Jordan v. Montgomery

A-2370-10T4 (N.J. Super. App. Div. 2011) (Unpublished)
  • Opinion Date: November 18, 2011

MORTGAGES; SUBROGATION; FRAUD — Where a fraudulent deed, followed by a mortgage, is executed and the original mortgage is satisfied, and then a court restores the property to its rightful owner, the later lender is only equitably subrogated to what was paid to remove the original mortgage and any other liens from the property as those items existed when the later mortgage was granted.

A woman took out a mortgage on her home and then later got married. She then suffered a serious injury that rendered her unable to do many things; therefore, her husband took over the finances. He failed to pay her bills. Faced with a prospective foreclosure, the husband forged his wife’s signature to a power of attorney and sold their home to a third party without her consent. The husband subsequently repurchased the home in his own name and obtained a mortgage from a different issuer. That mortgagee later commenced a foreclosure action, resulting in entry of a final default judgment.

The wife later became aware of her husband’s actions when he confessed to the mismanagement of her finances. She sued him. The earlier lender alleged fraud and sought to have the house conveyed back to the wife and the later mortgage invalidated. The lower court found the wife to be an innocent victim and ordered the property to be conveyed back to her free of any liens against her husband, including those held by the later lender. In order to prevent unjust enrichment, the lower court ordered that the later lender be equitably subrogated to the original mortgage that had been previously satisfied, and that an equitable lien be issued in the amount of the encumbrances placed on the property by the wife that were satisfied on her behalf through her husband’s sale of the property. Included in the equitable lien would be the first mortgage, a small business loan, interest payments, and taxes paid on the property.

The later lender appealed the portion of the order that excluded, from the equitable lien placed on the wife’s property, the value of a line of credit and a second mortgage held by yet another lender. The Appellate Division deferred to the lower court’s credibility findings with respect to the wife’s responsibility for the second mortgage. The later lender provided no proof of the wife’s knowledge or responsibility for this loan, and even failed to produce the original paperwork for the second mortgage. However, the Court was unable to determine how the lower court accounted for the line of credit in its calculation of the equitable lien. It needed clarification as to the calculation and how the lower court reached its conclusion. Therefore, the Court remanded this issue to the lower court for such clarification.