First second MortgageSecond first mortgage
Davis, et al., HUD-F-18941-17 (21 June 2018).
Whilst not published, this statement is significant in that it represents a further move by the New Jersey judiciary away from a previous case where real awareness of a pledge hampers the fair use of a debt transfer as it has been done in First Union Nat. Nelkin Bank, 354 N.J. Super. Clause 557 (App. Div. 2002) ("The new creditor is not authorised to subrogate a claim, unless there is an arrangement or a transfer of title if he has factual knowledge regarding the previous charge").
Here, the owners of a home have charged the real estate with two mortgage loans in 2011 (the "Prior mortgages"). May 2012 the landowner sells the house to her grandson. Citizens Bank granted the bank a home equities line of credit on 19 October 2012, backed by a mortgage on the land (the "First Mortgage").
First Mortgage was recognised in November 2012. After the first mortgage was carried out on 26 October 2012, but before it was registered, the grandson received another mortgage and carried out a mortgage to mortgage company TD Bank (the "second mortgage"), which was registered in December 2012. Citizens Bank filed this enforcement suit after the neephew was in default with his Citizens Bank loans.
The TD Bank challenged the claim by claiming that its second mortgage should take precedence over the first according to the principle of fair transfer, since the revenues from the TD Bank credit have disbursed the previous mortgages. In the case, the TD Bank agent attested that TD Bank thought it was obtaining a first mortgage on the land because it allegedly knew nothing about the First Mortgage not recorded at the time and that the documentation showed that its resources were being used to pay off the previous mortgages.
The Citizens Bank official in the case attested that she conducted a security search that did not disclose any previous mortgage and that she also thought she had a first mortgage on the land. In agreement with TD Bank, the court found that TD Bank was authorised to adequately transfer the second mortgage to the first pledge item on the land.
Following the explanation of the claim transfer fairness doctrine, the Tribunal found that the Tribunal in In re Ricchi, 470 B.R. 715 (Bankr. D.N.J. 2012) forecasted that the Supreme Tribunal of New Jersey would acquire the interest in Restatement (Third) of Prop. Mortgages § 7. Six, which opposes the conventional notion that real wisdom works as an obstacle to just recourse.
Instead, the In re Ricchi tribunal stated that factual information is not a barrier and that the investigation should instead concentrate on "unjust gain or bias against the Junior mortgage creditor". Although the Tribunal accepted this assessment and found that there was no discernible proof that TD Bank was in fact aware of the First Mortgage, it decided that "[e]ven if the plaintiff proved that the respondent was in fact aware of the plaintiff's previous mortgage, the Tribunal should not have to accept that the claimant's previous mortgage was in fact known to TD Bank,
states that the defendant would continue to be afforded protection by an appropriate transfer under the [R]estatement principle, since the relevant element is not the defendant's awareness, but rather whether there is a'substantial disadvantage' for the intervention pledger, in this case the Bürgerbank. "Then the court decided:
"Whilst it is regrettable that the plaintiff was the subject of an erroneous track record scan, the court will not just disregard the two (2) previous mortgage on the plot because of a third party's mistake. The Court finds that the applicant does not sustain any damage as a result of the application of a reasonable order for cession and that the damage suffered by the applicant was suffered by a third person, which is irrelevant in the present case.
" Thus, because TD Bank had repaid the previous mortgages, it was authorised to enter into an appropriate mortgage even though it was the second mortgage on the land.