R.L. Wickman & Associates, Inc. v. Kennedy Funding, Inc.

97-670 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)
  • Opinion Date: October 2, 1998

MORTGAGES; COMMITMENTS—The terms of a mortgage commitment will be strictly construed and in the absence of ambiguity parol evidence will not be considered to interpret the commitment.

A borrower requested a loan to purchase certain real estate. A lender sent a letter of interest laying out the general terms and conditions upon which it would make the loan. The letter required the “quick sale value” of the property be not less than $13,000,000. One of the conditions was that the borrower pay a three percent commitment fee which was refundable if the lender did not offer a loan in the amount of $8,000,000. The letter also stated that the lender would give the borrower a draft loan commitment upon receipt of $5,000, which was non refundable “unless the terms contained in the draft commitment are different in form and substance than those contained herein.” A week later, a written loan commitment was issued for an $8,160,000 loan secured by a first mortgage on the real estate. The commitment stated that it “supercede[d] all previous communications and correspondence.” The lender “guarantee[d] full performance of the terms of the loan, including all payment advances to Borrower.” The commitment provided that the lender would inspect the real estate and would lend $8,160,000 if the quick sale value of the real estate was in excess of $13,000,000. It also stated that the loan would not exceed 50% of the quick sale value. It required the borrower to pay a $244,800 non-refundable fee, half of which was due up front and also stated if the lender was unable to perform the loan, then it would be obligated to refund the $122,400. If, however, the real estate was not twice the value of the loan and the borrower did not comply with other conditions of the loan, there would be no refund.

The borrower paid the first half of the commitment fee as well as a $5,000 preparation fee. When the lender determined it could not finance the loan itself, it unsuccessfully attempted to arrange for a co-lender. Six days before the closing date, the lender determined it could not lend the amount needed to purchase the property. It valued the quick sale value of the property to be between $6,000,000 and $7,000,000, and offered a loan of $3,500,000 which the borrower rejected. The borrower then asked for return of the $122,400, but the lender refused. The borrower filed suit alleging a failure to provide a loan, breach of contract for failing to loan the $8,160,000, breach of contract for failing to refund the $5,000, and breach of contract for failure to refund the initial $122,400. The borrower’s prime contention was that the lender’s representatives had assured it that the property would appraise at $13,000,000 and based on that representation it signed the commitment and paid the commitment fee. The Court rejected that contention because it would not accept parol evidence to modify, enlarge, or curtail the terms of the agreement which it found to be unambiguous on the subject. When the borrower argued that the lender did not use commercially reasonable methods to determine the quick sale value of the property, the Court pointed out that the commitment did not specify any particular method to be used in such an appraisal. In particular, the commitment did not require the lender to use a licensed appraiser.

The Court dismissed the claims on summary judgment. It found that the terms of the commitment were clear and that since the value of the property was less than $13,000,000, the lender was not obligated to loan the borrower the money. The lender’s use of a licensed real estate broker to determine the value of the property was found to be reasonable by the Court. The Court also failed to find any fraudulent misrepresentations on the part of the lender and as a result, dismissed the claims related to the down payments.