Introduction

In this non-precedential opinion, the United States Court of Appeals for the Third Circuit affirmed the dismissal of a federal quiet-title/declaratory judgment action brought by Aura Investors, LLC and Third State Investors, LLC against Romspen Mortgage Limited Partnership. The core dispute stems from a New Jersey state court’s final judgment awarding Romspen a second-priority equitable mortgage over two development parcels (Parcels G and H), “on the same terms and conditions, and securing the same total debt,” as an earlier recorded mortgage given by Aura Development Group, LLC (the “ADG Mortgage”).

After losing in state court and on appeal to the New Jersey Appellate Division, the affiliates returned to federal court seeking to “fix the dollar amount” of the equitable mortgage and to limit its scope—essentially reframing issues already decided. The District Court dismissed on preclusion and related jurisdictional grounds. The Third Circuit affirmed on the narrower and well-settled doctrine of issue preclusion (collateral estoppel), emphasizing that a litigant cannot relitigate the amount and scope of an equitable mortgage that a state court has finally determined—particularly where the state judgment expressly incorporates the underlying loan documents to define the debt secured. The Court also noted that if a precise dollar amount is needed, the appropriate forum is the pending state foreclosure action, not a new federal suit.

Summary of the Opinion

• Holding: The Third Circuit affirmed dismissal of the federal complaint on the basis of issue preclusion. The amount and scope of Romspen’s equitable mortgage had already been fully litigated and finally determined in state court, and those determinations bind the parties in later proceedings.
• Key Rationale: The state court’s final judgment incorporated findings that Romspen holds an equitable mortgage over Parcels G and H “on the same terms and conditions, and securing the same total debt” as the ADG Mortgage. That determination resolved the issue of what debt the equitable mortgage secures, even if the state court did not list a specific dollar figure. The current payoff amount is to be liquidated in foreclosure, not relitigated in a new forum.
• Jurisdiction: The Third Circuit confirmed diversity jurisdiction under 28 U.S.C. § 1332(a) after allowing the pleadings to be supplemented under 28 U.S.C. § 1653 to cure jurisdictional defects, and it exercised appellate jurisdiction under 28 U.S.C. § 1291.
• Doctrines Declined: Although the District Court also invoked claim preclusion and the Rooker-Feldman doctrine, the Third Circuit did not reach those issues because issue preclusion provided a sufficient ground for affirmance.
• Practical Direction: If the parties need the precise amount due under the equitable mortgage, they must pursue that calculation in the state foreclosure action, which is the proper vehicle to determine the amount due on the mortgage.

Background

Aura Development Group, LLC undertook a large residential project in Elk Township, New Jersey. To finance the development, it entered into a term loan and a revolving credit facility with Romspen. The loans (an $8.5 million term loan at 12% and up to $4.5 million revolving commitments) were documented by the ADG Loan Agreement and ADG Notes, and secured by recorded mortgage and related collateral documents (collectively referred to as the “ADG Mortgage” and associated security).

Aura Development also agreed to mortgage several Unacquired Parcels—parcels it intended to acquire later—including Parcels G and H. The loan agreement required Aura Development to grant Romspen a first mortgage on each such parcel once title was acquired. Romspen’s loan proceeds financed improvements that benefitted those parcels.

When Aura Development could not close on Parcels G and H, its principal caused an affiliate, Third State Investors, LLC, to form another affiliate, Aura Investors, LLC, to take title to those parcels. Aura Investors then granted Third State:

• a purchase-money first-priority mortgage, and
• a separate mortgage to secure other obligations to Third State, recorded as “second-priority.”

Aura Development defaulted on the Romspen loans at maturity, the debt was accelerated, and Romspen sued in New Jersey’s Chancery Division for an equitable mortgage over Parcels G and H. After extensive proceedings, the state court awarded Romspen a second-priority equitable mortgage over those parcels, expressly “on the same terms and conditions, and securing the same total debt” as the ADG Mortgage. The New Jersey Appellate Division affirmed in January 2024.

Shortly thereafter, Aura Investors and Third State filed a federal quiet title and declaratory judgment action in the District of New Jersey seeking to “fix the dollar amount” of the equitable mortgage and to limit its scope (including arguments that it should be constrained by cost-sharing advances). While Romspen later filed a state foreclosure action on the equitable mortgage, the federal District Court dismissed the new federal case with prejudice on preclusion and related grounds. The Third Circuit now affirms.

Analysis

A. Procedural Posture and Jurisdiction

The Third Circuit first addressed subject-matter jurisdiction. Because the record did not clearly establish diversity jurisdiction, the Court invoked 28 U.S.C. § 1653 to permit supplementation of jurisdictional allegations. After supplemental submissions identified the citizenship of all parties, the Court confirmed diversity under 28 U.S.C. § 1332(a) and proceeded to the merits under 28 U.S.C. § 1291. It reviewed the Rule 12(b)(1) dismissal “fresh” and the Rule 12(b)(6) dismissal de novo, accepting factual allegations as true and asking whether plaintiffs could prove any set of facts entitling them to relief.

