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Set Realty, L.L.C. v. David Cronheim Mortgage Corp.

A-1103-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

BROKERS; MORTGAGES—A mortgage broker may have a duty not to recommend a lender that is unlikely to actually close a loan, but expert testimony as to the appropriate standard of conduct for brokers is required in order to succeed upon such a claim.

A borrower sued its mortgage brokers for breach of their professional duty of care because they introduced the borrower to conduit lenders as opposed to traditional lenders. The mortgage brokers acted as they did because the conduit lenders offered better rates than traditional lenders. However, the conduit lenders raised concerns about pending litigation against the borrower and agreed to lend with certain conditions. The borrower became convinced that the conduit lenders would not close the loan and it refinanced with a traditional lender at a higher interest rate. The borrower then sued the mortgage brokers for professional malpractice. The borrower’s expert, a real estate attorney and developer, testified on commercial lending practices. He testified that the mortgage brokers should never have introduced the borrower to conduit lenders because, to his knowledge and on his experience, conduit lenders would never approve a loan to a borrower subject to a material claim with unliquidated damages. The lower court found in favor of the borrower, holding that the brokers owed the borrower a duty to find a lender that would eventually close a loan. It relied on the expert’s opinion that conduit lenders would never approve the loan with an unliquidated claim pending. The Appellate Division reversed. It found that the expert was only qualified to testify as to commercial lending practices of conduit lenders. However, the situation dealt with broker malpractice and the borrower needed an expert within the commercial mortgage industry to determine if the brokers deviated from the standard of care. The borrower did not present any expert testimony to prove its case. Further, the expert’s testimony contradicted the record in the case. The expert claimed that the brokers should have known that no conduit lenders would lend to the borrower. The evidence showed that conduit lenders were willing to lend to the borrower, but the borrower did not accept their terms.

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