Lender may pursue additional reasonable attorney fees in New Jersey

Lender may seek Deficiency Judgment for Reasonable Attorney Fees in New Jersey

Case Law
REGENCY SAVINGS BANK, F.S.B., PLAINTIFF-RESPONDENT/CROSS-APPELLANT, v.
MORRISTOWN MEWS, L.P., UNITED STATES LAND RESOURCES, L.P., RANDOLPH
MILEED REALTY HOLDINGS, L.P., LAWRENCE S. BERGER, MORRISTOWN MEWS GP,
L.L.C., RANDOLPH MILEED GP, L.L.C., AND UNITED STATES REALTY RESOURCES INC.,
DEFENDANTS-APPELLANTS.

DOCKET NO. A-2262-02T5
SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION
363 N.J. Super. 363; 833 A.2d 77; 2003 N.J. Super. LEXIS 311br /> October 1, 2003, Submitted
October 21, 2003, Decided

Facts: Lender A seeks court relief to collect more attorney’s fees. The efforts of lender’s counsel included two separate foreclosure actions which ultimately resulted in payment of principal and interest with releases of the debt. In each foreclosure action, too, the lender received counsel fees pursuant to R. 4:42-9(a)(4).

These fees, however, were less than could have been obtained under collection fee provisions in the notes. The notes were in the amounts of $ 780,000 (Randolph Mileed note) and $ 4,250,000 (Morristown Mews note). The foreclosure final judgments were in the amounts of $ 709,272.02 and $ 5,305,695.82. Counsel fees of $ 7,242.72 and $ 7,500 were awarded. The lender sought fees of $ 43,256.20 and $ 57,889.69, respectively, under the fee provisions in the notes and, before entry of final judgments in the foreclosure actions, filed a deficiency action seeking full recompense of its collection fees. It was partially successful, obtaining a judgment for an additional $ 42,903.50 on the Morristown Mews note and $ 23,448.07 in fees incurred in the deficiency action. Borrower appeals these additional awards, contending that the lender is entitled only to the fees awarded in the foreclosure actions.

Issue: Whether or not award of attorney’s fees in foreclosure can be reduced?

Ruling: Yes. The basic query underlying the parties' dispute is whether a lender, secured by a mortgage on a note, who pursues foreclosure and receives payment of principal and interest and counsel fees, albeit limited to fees authorized under R. 4:42-9(a)(4), may augment those fees by way of a deficiency action on a fee-shifting provision in the note. Where fee-shifting could have occurred in the context of a foreclosure proceeding which fully satisfies the principal and interest owed, counsel fees under a secured note's fee-shifting provision sought in a deficiency action can be reasonably limited thereby. Similarly, where a foreclosure action in fact has been pursued and counsel fees awarded under R. 4:42-9(a)(4), we have held that that rule limits counsel fees, despite a more generous contractual provision. Jurisprudentially, New Jersey continues to adhere to the view that the sound administration of justice is best advanced by having the parties bear the burden of their own counsel fees. However, contractual fee-shifting agreements in the lender/borrower context are generally enforceable. On the other hand, fee-shifting in the context of a foreclosure proceeding is governed by Rule 4:42-9(a)(4) and limited to the formula set forth in that rule.

Lesson Learned: While a contract of engagement between a client and counsel provided for a generous sum of counsel’s fees, Courts will not hesitate to set aside this contractual stipulation of it will be shown that said counsel’s fees is unreasonable.

Written by Kevin Levonas and Jerry L.