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Deutsch v. Binet

A-3227-08T2 (N.J. Super. App. Div. 2011) (Unpublished)

MORTGAGES; FORECLOSURE — A court analyzes a foreclosure rescue transaction and a subsequent settlement agreement, finding each to pass muster.

A prospective property buyer had too low of a credit score to obtain a mortgage loan. So, he enlisted a friend to finance the purchase. The two entered into an oral agreement under which the financer would purchase the property in his own name for the buyer’s use and later transfer it to the buyer in exchange for a cash payment. Pursuant to the agreement, the buyer paid the financer a small fee, and the financer obtained two mortgage loans. The financer and his brother provided the down payment, and paid for the legal services for the sale, and paid the closing costs. The buyer’s credit score remained depressed, and he never refinanced the financer’s mortgage.

Eventually, the “real” buyer sued the financer seeking to have a constructive trust imposed and for an order compelling the financer to execute a deed transferring title. A notice of lis pendens was filed the same day. The next day, the financer and his friend entered into a mortgage and security agreement in favor of the buyer. The mortgage was recorded. About two months later, the buyer, financer, and the original seller signed a four-page settlement agreement dealing with the property and two loans that had been given by the seller. The agreement required the “real” buyer to pay the original seller a sum of money in eight installments; the seller would execute an assignment of mortgage to the buyer; the financer would execute a deed to the buyer; the buyer would continue to pay the existing mortgages and keep them current; and all pending actions related to the loans would be stayed.

Under the settlement agreement, the buyer was to receive the deed and assignment upon full performance of his payment obligations. If he breached the settlement agreement, an escrow agent was authorized to return the deed to the financer and return the assignment of mortgage to the seller. The seller sued the buyer and financer, alleging that the buyer had breached the settlement agreement. In its answer, counterclaim, and third-party complaint, the buyer claimed to no longer be bound by the settlement agreement, alleging that the seller and financer had committed a material breach by failing to deposit the executed deed and assignment of mortgage into escrow.

The seller moved for summary judgment, and said that he was willing to sign a deed and assign the mortgage to the buyer as soon as he received the money due him under the settlement agreement. He also certified that his attorney was never notified as to whom the mortgage should be assigned. The attorney certified that he was unable to prepare a deed and an assignment of the mortgage to be placed in escrow because the buyer was either unable or unwilling to identify the entities or the individuals that were to receive the documents.

The buyer opposed the motion, claiming that the validity of the agreement, the circumstances of its execution, and the specifics of performance of each party of their respective obligations needed to be developed through the discovery process. The financer filed a motion to dismiss the buyer’s third-party complaint. It alleged that the buyer had failed to respond to interrogatories and document requests as required by the lower court. At oral argument, the lower court noted the parties had resorted to self-help rather than seeking judicial enforcement of the agreement, and that neither party acted with clean hands. Nevertheless, it ordered the parties to proceed with depositions and reserved judgment on the seller’s summary judgment motion.

The bank commenced foreclosure proceedings on the property.

In his deposition, the seller’s attorney testified that he had represented the seller in the past, but this time acted only as a facilitator when the agreement was negotiated. He said that the buyer was otherwise represented during the negotiations. The seller, in his deposition, asserted that the attorney had acted as his counsel during negotiations.

The buyer answered the seller’s first set of interrogatories, not stating whether they had made mortgage payments on the property, but indicating that they had paid all maintenance and utility costs. The buyer also stated that he had contacted the financer to notify him that he was prepared to refinance the mortgage, and the financer responded with a money demand in exchange for executing of the deed. The lower court dismissed the third-party complaint against the financer, citing the buyer’s failure to timely respond to the financer’s interrogatories and document requests in accordance with the schedule imposed by the lower court. A later motion by the buyer to reinstate the pleading was unsuccessful.

