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Lebanon Farms Associates v. Nicolai

F-22069-01 (N.J. Super. Ch. Div. 2005) (Unpublished)

MORTGAGES; FORECLOSURE— Where a mortgage misnames the property owner, a court will reform the document and other liens to conform to the intent of the parties.

A partnership foreclosed on property whose original deed and first mortgage holder’s note and mortgage were in the name of a misnamed corporation. At final judgment of foreclosure, the note and mortgage were modified to specify the name of the true owner of the property. The sheriff’s sale resulted in surplus funds. Since established law permits creditors who obtained judgment after a mortgage foreclosure judgment to claim any excess from sale, several parties came forth claiming a right to a portion of the surplus funds. Since there was not enough money to satisfy all of the claims, the lower court had to prioritize distribution. The claiming parties were the following: 1) a second mortgagee; 2) a lumber company; and 3) a drywall company.

1) The Second Mortgagee

The Court held that the second mortgage was invalid and the judgment could not be enforced since both were in the name of a non-existent/misnamed corporation when New Jersey law requires that a lien be against the name wherein written record title to the property exists.

2) The Lumber Company

The Court held that while the judgment obtained by the lumber company was in the name of the property’s record title owner, the judgment was not in the name of the true owner of the corporation who took ownership after it merged.

3) The Drywall Company

The Court held that the drywall company’s judgment against the corporation was void since the action and judgment were filed after the corporation merged and therefore, to be enforceable, should have been filed against the company that existed after the merger.

As a result of the above deficiencies, the Court reformed the lumber company’s lien and the mortgage to conform to the intent of the parties. Thus, since the second mortgagee clearly intended to secure a mortgage on the property and the lumber company appropriately obtained a construction lien against the corporation, the Court reformed the respective instruments, thus permitting both parties to be paid excess funds.

Additionally, the Court held that equity required it to award surplus funds to all the parties due to their good-faith belief that they had filed judgments against the appropriate corporation. Thus, after the Court prioritized the surplus funds by the date on which each judgment was obtained and by the date on which the liens from the judgments attached, the Court ordered that the lumber company be paid first, the drywall company be paid second, and the mortgagee be paid last.

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