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Capital Bank of New Jersey v. Goldstein

A-3219-10T1 (N.J. Super. App. Div. 2011) (Unpublished)

LOANS; DEEDS — Although a borrower’s ordinary expectation in giving a deed in lieu is that the lender is accepting the deed in satisfaction of a debt, if the parties have a written agreement to the contrary, then the provisions of the written agreement will prevail.

A bank entered into loan agreements with two borrowers, secured by mortgages on two properties. The borrowers defaulted on the notes and the bank commenced foreclosure proceedings. The bank also filed suit on the notes and obtained judgments against both borrowers. The bank and borrowers entered into an agreement which released only one of the borrowers from liability if both borrowers executed and delivered deeds in lieu of foreclosure for both properties and gave the bank $4,000 from the sale of a third property. The agreement specifically only released one borrower, but not both borrowers.

After the deeds in lieu of foreclosure were recorded, the bank dismissed the foreclosure proceedings and discharged the mortgages. It then sought to enforce the civil judgments on the notes against the borrower it did not release pursuant to the agreement. That borrower filed a motion seeking an order satisfying the judgments based on his tendering of the deeds in lieu of foreclosure. The lower court held that the agreement he signed with the bank clearly showed an intention to preserve his liability on the notes and judgments. The borrower appealed, claiming that the recording of the deeds in lieu of foreclosure entitled him to an order satisfying the judgments as a matter of law.

The Appellate Division disagreed and affirmed the lower court ruling, finding there was no case law directly addressing the issue. However, based on a treatise on mortgages, 29 New Jersey Practice, Law of Mortgages Section 13.14, it was clear to the Court that the deed in lieu of foreclosure did not extinguish the borrower’s liability. A borrower’s ordinary expectation in giving a deed in lieu is that the bank is accepting the deed in satisfaction of the debt. However, that may change by written agreement of the parties. In this case, the borrower signed an agreement with the bank specifically stating that even after he delivered the deeds in lieu of foreclosure he would not be released from liability, only the other borrower would. The agreement was clear and unambiguous. The Court also noted that the borrower’s attorney sent a confirming letter to the bank when the deal was being negotiated in which the attorney acknowledged that, as part of the deal, the borrower would remain personally liable on the note.


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