The Appellate Division Rejects an Inequitable Tactic in a Mortgage Case

Valley Nat’l Bank v. Meier, 437 N.J. Super. 401 (App. Div. 2014).  In this case, defendant sought to foist a wholly unjust result on plaintiff in connection with a foreclosure action.  Judge Fisher, writing for the Appellate Division, would have none of that, going so far as to state that it would be hard to characterize defendant’s conduct as “anything short of a fraud” on plaintiff.

In 1999, defendant and his wife (from whom he was later divorced) bought property, taking a $168,000 loan from and giving a purchase money mortgage to Community Bank, of which defendant was president, CEO, and chairman of the board.  In 2005, the couple obtained a $100,000 line of credit from the predecessor of plaintiff, secured by the same property.  In 2007, defendant paid the full amount due on the Community Bank loan, allegedly with his own premarital assets (though defendant never provided any actual proof of that source of funds) and, instead of a cancellation or discharge of the mortgage, received an assignment of that mortgage, which he recorded.

Two years later, plaintiff filed a foreclosure action against defendant and his wife based on the 2005 home equity loan.  Plaintiff won a default judgment and purchased the property at a sheriff’s sale.  Three months later, defendant surfaced, demanding that plaintiff pay him the amount he paid on the Community Bank loan in 2007, plus interest on that loan since that date, for a total of over $200,000.  Plaintiff then sought an order divesting defendant of the assignment of the mortgage.  The Chancery Division granted that application and, on defendant’s appeal, the Appellate Division affirmed.

Judge Fisher’s opinion began, and perhaps could even have ended, with an “indisputable” concept: “in the eyes of the law, a mortgage is extinguished by operation of law when full payment is made by a mortgagee and accepted by the mortgagor.”  The fact that defendant got an assignment, potentially so that he could recoup from his ex-wife the payment he made (allegedly from his own premarital funds, though there was no proof of that) to satisfy the mortgage, did not change that principle.

When the Community Bank loan was paid off, the associated mortgage, whatever effect it might or might not have had as between defendant and his ex-wife, an issue that Judge Fisher observed was not before the panel and might well have been resolved in the divorce proceeding, certainly had no further effect as to plaintiff.  Accordingly, the decision of the Chancery Division to reject defendant’s stratagem was affirmed.