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Mallozzi v. Cerciello

A-2838-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

MORTGAGES; DEEDS IN LIEU — A borrower may properly execute a deed in lieu of foreclosure pursuant to a mortgage extension agreement entered into after the borrower has defaulted on its note and mortgage because an extension agreement is separate and distinct from the initial conveyance.

A buyer purchased real property and gave its seller a purchase money mortgage. The note provided for twenty-four monthly installments of interest only, with the principal due on the first day of the twenty-fifth month after the closing date. In addition, the buyer executed a deed that reconveyed title to the seller. The parties agreed that the deed would be held in escrow and filed only if the buyer defaulted. The buyer failed to make interest payments. The seller’s attorney warned the buyer that he was in default and warned that unless the past due amounts were paid, the seller would file the deed reconveying title to the seller. The parties subsequently entered into a mortgage extension agreement under which the buyer agreed that he would pay all interest due and owing by a date certain. The agreement extended all terms and conditions of the note and mortgage. It provided that if the buyer defaulted, the seller could file the deed in lieu of foreclosure, thus transferring title to the property back to the seller.

The buyer again failed to make the required payments and the seller notified the buyer that he was in default. The notice warned that if the buyer failed to make all payments within thirty days, the deed would be filed with the county clerk. When the buyer failed to pay within thirty days, the seller recorded the deed. The buyer subsequently asked to reacquire the property. He tendered a check for the amount due, which the seller accepted. The parties then began to negotiate a new purchase and sale agreement. During the negotiations, the seller told the buyer that if, by a given date, the seller was not added as an additional insured on the buyer’s liability policy, the seller would return the deposit to the buyer. The buyer failed to comply with this condition and the seller entered into a contract to sell the property to another party.

The buyer then sued the seller for breach of an agreement, seeking title to the property and damages. The lower court dismissed the complaint on summary judgment, and ordered the buyer to pay the past due real estate taxes on the property and the seller’s costs of the suit. The lower court held that the deed had been validly filed by the seller and this extinguished the buyer’s interest in the property. The buyer appealed.

The Appellate Division affirmed. It held that the buyer had executed a deed in lieu of foreclosure pursuant to a mortgage extension agreement entered into after the buyer had defaulted on the note and mortgage. It explained that a mortgagor, at any time after the execution of a mortgage, by a separate and distinct transaction, may sell or release its equity of redemption to the mortgagee. In this matter, the seller filed the deed after the buyer defaulted on the terms of the extension agreement. The extension agreement was found to be separate and distinct from the initial conveyance, and title passed to the seller when the deed in lieu of foreclosure was recorded. The Court also held that no contract was formed when the parties only attempted to negotiate a repurchase agreement. It held there was no “meeting of the minds” and, therefore, no valid contract was formed because the buyer did not agree to include the seller as an additional insured for insurance coverage.

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