                 NOT FOR PUBLICATION WITHOUT THE
                APPROVAL OF THE APPELLATE DIVISION

                                 SUPERIOR COURT OF NEW JERSEY
                                 APPELLATE DIVISION
                                 DOCKET NO. A-2668-14T3


OCWEN LOAN SERVICES, LLC,

      Plaintiff-Respondent,

v.

MARLA WUEBBENS QUINN and
THOMAS QUINN,

      Defendants,

and                                        APPROVED FOR PUBLICATION

LOUISA WUEBBENS and                             JULY 10, 2017
DAVID WUEBBENS,
                                              APPELLATE DIVISION
      Defendants-Appellants.



          Argued October 6, 2016 – Decided October 24, 2016

          Before Judges Fuentes, Carroll, and Gooden
          Brown.

          On appeal from the Superior Court of New
          Jersey, Chancery Division, Passaic County,
          Docket No. F-27321-09.

          Richard A.    Herman    argued     the   cause    for
          appellants.

          Rajan Patel argued the cause for respondent
          (Law Office of Rajan Patel and Blank Rome LLP,
          attorneys; Mr. Patel, on the brief).
     The opinion of the court was delivered by

CARROLL, J.A.D.

     Defendants Louisa Wuebbens and David Wuebbens appeal from

companion orders entered by the Chancery Division on January 5,

2015, granting partial summary judgment to plaintiff Ocwen Loan

Servicing,   LLC,1   and   denying   defendants'   motion   for   summary

judgment.    Applying equitable principles recognized by this court

in Sovereign Bank v. Gillis, 432 N.J. Super. 36 (App. Div. 2013),

Judge Margaret Mary McVeigh granted plaintiff's mortgage a lien

priority over defendants' life estates in the mortgaged property.

We affirm both orders, substantially for the reasons articulated

by Judge McVeigh in her well-reasoned written opinion of January

5, 2015.

     The essential facts are undisputed.       By deed dated November

12, 2004, defendants conveyed their residential property in Little

Falls to their daughter, Marla Wuebbens Quinn. Defendants retained

a life estate in the property, and agreed to remain responsible

for the maintenance and upkeep of the property, to pay all taxes

assessed upon the property, and to maintain adequate insurance.

     On December 2, 2005, Marla Wuebbens Quinn, her husband, Thomas

Francis Quinn, and defendants executed a $260,000 mortgage on the


1
  Ocwen Loan Servicing, LLC is at times alternatively referred to
as Ocwen Loan Services, LLC in some of the pleadings.

                                     2                            A-2668-14T3
property in favor of IndyMac Bank, F.S.B. (the 2005 mortgage).

The mortgage loan had a thirty-year term through December 2035,

with an adjustable interest rate initially set at 1.000% and a

maximum cap not to exceed 9.700%.            The mortgage further provided

that, because the borrowers were initially only making limited

monthly payments, the addition of unpaid interest could increase

the principal balance to 110% of the $260,000 loan amount, or

$286,000.

     On September 21, 2007, Marla Wuebbens Quinn refinanced the

existing mortgage loan by executing a $380,000 note and mortgage

in favor of IndyMac (the 2007 mortgage).             Plaintiff alleges, and

defendants do not dispute, that the title commitment obtained by

IndyMac    did   not   disclose   the    recorded    life    estates    held    by

defendants.      Consequently, the title commitment did not require

defendants to execute the 2007 mortgage, and they did not do so.

The new mortgage loan had a thirty-year term, through October

2037, and provided for a fixed annual interest rate of 6.625%.

     Indymac's title commitment did reveal the existence of two

open mortgages encumbering the property: its own 2005 mortgage,

and a $60,000 second mortgage executed by the Quinns in 2006 in

favor of another lender.       Both mortgages were satisfied out of the

proceeds    of   the   2007   mortgage      loan,   with    Indymac    receiving

$265,269.45 to satisfy the 2005 mortgage, and the second lender

                                        3                                A-2668-14T3
receiving $57,305.59 to discharge its mortgage.                      As a result, the

2007 mortgage to Indymac, signed only by Marla Wuebbens Quinn and

not by defendants, became the sole mortgage lien on the property.

     In May 2009, IndyMac filed a foreclosure action in the

Chancery      Division    against     the       Quinns   on    the    defaulted       2007

mortgage.      Subsequent amendments to the complaint by IndyMac's

assignees added defendants as parties to the action and, among

other   things,     sought    to    equitably       subrogate       defendants'       life

estate interests in the property to plaintiff's mortgage.

