.
Costa opposed the motion. The court reiterated its previous ruling
and therefore clarified "that the [HOSA] claim cannot be raised
under the CFA. Any CFA claim based on [HOSA] violations is
precluded from trial."
The case proceeded to trial on Costa's agency theory of
liability against Emigrant and on the remaining counts of the
10 A-4888-14T1
third-party complaint against the third-party defendants. Costa
adduced essentially the same proofs she had established on the
summary judgment motion record. The court dismissed defendant's
remaining claims at the close of Costa's case pursuant to Rule
4:37-2(b).3
The court analogized the facts regarding Professional
Abstract to a condominium complex hiring an independent snow
removal company, telling the snow removal company where to clean
and what to salt. Notwithstanding such directives, the snow
removal company remains an independent contractor. The court
noted, "here Emigrant doesn't select Professional [Abstract], and
the question is . . . the control that Emigrant has over
Professional [Abstract], is that analogous to what a condominium
association has over snow removal people or is it something more."
The court could not "find a way . . . to distinguish that
interaction with the Emigrant – Professional Abstract
interaction."
The court concluded, "I don't think that the evidence and all
the legitimate inferences therefrom could sustain a judgment that
Professional [Abstract] is an agent for Emigrant, and absent that
. . . there's no inculpation of Emigrant for Professional
3
The judge who decided the cross-motions for summary judgment
was not the trial judge.
11 A-4888-14T1
Abstract's negligence. So I find that under [Rule] 4:37-2(b), and
that's the standard I'm using, that there's nothing in the case
to show any independent fraud or negligence of Emigrant."
The court also dismissed Costa's claims against Emigrant
based on her theory that Merit Finance was Emigrant's agent. The
court found the language in the Emigrant — Merit Finance contract
to be dispositive. The court explained that "Merit can place a
loan with a lot of different banks, Merit is similar to the
insurance broker that I've talked about, so I don't think there's
any agency between Emigrant and Merit."
Following the trial, Emigrant received the court's
authorization to proceed with the foreclosure action as a non-
contested case, and obtained a final foreclosure judgement.
On appeal, Costa first argues the trial court erred in denying
her summary judgment motion based on the CFA and common law fraud
claims she asserted, through HOSA, against Emigrant. She asserts
the trial court grossly misconstrued HOSA, failed to recognize the
statute's plain meaning, and interpreted the statute in a manner
inconsistent with both its corresponding regulations and
legislative intent. In a lengthy dissertation on HOSA,
interspersed with misinterpretations of the trial court's opinion,
Costa disregards the twin underpinnings of the court's decision:
12 A-4888-14T1
she never raised HOSA, and HOSA claims were barred by the
applicable statute of limitations.
Emigrant argues that by the time it moved for summary
judgment, Costa knew she couldn't prove any wrongdoing by Emigrant,
so she changed course and asserted Emigrant was liable for Full
Spectrum's consumer fraud by virtue of HOSA. Emigrant asserts
"[t]he trial court rejected [Costa's] backdoor effort to assert a
new claim against Emigrant based on strict liability." It notes
the court held that Costa's assertion of a CFA claim based on a
violation of HOSA "was barred because [Costa] did not allege that
[Emigrant] violated [HOSA]." Lastly, Emigrant cites the trial
court's ruling "that any claim against [Emigrant] based on [HOSA]
was time barred."
Although Costa's counterclaim and third-party complaint did
not specifically allege Emigrant was subject to liability for
fraud or consumer fraud committed by others under N.J.S.A. 46:10B-
27(a), it stated facts that established the elements of such a
cause of action. The statute provides:
Notwithstanding any other law to the contrary,
if a home loan was made, arranged, or assigned
by a person selling either a manufactured
home, or home improvements to the dwelling of
a borrower, or was made by or through a
creditor to whom the borrower was referred by
such seller, the borrower may assert all
affirmative claims and any defenses that the
borrower may have against the seller or home-
13 A-4888-14T1
improvement contractor limited to amounts
required to reduce or extinguish the
borrower's liability under the home loan, plus
the total amount paid by the borrower in
connection with the transaction, plus amounts
required to recover costs, including
reasonable attorney’s fees against the
creditor, any assignee or holder, in any
capacity. (Emphasis added).
Costa's counterclaim and third-party complaint contained
facts which, if proved, would establish that Full Spectrum, Merit
Finance, and Professional Abstract had committed fraud and
consumer fraud. Costa's pleading also alleged quite clearly that
Full Spectrum, the home improvement contractor, had arranged the
loan to Costa. Lastly, the pleading alleged Emigrant was the
creditor. These facts were clearly sufficient to trigger N.J.S.A.
46:10B-27(a).
