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Amboy National Bank v. Karagjozi

A-2733-09T3 (N.J. Super. App. Div. 2010) (Unpublished)

AGENCY — Any agency relationship is one where one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent, and just because someone purports to be an agent, does not mean that its purported principal has cloaked it with that authority.

A developer acquired land to build a residential project. Funding for the land acquisition, site improvement, and construction was secured through a loan. Specifically, the developer executed a mortgage and security agreement in favor of the lender, granting a blanket lien on the individual lots in the development. The loan documents included a partial release procedure to release the lien on each parcel, as sold. A real estate broker facilitated the closings on behalf of the developer. It secured payoff figures from the lender and remitted funds to the bank in connection with each closing. Often, the broker took a check from the buyer and sent it directly to the lender. At times, the broker received the entirety of the seller’s funds, and then issued its check to the lender. There were also instances where a closing took place without the lender’s pay-off letter.

At one particular closing, the sales proceeds were released by the closing agent to the broker, but the broker did not remit funds to the lender. Consequently the construction mortgage encumbering that parcel was never discharged. That purchaser sold to another, and its buyer’s title company failed to report the lien. The lender for the new buyer financed the purchase, believing its loan was secured by a purchase money mortgage. In actuality, its lien was second to that of the developer’s lender. When the developer defaulted, its lender brought a foreclosure action against the developer, the subsequent buyer, and the subsequent buyer’s lender, and this revealed the defects in the transfers of title to the original purchaser and the subsequent buyer.

Motions for summary judgment were filed by each of the subsequent buyer, his lender, and the developer’s lender. The lower court found that the broker was the lender’s agent during the original closing, and therefore deemed that the broker’s receipt of the funds in connection with the troubled closing was on behalf of the developer’s lender, who required that its lien be discharged. Summary judgment was entered in favor of the subsequent buyer and his lender. That lender appealed.

The Appellate Division reversed the lower court’s decision, finding that there were issues of material fact as to whether the broker was the agent for the developer. The Court defined an agency relationship as one where one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent. In this matter, the Court found that parties who were essential to making a determination of liability based on agency were not joined in the litigation, specifically the original purchaser and her attorney. Rather, her attorney submitted a certification in which he stated the broker told him that the payoff would be made by the broker to the developer’s lender; the attorney failed to explain why he did not seek his own payoff letter from the developer’s lender or why he did not send the closing package to his own client’s lender. The Court said that the broker’s assurance was unilateral and there were no facts that explained how such an assurance would bind the developer’s lender. Additionally, the lower court made no specific finding as to whether the developer’s lender knew of the developer’s sale to the original purchaser. Lastly, the Court failed to see how the lien release was directed by the lender for use by the real estate broker at closing. Rather, the record showed routine procedures were not strictly followed in the one hundred closings handled by the broker.


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