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Kabillio v. Markowitz

A-2125-97T3 (N.J. Super. App. Div. 1999) (Unpublished)

MORTGAGES; SETTLEMENTS—A lender that fails to object to a settlement agreement that has the effect of eliminating personal liability on the part of its original mortgagor, has no claim against its own attorney when after making payments under the settlement agreement, the replacement mortgagor, a corporation, goes bankrupt.

A tavern owner sold its business and the real estate on which it was situated and took back a purchase money mortgage secured by the real estate. The buyers were personally liable for the debt. The documents of sale also provided that any further transfer of the business required the original seller’s prior consent. The mortgage was never recorded. Subsequently, the new owner wanted to transfer title to the real estate and claimed that its seller had agreed to a transaction. The seller denied granting consent. At an aborted closing that followed, the original seller learned the purchase money mortgage had never been recorded. The new owner brought a lawsuit against the original tavern owner seeking damages for loss of its real estate sale. Eventually, a settlement was reached where the original seller received some payments and the original loan was placed in a first lien position. However, the mortgage was recast with a corporation as the obligor but the original, individual buyer, was released from the mortgage obligation. The settlement was placed on the record and the original tavern owner, when asked about the settlement, responded, “[w]e discussed it. I have no choice but to accept it. I will accept it.” Nonetheless, the original tavern owner, after speaking with a different attorney, refused to sign a stipulation of settlement. A motion was filed to enforce the settlement agreement and the lower court granted the motion. Subsequently, the corporation defaulted on the mortgage and the original tavern owner eventually regained possession of the real property by deed in lieu of foreclosure. He then commenced a legal malpractice action alleging that his original attorney settled the case without authorization and for an inadequate amount, resulting in damage because the value of the property diminished to an amount less than the outstanding mortgage balance. The particular objection was that the original buyer was no longer personally liable on the note and that his attorney knew of the original tavern owner’s concern in this regard but still agreed to a settlement that led to a result that had been feared. The Court held against the original tavern owner, finding that after not objecting to the terms of the settlement agreement and accepting the benefits of the agreement, the complainant was judicially estopped from asserting the contrary position that the settlement was unauthorized and that his attorney acted contrary to instructions.

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