To be sure, Costa's attorney should have specifically
identified HOSA, as was done with the Truth in Lending and Truth
in Consumer Contract Warranty and Notice Acts. A prudent attorney
would have done so. Nonetheless, it is evident from the forged
Refinance Certification, printed on a document bearing Emigrant's
name and logo, that Emigrant was aware of HOSA. The Refinance
Certification provided were pre-printed statements for a mortgage
applicant to choose and certify. One choice contained a statement
that "no part of these additional funds will be used to finance a
14 A-4888-14T1
home improvement to my (our) primary residence or other home owned
by me (us)." Another choice contained this language:
No person or entity who is the seller or
contractor for the home improvement or who is
otherwise connected with the home improvement
in any way . . . arranged for the loan applied
for with Emigrant or referred me (us) to
Emigrant in connection with this loan
application, nor did any such Contractor
inform me (us) of or suggest to me (us) the
availability of financing with Emigrant. To
the best of my (our) knowledge, neither
Emigrant nor any broker involved in connection
with this loan application is in any way
involved in the home improvement or connected
with any Contractor for the home improvement.
Considering these circumstances, the strong legislative
policy declaration in N.J.S.A. 46:10B-23, and Emigrant's intent
to take Costa's home notwithstanding the provisions of HOSA, we
conclude Costa's pleadings provided notice to Emigrant that the
facts underlying Costa's claims triggered HOSA, such that the
claims should not have been dismissed.
Nor can we conclude from the record the basis on which the
trial court determined HOSA's statute of limitations barred
Costa's claims against Emigrant. In view of our disposition of
the issue concerning the application of N.J.S.A. 46:10B-27(a), the
record on that issue requires further development.
On the other hand, we reject Costa's argument that the judge
erred in denying her cross-motion for summary judgment. Given the
15 A-4888-14T1
manner in which Costa apparently first elaborated on her HOSA
claim during motion practice, Emigrant may have had inadequate
time to develop the record on the issue. Not only that, but
Costa's reliance on N.J.S.A. 46:10B-27(a) without establishing a
substantive violation of HOSA, particularly under the
circumstances of this case, raises a host of potential legal and
factual issues that the trial court did not address. One such
argument is that which Emigrant raises as to whether HOSA applies
to Emigrant under the facts of this case, given that Full Spectrum
did not directly refer Emigrant to Costa. We leave these issues
to the trial court to resolve in the first instance on a record
developed accordingly.
Turning to the dismissal of Costa's claims at trial, we
reverse as to Costa's theory that Professional Abstract was
Emigrant's agent. Professional Abstract and Emigrant had a written
contract specifically authorizing Professional Abstract to act as
Emigrant's agent. Emigrant explicitly instructed Professional
Abstract how to conduct the loan closing. Additionally, Emigrant
required that Professional Abstract use a closing services letter
in order to act as its settlement agent.
The written contract between Professional Abstract and
Emigrant states in part: "ANY DEVIATION FROM THE INSTRUCTIONS OR
ALTERATIONS TO THE CLOSING DOCUMENTS MUST BE APPROVED IN WRITING
16 A-4888-14T1
BY EMIGRANT MORTGAGE COMPANY'S CLOSING DEPARTMENT PRIOR TO
DISBURSEMENT." It further provides: "You are required to establish
the identity of all parties executing closing documents. Photo
identification such as a driver's license, passport, or employer
identification is required."
The trial court did not analyze any of these facts before
granting Emigrant's motion for judgment at trial. Considered in
the light most favorable to Costa, these facts, "together with the
legitimate inferences therefrom, could sustain a judgment in
[Costa's] favor." R. 4:37-2(b). A jury could conclude from these
facts that Emigrant "consent[ed] to have [Professional Abstract]
act on its behalf, with [Emigrant,] the principal[,] controlling
and directing the acts of [Professional Abstract,] the agent."
Sears Mortg. Corp. v. Rose, 134 N.J. 326, 337 (1993).
We have considered the parties' remaining arguments and found
them to be without sufficient merit to warrant further discussion
in a written opinion. R. 2:11-3(e)(1)(E).
For the foregoing reasons, we reverse the trial court's order
barring Costa from asserting CFA and other claims through HOSA
against Emigrant. We also reverse that part of the order
dismissing at the close of Costa's trial proofs Costa's claims
against Emigrant based on an alleged agency relationship with
Professional Abstract. We affirm the denial of Costa's cross-
17 A-4888-14T1
motion for summary judgment. Lastly, based on our decision
concerning Costa's claims through HOSA against Emigrant, we vacate
the judgment of foreclosure.
We remand this matter to the trial court for further
proceedings consistent with this opinion. The trial court should
schedule a case management conference within forty-five days to
determine whether additional discovery is necessary in light of
our decision, and to schedule motion practice to dispose of all
legal issues concerning HOSA and any other legal issues not
previously addressed by the trial court; including any statute of
limitations argument with respect to the HOSA claims. The parties
should not construe this opinion as expressing any comment on how
Costa's claims should ultimately be resolved or decided.
Affirmed in part, reversed in part, and remanded for further
proceedings consistent with this opinion. We do not retain
jurisdiction.
18 A-4888-14T1
EMIGRANT MORTGAGE COMPANY, INC. VS. KAREN COSTA (F-043930-08, BURLINGTON COUNTY AND STATEWIDE)
Combined Opinion