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Eopechino v. First Federal Savings & Loan Association of Rochester

A-4344-98T2 (N.J. Super. App. Div. 2000) (Unpublished)

FORECLOSURE; MORTGAGEES—Absent special circumstances, a first mortgagee does not have an affirmative duty to notify a second mortgagee of the progress of foreclosure proceedings.

The owner of a second mortgage had the right to record a theretofore unrecorded deed which would have served to convey to him a one-half ownership interest in the property. The terms of a recorded escrow agreement allowed such an action if there were a default under the first or second mortgage. The mortgagee defaulted on his first mortgage, but because the first mortgagee’s title search omitted the second mortgage lien, the original foreclosure complaint did not name the second mortgagee as a subordinate lien holder. Eventually, the second mortgagee learned that his mortgagor was in default on the first mortgage, but it was too late for the second mortgagee to protect itself. The property was sold for less than the debt secured by the first mortgage. The second mortgagee then filed suit against the first mortgagee complaining that because it was not named in the original foreclosure complaint, it was effectively precluded from protecting its equity interest by being unable to enforce its recorded escrow agreement, by being unable to record the previously unrecorded deed, and by being unable to buy the property before mortgage interest and arrears effectively eroded the second mortgagee’s equity. The Court held that whether or not this would be a valid basis for a claim against the first mortgagee, if the delay was the result of its negligence, there was no evidence that the first mortgagee was negligent. The negligence of an independent contractor, such as a title searcher, was not attributable to the first mortgagee. Further, the second mortgagee was responsible for the situation in which it found itself, for it had never established a mechanism for assuring itself that the first mortgage was being paid according to its terms.


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