B. The State Court Determination and Its Effect

The New Jersey Chancery Division awarded Romspen a second-priority equitable mortgage on Parcels G and H, expressly incorporating the terms, conditions, and “total debt” secured by the ADG Mortgage. The Appellate Division affirmed in full. This determination answered two critical questions:

• Existence and Priority: Romspen holds a valid equitable mortgage over the parcels, second in priority (i.e., subordinate to the purchase-money first-lien).
• Scope and Debt Secured: The equitable mortgage secures the same “total debt” as defined by the ADG Mortgage and the incorporated loan documents.

Although the state court did not list a specific payoff figure in its final judgment, the Third Circuit explained that the judgment fixed the scope and identity of the debt secured—tying it to the ADG Mortgage so that the amount “may ebb and flow” with that loan under its terms. Any precise “dollar figure” is to be liquidated in the foreclosure proceeding, which is the proper forum under New Jersey law to determine the amount due on a mortgage.

C. Precedents Cited and Their Role

• Midlantic Nat’l Bank v. Bridge (In re Bridge), 18 F.3d 195 (3d Cir. 1994): The Third Circuit cited its own articulation of equitable mortgage principles: equity treats as done what should have been done. Where the parties intended to create a security interest in real property but formalities were incomplete, courts may impose an equitable mortgage. That framework explains why the Chancery Division could impose an equitable lien on Parcels G and H notwithstanding title formalities or the interposition of affiliates.
• In re Adams, 151 F.4th 144 (3d Cir. 2025), and Exxon Mobil Corp. v. Saudi Basic Industries, 544 U.S. 280 (2005): These authorities underscore the narrowness of the Rooker-Feldman doctrine and clarify that, where applicable, ordinary preclusion principles—not Rooker-Feldman—control attempts to relitigate matters decided in state court. The Third Circuit relied on Adams to frame issue preclusion and declined to reach Rooker-Feldman because collateral estoppel already disposed of the appeal.
• Burlington Northern R. v. Hyundai Merchant Marine, 63 F.3d 1227 (3d Cir. 1995): Provided the four-part test for issue preclusion: same issue, actually litigated, determined by final valid judgment, and essential to that judgment. The Court applied this test to conclude that the scope and debt secured by Romspen’s equitable mortgage had been finally and necessarily decided.
• Central Penn Nat’l Bank v. Stonebridge Ltd., 448 A.2d 498 (N.J. Super. Ct. Ch. Div. 1982): Cited for the purpose of foreclosure proceedings in New Jersey—to determine the right to foreclose and the amount due on the mortgage. This reinforces the Court’s directive that dollar quantification belongs in foreclosure, not a fresh federal declaratory action.
• Standards of Review Cases: Vuyanich v. Smithton Borough, 5 F.4th 379 (3d Cir. 2021) (fresh review for Rule 12(b)(1)); Marshall v. Lauriault, 372 F.3d 175 (3d Cir. 2004) (de novo review of Rule 12(b)(6)); In re Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017) (complaint construed liberally at the pleading stage); Laurel Gardens, LLC v. McKenna, 948 F.3d 105 (3d Cir. 2020) (appellate court may affirm on any ground supported by the record).

D. The Court’s Legal Reasoning

The Third Circuit held that issue preclusion bars the federal suit because:

• Same issue: The federal complaint sought to “fix the dollar amount” and limit the scope of Romspen’s equitable mortgage—precisely the issues litigated in state court, which held that the equitable mortgage secures the “same total debt” as the ADG Mortgage.
• Actually litigated: The parties “devoted significant attention” in the state action to the amount and scope of the equitable mortgage, including arguments that it should be capped by cost-sharing advances. The state court rejected those arguments.
• Final and valid judgment: The Chancery Division’s Final Judgment incorporated its May 28 order, and the Appellate Division affirmed in January 2024. This is final and valid for preclusion purposes.
• Essential to the judgment: The determination that the equitable mortgage secures the same total debt as the ADG Mortgage was essential to granting equitable mortgage relief and fixing the nature and priority of Romspen’s lien.

The appellants’ central counter—“the state court never listed a precise dollar figure”—was deemed immaterial. The state court fixed the legal measure of the debt secured (i.e., the ADG Mortgage’s obligations), which can fluctuate under the loan documents. That flexible link is binding; the lack of a frozen dollar figure does not invite a federal “second bite at the apple.” New Jersey foreclosure proceedings will appropriately liquidate the current amount due.

