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Lyons, Doughty & Veldhuis, P.C. v. William M.E. Powers, Jr., Chartered

331 N.J. Super. 193, 751 A.2d 597 (App. Div. 2000)

FORECLOSURE—An inferior lien holder has the obligation to follow the foreclosure proceedings and can not ordinarily blame its failure to do so on the foreclosing party’s failure to tell it of the date of a Sheriff’s sale.

A property was encumbered by two mortgages and the holder of the first mortgage commenced a foreclosure action. The second mortgagee anticipated that the sale of the property would generate sufficient funds to satisfy both mortgages. Nonetheless, the attorney for the second mortgagee did not file a non-contesting answer, which would have assured entitlement to notification of the scheduling of a Sheriff’s sale. Instead, the attorney had several communications and several telephone conversations with the attorney for the first mortgagee about the status of the foreclosure sale. Ultimately, the Sheriff’s sale took place, but the second mortgagee’s attorney was not aware of the sale and did not attend. There was a shortfall and the second mortgagee’s attorney sued the first mortgagee’s attorney, seeking to make its client whole for the deficiency. Its theory was that the attorney for the first mortgagee was negligent. There was no allegation of intentional misrepresentation. In support of its argument, the attorney for the second mortgagee pointed to cases where attorneys were found liable to non-clients. In one of the cases, the New Jersey Supreme Court had ruled that an attorney for the seller of real estate could be held liable to a prospective purchaser “based upon the attorney’s action in compiling a facially-misleading composite report of percolation tests… .” In a second case cited by the attorney for the second mortgagee, that court held that an attorney could be liable to a non-client because he “affirmatively misled the trial court about whether his adversary intended to appear to contest” a divorce action scheduled for trial. Here, the Court distinguished those prior cases as either being matters of intentional misrepresentation (in the divorce case) or as to a matter that was not readily observable (in the percolation case). According to the Court in this case, the second mortgagee’s attorney “could have confirmed the scheduled date for sale with a modicum of effort; it should not be permitted to point to defendant’s staff to excuse its own inaction.”

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