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Forde v. Terrelongue

A-3528-04T2 (N.J. Super. App. Div. 2006) (Unpublished)

MORTGAGES; ARBITRATION—Even though an arbitration agreement was signed by the borrower a month before executing its note and mortgage, the borrower is still bound by the arbitration agreement to resolve disputes over the mortgage.

A borrower granted a mortgage in connection with a refinancing loan. Approximately one month before closing, and in connection with the loan, the lender and borrower entered into an arbitration agreement. Although the loan agreement required the borrower to obtain homeowner’s liability insurance on the property, it failed to do so. The lender got insurance, but that insurance only protected the lender. Subsequently, a woman fell and sustained injuries on the borrower’s property. She sued the borrower, and the borrower in turn sued the lender. The borrower alleged: (1) the lender had a duty to obtain liability insurance coverage for the benefit of the borrower; (2) the lender’s failure to explicitly inform the borrower of her need to obtain liability coverage constituted consumer fraud; and (3) that the arbitration agreement was unenforceable because it was vague.

The lender moved to dismiss based on the arbitration agreement. The lower court granted the motion, finding that because the arbitration agreement was executed one month before closing, it was evidence of lender’s clear intent that arbitration be used as the method of resolving all disputes arising from, and related to, the loan. The Appellate Division affirmed, and further held that an arbitrator may hear claims of consumer fraud.

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