E. Impact and Implications

• For lenders: The decision reinforces that equitable mortgages awarded by state courts—and defined by reference to existing loan documents—are robust against later collateral attacks framed as federal quiet title or declaratory actions. The “ebb and flow” of loan balances under incorporated instruments will not undermine the preclusive effect of the state judgment on scope and debt identity.
• For borrowers and affiliates: Interposing affiliates and reshuffling title to after-acquired property will not defeat a lender’s equitable mortgage where the borrower agreed to mortgage those assets and the loans benefitted the parcels. Once a state court fixes the equitable mortgage and ties it to the underlying loan, attempts to cap or recalibrate the secured debt in federal court are precluded.
• Forum discipline: Dollar quantification belongs in foreclosure. Litigants seeking to contest payoff calculations must do so in the foreclosure action, not by launching collateral federal suits after a state court judgment on scope and priority.
• Preclusion over Rooker-Feldman: The opinion tracks modern doctrine by resolving the case under ordinary preclusion principles and avoiding the narrower and often-misapplied Rooker-Feldman doctrine—signaling to practitioners to frame defenses in terms of claim/issue preclusion first.
• Pleading jurisdiction: The Court’s use of 28 U.S.C. § 1653 to cure defective diversity allegations on appeal is a practical reminder that jurisdictional pleading defects are curable when diversity in fact exists and can be properly demonstrated.
• Priority structure: The judgment confirms Romspen’s equitable mortgage as second priority on Parcels G and H, subordinate to the purchase-money first-lien—illustrating how equity can protect the lender’s bargain while respecting purchase-money priority.

F. What the Opinion Does Not Decide

• It does not list the precise amount currently due under Romspen’s equitable mortgage.
• It does not adjudicate the merits of the foreclosure action or any defenses particular to foreclosure accounting.
• It does not rely on (or expand) Rooker-Feldman; nor does it rest on claim preclusion, even though the District Court invoked both doctrines. The affirmance rests solely on issue preclusion.

Complex Concepts Simplified

• Equitable mortgage: A court-imposed lien on real property created when parties intended to use the property as collateral but failed to observe all formalities. Equity treats as done what should have been done, allowing the lender to enforce the security interest.
• Issue preclusion (collateral estoppel): Prevents relitigation of an issue already decided in a prior case where (1) the same issue is presented, (2) it was actually litigated, (3) decided by a final, valid judgment, and (4) essential to that judgment.
• Claim preclusion (res judicata): Bars later suits between the same parties on the same claim (or claims that could have been brought) after a final judgment on the merits.
• Rooker-Feldman: A limited doctrine barring federal district court review of state court judgments. It applies narrowly and does not replace ordinary preclusion rules where the issue is relitigation of matters already decided.
• After-acquired property promise: A borrower’s agreement to mortgage property it expects to acquire later. Equity may enforce such promises when the borrower acquires the property (or causes affiliates to do so), especially where loan proceeds benefitted the property.
• Priority: The order in which lienholders are paid from collateral. A purchase-money mortgage typically enjoys first priority on the property it financed. An equitable mortgage can be awarded a specific priority (here, second) by court judgment.
• Acceleration: Upon default, the lender may declare the entire outstanding principal and interest immediately due, as permitted by loan documents.
• Foreclosure action: A proceeding to enforce the mortgage, which in New Jersey determines both the right to foreclose and the amount due on the mortgage at the time of judgment.
• “Cleaned up” citation: A conventional signal indicating that internal quotation marks, alterations, or citations have been omitted to improve readability without changing substance.

Conclusion

The Third Circuit’s decision delivers a clear message: once a state court has awarded an equitable mortgage and defined its scope by expressly tying it to the underlying loan documents, the parties cannot use a new federal action to recalibrate or cap the debt secured merely because no fixed “dollar number” appeared in the final judgment. The legal measure of the debt—the incorporated loan obligations—has been decided, and issue preclusion bars relitigation. Any precise amount-due determination belongs in the foreclosure forum.

Although non-precedential, the opinion offers persuasive guidance on three fronts. First, it confirms that state-court equitable mortgage determinations that incorporate loan documents are sufficiently definite to trigger collateral estoppel in later federal suits. Second, it reinforces the modern preference to resolve such disputes via ordinary preclusion doctrines rather than the narrow Rooker-Feldman route. Third, it underscores the institutional competence of foreclosure courts to liquidate the amount due on a mortgage.

For lenders, borrowers, and their affiliates, the takeaway is straightforward: litigate scope and priority issues once, in the original forum; then, if necessary, liquidate the payoff through foreclosure. Federal courts will not provide a second forum for “fix-the-amount” do-overs when the state court has already necessarily determined the debt that the equitable mortgage secures.