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Brunswick Bank and Trust Company v. Maltese

A-368-00T1 (N.J. Super. App. Div. 2001) (Unpublished)

MORTGAGES; FUTURE ADVANCES—A note may be secured by a future advance clause in a mortgage even when the debt for which the mortgage was originally granted had been fully paid.

A borrower had a long term relationship with a bank. The borrower mortgaged his home as collateral for his borrowing needs. After approximately one year, the debt for which the mortgage was initially obtained was paid in full. The bank never discharged the mortgage because it understood that the mortgage would be used to secure future loans. Thereafter, the bank loaned additional money to the borrower for which the borrower executed a promissory note. The borrower defaulted on this note and the bank instituted foreclosure proceedings on the underlying mortgage. The lower court concluded that the “mortgage was intended by all parties to secure future advances, and the note, secured by the mortgage, had never been paid.” Thereafter, the lower court granted judgment in favor of the bank, recognizing that the note “includes the language that all terms of the note are made part of this mortgage and the note has language in it which indicates that all future indebtedness would be secured by the property for which the mortgage was given.” The borrower appealed, arguing that the mortgage had been discharged because it was paid off prior to the subsequent note. The Appellate Division began by recognizing that “a note may be secured by a future advance clause in a mortgage even when the debt for which the mortgage was originally executed was paid. Although a mortgage is discharged upon the payment of the underlying debt, the validity of a mortgage made in good faith, to secure future advances, is no longer open to question.” To be sure, “it is not required that the mortgage document itself expressly contain a future advance clause, so long as it is clear that it is what was intended.” Therefore, even though the previous debt had been paid for a short period of time after the mortgage was given, but before the subsequent note was executed, the bank was not obligated to discharge the mortgage because of its understanding that it would be advancing additional funds to the borrower.

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