     On cross-motions for summary judgment, plaintiff sought an

adjudication that defendants' life estates in the property were

subject and subordinate to the lien of plaintiff's 2007 mortgage,

plus taxes and insurance advanced by plaintiff and its predecessors

while   the    loan   was    in    default.        In    turn,     defendants     sought

dismissal of the foreclosure complaint against them on the grounds

that they did not sign the 2007 mortgage nor pledge their life

estates in connection with the 2007 loan refinancing.

     Applying       the   "equitable        principles        of    Gillis"     and    the

principles     of   replacement      and    modification           recognized    in   the

Restatement (Third) of Property – Mortgages (1997) ("the Third

Restatement"), Judge McVeigh granted plaintiff's motion and denied

defendants' motion.         Specifically, the judge permitted plaintiff

to step into the shoes of its prior mortgage which its own funds

                                            4                                    A-2668-14T3
satisfied.       However, the judge "capped" the amount of plaintiff's

priority at $260,000, and ruled that "[t]o the extent that the

[2007] refinance exceeds the value of the [2005] mortgage, such a

portion    of       the   refinance     does   not    maintain     priority"    over

defendants' life estates.

     Judge      McVeigh      rejected    defendants'     argument    that   a   life

estate    is    a    prior   property    interest      that   is   not   subject   to

principles of equitable subrogation.                 The judge reasoned:

                    A life estate has recognizable value.
               See U.S.C.A. §1396p(c)(1)(J) (referring to the
               purchase of a life estate as an asset). The
               same equitable princip[les] that allow one
               mortgage to take the place of another in
               priority are applicable when deciding priority
               between a life estate and the mortgage. Just
               as equity is concerned with the prejudice to
               the lenders of mortgages, here too we look at
               the prejudice to the parties.

                    [Defendants] signed a mortgage in the
               amount of $260,000 as possessors of a life
               estate.   While [defendants] may have signed
               the mortgage as an act of kindness and love
               to   their   daughter,   the    fact   remains
               [defendants] were parties to the 2005 mortgage
               and thus subjected their life estate to this
               foreclosure action.    This [c]ourt sees no
               procedural or substantive defect which would
               challenge the validity of the 2005 mortgage.

                    At the time Marla Wuebbens Quinn signed
               the refinance with IndyMac, $265,269.45 was
               used to pay down the original $260,000
               mortgage. [Defendants] are not prejudiced by
               having the refinanced mortgage take the place
               of the original mortgage, as they acknowledged
               that note and mortgage.         Enforcing the

                                           5                                A-2668-14T3
              refinanced mortgage against [defendants] puts
              them in the same position they were in as
              signers of the original mortgage.    The life
              estates of [defendants] are subject to the
              refinance because of their participation in
              the signing of the original mortgage.

       Additionally, the judge determined that defendants' life

estates      in    the    property      were   subject        and   subordinate          to    an

additional $43,019.85 in taxes and insurance advanced by the

various lenders in accordance with the terms of the mortgage

documents.         This appeal followed.

       Our    scope      of    review    is    limited.        Decisions        as    to      the

application        of    an    equitable      doctrine    are       left   to     the     sound

discretion of the trial judge, and we will not substitute our

judgment for that of the trial judge in the absence of a clear

abuse of discretion.            Kurzke v. Nissan Motor Corp. in U.S.A., 164

N.J. 159, 165 (2000).

       On appeal, defendants argue that the trial court erred in

subordinating their life estates to plaintiff's mortgage lien,

thus    allowing         for    the     foreclosure      of     their      life      estates.

Alternatively, they argue that the trial court erred in not

conducting a hearing on the validity of the 2005 mortgage.                                     We

disagree.         We have considered defendants' arguments and find them

without merit.           R. 2:11-3(e)(1)(E).          We affirm substantially for




                                               6                                        A-2668-14T3
the reasons expressed in Judge McVeigh's cogent written opinion.

We add the following comments.

     Under the doctrine of equitable subrogation, "[a] refinancing

lender whose security turns out to be defective is subrogated by

equitable assignment 'to the position of the lender whose lien is

discharged by the proceeds of the later loan, there being no

prejudice   to   or   justified   reliance    by   a   party   in    adverse

interest.'"   Equity Sav. and Loan Ass'n v. Chicago Title Ins. Co.,

190 N.J. Super. 340, 342 (App. Div. 1983) (quoting Kaplan v.

Walker, 164 N.J. Super. 130, 138 (App. Div. 1978)).                 Equitable

subrogation is a remedy "'highly favored in the law.'"          First Fid.

