Cameron v. Ewing, A-3628-10T2; Appellate Division; opinion by Ostrer, J.S.C., temporarily assigned; decided and approved for publication March 8, 2012. Before Judges Axelrad, Sapp-Peterson and Ostrer. On appeal from the Law Division, Hunterdon County, L-449-07. [Sat below: Judge Buchsbaum.] DDS No. 15-2-5489 [18 pp.]

This appeal presents the novel issue of whether the stream of payments due a home-owner under a home equity conversion mortgage, also known as a reverse mortgage, is subject to execution and garnishment for the benefit of judgment creditors of the home-owner.

Plaintiffs filed a complaint against defendant seeking damages arising out of an automobile accident. The case settled and defendant consented to entry of a judgment against him for $400,000.

Two months before settling, defendant entered into a reverse mortgage with Wells Fargo Bank, N.A. Defendant, then almost 85 years old, gave Wells Fargo a mortgage on his house in an amount “up to” $360,000. Wells Fargo agreed to pay defendant $959.01 a month for as long as he lived and resided in his house.

Plaintiffs discovered the existence of the mortgage during postjudgment discovery. A writ of execution was served on Wells Fargo, levying against “monies due to defendant from a reverse mortgage from Wells Fargo Home Mortgage.” Wells Fargo refused to comply. Plaintiffs filed a motion seeking an order compelling Wells Fargo to comply with the writ of execution.

Plaintiffs argued that Wells Fargo’s obligation to pay defendant $959 a month was a “debt due,” and subject to garnishment under N.J.S.A. 2A:17-63. Alternatively, plaintiffs argued they were entitled to an order compelling defendant to pay over his reverse mortgage receipts in regular installments, pursuant to N.J.S.A. 2A:17-64. Wells Fargo argued its monthly payments to defendant should not be deemed property subject to garnishment under Rule 4:59-1.

The trial court found the payments from Wells Fargo to defendant were not subject to garnishment, nor to an order for installment payments. The court reasoned the reverse mortgage payments to defendant were properly characterized as loans from Wells Fargo to defendant, secured by the mortgage. Thus, Wells Fargo was not indebted to defendant; defendant was indebted to Wells Fargo.

The court determined the payments were beyond the reach of the judgment creditors, and denied their motion to compel the mortgagee to comply with a writ of execution.

Held: The stream of payments due a homeowner under a reverse mortgage is subject to execution and garnishment for the benefit of judgment creditors of the homeowner.

The appellate panel finds the mortgagee’s obligation to make monthly payments to defendant, the judgment debtor, is properly construed to be a “debt” against which plaintiffs, the judgment creditors, may obtain an order directing execution and garnishment under N.J.S.A. 2A:17-50 and -63 and Rule 4:59-1(c).

Construing the term “debt” in the execution statute, the New Jersey Supreme Court has held that “debt” should be accorded not only its ordinary legal meaning but more broadly as “that which one person is bound to pay to another under any form of obligation.” The term “debt” should be interpreted in light of the Legislature’s apparent intent in enacting the law on execution and the Legislature intended to subject to execution not only earned income, but also other installment obligations.

Federal law defines the home equity conversion mortgage to mean “a first mortgage which provides for future payments to the homeowner based on accumulated equity[.]” The recognized purpose of the transaction is to permit the conversion of accumulated home equity into liquid assets.

State law authorizing issuance of reverse mortgages characterizes the payments to the mortgagor as “income,” although it exempts it from taxation. Although the payments are not earned income, they are a regular and recurring obligation of Wells Fargo. It is of no moment that defendant also is indebted to Wells Fargo and he or his estate is ultimately liable to repay the monies received. Wells Fargo remains obliged to make periodic installment payments to defendant pursuant to the terms of its loan agreement and mortgage. Wells Fargo’s payment obligation is certain and currently payable.

Reading “debt” to include Wells Fargo’s monthly payment obligation to defendant is consistent with the policy favoring enforcement of judgments. Further, execution is not barred by defendant’s agreement not to assign his rights. Absent a statutory exemption or clear countervailing public policy, the non-assignability rule does not extend so far that it shields from execution and garnishment payments from a source the judgment debtor created.

Just as the recipient of a line of credit is indebted to the financial institution extending it, defendant is indebted to Wells Fargo as he receives payments, drawing down credit against his limit. Nonetheless, a financial institution providing a line of credit is indebted to its customer, subjecting to execution the exercised line of credit. Likewise, the monthly payments Wells Fargo is obligated to make are subject to execution. Defendant may be indebted to Wells Fargo at the same time Wells Fargo is indebted to defendant. The transaction enables an elderly homeowner to convert his or her home equity into a liquid asset. It is that asset that plaintiffs as judgment creditors are entitled to pursue.

Although monthly reverse mortgage payments are subject to execution and garnishment, the court on remand must determine the percentage of the payments that will be subject to execution and garnishment, in accordance with the limitations set forth in N.J.S.A. 2A:17-56.

Because they are debts, the appellate panel further finds that reverse mortgage payments are “rights and credits” subject to an order for installment payments by the judgment debtor. N.J.S.A. 2A:17-64. An order to pay in installments under N.J.S.A. 2A:17-64 is also subject to the percentage limitations found in N.J.S.A. 2A:17-56.

— By Debra McLoughlin

For appellants — Pellettieri, Rabstein & Altman (W. Barry Rank on the briefs). For respondent Wells Fargo Bank, N.A. — Shimberg & Friel (Anne E. Walters on the brief). Respondent Roy B. Ewing has not filed a brief.