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Fidelity National Title Insurance Company of New York v. D & Sons Construction Corp.

A-5526-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

MORTGAGES; STATUTE OF LIMITATIONS—An unrecorded mortgage is not governed by the twenty year statute of limitations for mortgages; shorter limitations periods as well as the discovery rule may apply, such as the six year limitation period for unjust enrichment claims.

A construction company owned a house encumbered by a mortgage. The company allegedly entered into a contract to sell the property. The buyer allegedly executed a purchase money mortgage and the buyer’s attorney, as closing agent, received the mortgage proceeds and prepared a settlement statement which showed certain distributions to be made, including paying the existing mortgage. The construction company claimed that the closing never took place, that the entire transaction was fraudulent, and that it never executed a deed conveying the property to the buyer. The construction company’s mortgage was paid off by the buyer’s attorney, as the closing agent, but he never recorded the deed or the new mortgage. The closing attorney was later convicted of fraud charges in connection with his role in the transaction. Six years and eighteen days after the alleged closing date, the new lender discovered that there was no deed or mortgage of record and sued to have the construction company reexecute the deed and for the buyer to reexecute the mortgage. The lender then filed a separate suit claiming that it was entitled to an equitable first lien mortgage on the property since the construction company unjustly benefitted by having its mortgage paid off and the lender was financially injured by the nonpayment of the loan and the closing attorney’s failure to record the mortgage. The lender assigned its claim to the title company.

The construction company made a motion for summary judgment. It claimed that the statute of limitations for unjust enrichment was six years from the date the claim accrued and that the statute began to run on the closing date. The title company argued that since the case involved the imposition of an equitable mortgage lien on real estate, the correct statute of limitations was twenty years and not six years. The lower court found that the suit had to be brought within six years after the alleged closing date, and that since it had not been brought before the expiration of that six-year period it was barred.

The title company appealed. The Appellate Division reversed and remanded, noting that the twenty-year statute of limitations proposed by the title company was inappropriate, as it related to claims for adverse possession and suits on recorded mortgages. Since the mortgage was not recorded, its claim was not controlled by a twenty-year statute of limitations; the six year statute for unjust enrichment claims applied. However, the Court disagreed with the lower court’s finding that the statute of limitations began to run as of the alleged closing date. It agreed with the title company’s argument that the “discovery doctrine” applied. Under the “discovery doctrine,” the statute of limitations would not have begun to run until the title company was aware, or through reasonable diligence and investigation should have been aware, of the fraud. The lawsuit was filed six years and eighteen days after the alleged closing took place. The Court found that it was unclear from the record when the title company knew, or should have known, about the closing attorney’s fraudulent actions. Therefore, it remanded the case back to the lower court to determine when the six-year statute of limitations began to accrue.


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