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Mortgage Electronic Registration Systems, Inc. v. Omar

A-5187-06T3 (N.J. Super. App. Div. 2008) (Unpublished)

MORTGAGES; PAYOFFS — A mortgagee or a mortgage servicer should accept deficient payoff amounts as prepayments pending receipt of the balance of any money owed, including interest that may be owed but which may not have been set forth on a payoff statement.

A homeowner bought a property and obtained a mortgage. It was later assigned by the mortgagee’s nominee to an assignee. The terms of the mortgage allowed the mortgagor to make prepayments towards the principal without any penalty. The mortgagor defaulted on the mortgage soon after closing and obtained a second mortgage to pay back the original mortgage. The mortgage servicer retained by the assignee sent a payoff statement to the title agency handling the closing for the second mortgagee. The company agency sent a check for the amount of the payoff statement, but neither the statement nor the check included per diem interest. The mortgage servicer returned the check directly to the mortgagor with a letter that stated that the funds were insufficient due to unpaid interest. The mortgagor fraudulently created a corporation and a bank account that bore a name that was similar to the loan servicer’s. He deposited the check into the account but never paid off the first mortgage and subsequently took the proceeds for his personal use. In a foreclosure action brought by the nominee against the mortgagor, the lower court found that the mortgage servicer’s refusal to accept the check sent by the title agency resulted in the mix-up and discharged the first mortgage, which elevated the second mortgage to the primary lien.

On appeal, the Appellate Division noted that the first mortgage had priority since it was recorded first, but agreed with the lower court that the payoff of the first mortgage had been made when the title company first sent the check to the mortgage servicer. It found that according to the terms of the mortgage, the payment was considered received when it was sent to the appropriate destination, and that the mortgage servicer should have accepted the payoff amount as a prepayment pending receipt of the outstanding interest. The Court concluded that the mortgage servicer was responsible for sending the check to the mortgagor and, as a result, the nominee was equitably estopped from enforcing its first mortgage lien. The lower court’s decision to discharge the first mortgage was affirmed.

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