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Intercoastal Management Corp. v. Lesniak

A-7163-97T1 (N.J. Super. App. Div. 2000) (Unpublished)

MORTGAGES; PRIORITY—Where a second mortgagee knows of a prior, unrecorded mortgage, the first mortgage may have priority over the recorded second mortgage.

The holder of a note and unrecorded mortgage obtained a jury verdict against its borrower. Subsequent to the return of the verdict, the lender successfully moved to recover its counsel fees. Six days later, it docketed the judgment. The borrower, however, executed a mortgage in favor of its attorney between the time of the jury verdict and the time that the motion for attorney’s fees was heard. The mortgage to the attorney was recorded two days before the judgment was entered in favor of the lender. The lender sought to declare the attorney’s mortgage invalid, or, in the alternative, subordinate it to its own mortgage. The lower court ruled that the lender “asserted very vigorously and repeatedly that [it was] proceeding on the note and not on the mortgage.” It then opined that an unrecorded mortgage had no effect and could not be given priority over any other lien. The Appellate Division disagreed, pointing out that recordation is not essential to the validity of a mortgage, especially where the affected parties, the borrower and its attorney, knew of its existence. Further, the lender’s claim that the mortgage to the attorney was an invalid fraudulent conveyance should have been heard by the lower court. The Appellate Division also noted that the lower court did not consider the impact of N.J.S. 2A:50-2, which provides in relevant part: “Except as otherwise provided, all proceedings to collect any debt secured by a mortgage on real property, shall be as follows: First, a foreclosure of the mortgage; and Second, an action on the bond or note for any deficiency… .” Finally, the Appellate Division raised the question as to whether the lender’s judgment lien related back to the return of the jury’s verdict, at least between the lender and the borrower’s attorneys, who had notice of the verdict before the borrower executed the mortgage.


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