Bank, Nat. Ass'n, S. v. Travelers Mortg. Servs., Inc., 300 N.J.

Super. 559, 564 (App. Div. 1997) (internal citations omitted).               As

it is an equitable doctrine, it is applied only in the exercise

of the court's equitable discretion.         Metrobank for Sav., FSB v.

Nat'l Cmty. Bank, 262 N.J. Super. 133, 144 (App. Div. 1993).

Hence, "[e]quitable subrogation may only be imposed 'if the cause

is just and enforcement is consonant with right and justice.'"

Feigenbaum v. Guaracini, 402 N.J. Super. 7, 20 (App. Div. 2008)

(quoting Standard Acc. Ins. Co. v. Pellechia, 15 N.J. 162, 173

(1954)).

     In the context of mortgages, we have previously described the

equitable subrogation doctrine as follows:

                                    7                                 A-2668-14T3
           Generally, a new mortgage is subrogated to the
           priority rights of an old mortgage by either
           agreement or assignment.    In the absence of
           such an agreement or assignment, a mortgagee
           who accepts a mortgage whose proceeds are used
           to pay off an older mortgage is equitably
           subrogated to the extent of the loan so long
           as the new mortgagee lacks knowledge of the
           other encumbrances.    Metrobank[, supra, 262
           N.J. Super. at 143-44].    In that situation,
           the new mortgagee by virtue of its subrogated
           status can enjoy the priority afforded the old
           mortgage.   Ibid.   Equitable subrogation may
           still be afforded even though lack of
           knowledge on the part of the new mortgagee
           occurs as a result of negligence.     Kaplan[,
           supra, 164 N.J. Super. at 138]. On the other
           hand, the new lender is not entitled to
           subrogation, absent an agreement or formal
           assignment, if it possesses actual knowledge
           of the prior encumbrance. Metrobank, supra,
           262 N.J. Super. at 143-44.

           [First Union Nat'l Bank v. Nelkin, 354 N.J.
           Super. 557, 565-66 (App. Div. 2002).]

    In Gillis, we relied on principles of "replacement" and

"modification"    that    are   technically    distinguishable   from   the

traditional application of equitable subrogation.           Gillis, supra,

432 N.J. Super. at 46-49.       There, we determined that, if a lender

who holds a priority lien replaces it with a new mortgage via a

refinancing, this replacement lien is given priority regardless

of the lender's knowledge of other encumbrances.               Id. at 47.

Adopting   "the   Third    Restatement's      alternative   approach,   [we

determined that] the pertinent limiting factor is not the new

lender's knowledge, but instead whether there has been 'material

                                     8                             A-2668-14T3
prejudice'   to   the   intervening   lienor."   Ibid.   (citing   Third

Restatement at § 7.6(b)(4)).     Accordingly, we noted:

                We regard this as a sound approach. A
           proper judicial analysis of material prejudice
           will examine such aspects as the respective
           loan amounts involved, the interest rates,
           and, potentially, the loan terms. Actual or
           constructive knowledge by the refinancing
           lender, if it is the same original lender or
           it's    corporate   successor,    should    be
           irrelevant.

           [Id. at 51 (footnote omitted).]

       In the present case, defendants' interest in the property

takes the form of a life estate rather than a mortgage.            Like

Judge McVeigh, we do not view this as a meaningful distinction.

Rather, we view Judge McVeigh's analysis, which centered on the

presence or absence of material prejudice to defendants, as a

logical extension of our holding in Gillis.        We conclude, like

Judge McVeigh, that the replacement of the 2005 mortgage lien with

the 2007 mortgage did not prejudice defendants in any meaningful

way.    It is without doubt that defendants agreed to subordinate

their life estate to the lien of plaintiff's 2005 mortgage.          The

trial court correctly "capped" plaintiff's mortgage priority at

$260,000, and preserved the priority of defendants' life estates

on the portion of the 2007 mortgage loan that exceeded that amount.

Although capped at $260,000, the lien of plaintiff's 2005 mortgage

over time could have risen to $286,000, and its interest rate

                                      9                        A-2668-14T3
could have swelled to 9.700%.   In contrast, the 2007 mortgage had

a fixed interest rate of 6.625%, and extended the maturity rate

an additional two years. As a result, we concur with Judge McVeigh

that enforcing the 2007 mortgage against defendants puts them in

the same position they were in as when they signed the 2005

mortgage.

     Affirmed.




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