The lower court then heard more arguments on the seller’s summary judgment motion. The seller and the financer essentially argued they were entitled to summary judgment based on the settlement agreement, and the buyer asserted this relief would be premature because further discovery was needed. In addition, the buyer’s attorney advised the court that his client did not have sufficient funds to satisfy the terms of the settlement agreement but could obtain the money within sixty to ninety days. The lower court reserved judgment and ordered all parties and attorneys to reappear. When they returned, the lower court found the settlement agreement to be clear and unambiguous and ordered the seller to execute a deed and assignment of mortgage to the person named by the buyer; and the buyer to pay the seller within thirty days after the deed and the assignment of the mortgage were filed with the lower court. The order also stated that the failure to make the payment would be considered a material breach of the settlement agreement. The seller then submitted an original deed and assignment, with the grantee designated as a company owned by the buyer.

The financer was deposed and testified that he did not negotiate the contract to purchase the property and did not pay any of the money to purchase the property. According to the financer, the buyer assigned the purchase contract to him prior to closing, but they had a verbal agreement that the buyer would become the true owner once certain outstanding monies were paid, including the repayment of the alleged personal loans. The parties then appeared, and the lower court noted that the buyer had failed to make the payment as ordered, apparently because he lacked the funds. The lower court then entered a judgment against the buyer and scheduled the matter for an evidentiary hearing.

At the trial to determine the merits of the seller’s remaining claims and the buyer’s claim that it was the equitable owners of the property, the seller first called the buyer as a witness. The buyer acknowledged he was responsible for the mortgage payments; that his wife was aware that the financer owned the home; and that he never contacted the attorney to advise him of the name in which he wanted the deed and assignment prepared.

The seller testified that despite asking repeatedly for payment, the buyer never made a payment; and he believed the property had been placed in the financer’s name because the buyer owed the financer money. The buyer’s wife testified that she believed that she and her husband owned the property and that she had no knowledge of the financer’s involvement; however, the financer called the house and told her that the house was in his name; she never saw the settlement agreement and never gave the buyer permission to make any deal.

The lower court, in oral decision, expressed concern that the buyer’s wife was completely unaware of the arrangements regarding the property, and even the purpose of the current proceedings. Therefore, the lower court found that the settlement agreement was enforceable only against the buyer, and judgment was entered against him. The lower court declined to enforce the agreement’s late payment penalty; further, the lower court found it inequitable for the buyer and his wife to live in the property rent-free and imposed a monthly obligation for that occupancy commencing after the buyer stopped paying the mortgage.

On appeal, the Appellate Division agreed that the seller’s failure to place the deed and assignment in escrow did not constitute a material breach of the settlement agreement excusing the buyer’s failures. Pursuant to the settlement agreement, the buyer was not entitled to receive the deed and the assignment because he never performed his payment obligations and never advised the seller of the name or entity he wished to designate as grantee. Moreover, the seller’s alleged breach was a problem with a clear-cut remedy; a simple motion would have resolved the issue.

The Court then found that the agreement’s confidentiality clause did not render it inadmissible and, thus, unenforceable because such a result would be squarely at odds with the court’s preference towards settlement. Next, because the buyer testified that he reviewed the settlement agreement with counsel prior to signing, the Court rejected the buyer’s argument that the economic relationship between himself and the seller led to an unconscionable contract of adhesion.

The Court next found that the financer’s transfer of title to the seller did not constitute unclean hands; the seller ultimately executed and filed a deed to the property with the lower court, whereas the buyer had consistently failed to make the required payments. Thus, there was no misuse of discretion or legal error in the lower court’s decision to enter judgment in favor of the seller; to impose a use and occupancy fee for the fair rental value of the property; or to discharge the lis pendens.

The Court then conceded that once the buyer satisfied the discovery requirements, the lower court should have granted the buyer’s cross-motion to reinstate the third-party complaint, dismissed for failure to provide answers to interrogatories. However, the Court found that the error was incapable of producing an unfair result; because the buyer sought clean title, his claims against the seller and financer were nearly identical, and both were ultimately decided on the full merits.

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