Defendants appeal the Chancery Division's denial of their motion to vacate a default judgment of mortgage foreclosure. Defendants' house was severely damaged by Superstorm Sandy, and they ceased paying their mortgage loan.
Defendants filed a federal lawsuit against their flood insurance company and homeowners' insurer policies, seeking payment for the storm damage. They named the mortgage holder as a co-defendant, claiming the storm extinguished their obligation to pay the mortgage. The federal court dismissed the complaint against all three defendants.
The mortgage holder's successor then filed the present state-court foreclosure action. Defendants defaulted and final judgment was entered against them. Defendants argue the foreclosure action was barred under the Entire Controversy Doctrine, because the mortgagee had the opportunity to file a counterclaim for foreclosure in the previous federal action.
This court affirms the Chancery judge's ruling that the foreclosure action was not barred by the Entire Controversy Doctrine.
The federal case seeking insurance payments lacked a sufficient nexus to the mortgage to preclude the foreclosure case. In addition, the mortgage holder's contractual right to direct the use of any insurance proceeds does not eliminate the mortgage debt or the right to foreclose on the defaulted loan.