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City of Perth Amboy v. Roehsler

A-0226-05T3 (N.J. Super. App. Div. 2006) (Unpublished)

QUIET TITLE; MUTUAL MISTAKE —When there is clear and convincing proof that, by mutual mistake, mortgage documents incorrectly list a particular lot, the mortgage may be nullified by a court.

A three-way property exchange occurred between a municipality, an individual landowner, and another municipality’s school board. The landowner wanted to purchase an adjoining lot so that he could expand his business. The municipality conveyed property to the school board adjacent to one of its schools. The school board conveyed a parcel adjacent to the landowner’s business to the landowner. Finally, the landowner conveyed a specific lot to the municipality. These transactions were accomplished over a series of months.

The landowner needed financing to carry out these transactions, and turned to patrons of his business for loans in exchange for two mortgages on various properties owned by the landowner. The executed mortgage documents were drafted by the patrons’ attorney. One property listed in the documents included the lot that had been conveyed to the municipality. The mortgages were recorded. The landowner ultimately defaulted on these loans and filed for bankruptcy. The patrons did not list the lot that had been conveyed to the municipality as a debtor’s asset. Furthermore, the patrons never brought a foreclosure action on the property.

The municipality, intending to sell the lot sixteen years after its purchase, filed a quiet title action against the patrons and the landowner once it discovered that the mortgages still encumbered the parcel. The patrons answered and counterclaimed that the mortgages were valid and demanded payment of the unpaid balances on their loans, plus additional sums. The lower court, after considering testimony and reviewing documents, concluded that the mortgages on that lot were invalid under the doctrine of mutual mistake. The lower court specifically noted that the parties specifically intended to mortgage only the landowner’s business as enlarged by the parcel that had been conveyed by the school board. It found that the lot sold to the municipality was never intended by either party to be the subject of a mortgage and that the mortgages were misdrafted. Accordingly, the lower court concluded there was clear and convincing evidence of a mutual mistake and voided the two recorded mortgages on the lot, and granted the municipality’s quiet title action. The patrons appealed.

The Appellate Division affirmed the lower court’s judgment as supported by substantial and credible proofs. The Court noted that the doctrine of mutual mistake supported the nullification of the mortgages, when the attorney who drafted the deed had incorrectly included this lot in the mortgage documents. Furthermore, the Court noted that the patrons had neither listed the property as a debtor’s asset in the landowner’s bankruptcy, nor ever filed a foreclosure action on the property. This supported the lower court’s conclusion that the lot was mistakenly included in the mortgages as a drafting error.

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