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South Shore Housing Associates v. Amboy National Bank

A-2460-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

CONTRACTS; MORTGAGEES—A seller’s mortgagee does not have a duty to a contract-buyer to preserve the property being sold or its value.

A buyer sued a seller for specific performance. The seller unsuccessfully attempted to develop the contracted property as senior citizen housing community. The property was subject to bond financing under which a bank was trustee for the bondholders and, as such, held the mortgage. The contract, which was extended on several occasions, contained a time of essence provision. The seller was unable to obtain home buyer registrations and a cease and desist order was issued by the Department of Community Affairs (DCA) barring it from selling any of the units until violations were cured and a fine paid. The closing did not take place and the bank, which had offered to accept a discounted payoff, revoked its offer. The property was then sold at a foreclosure sale. The contract-buyer’s claim, which was rejected by the lower court and the Appellate Division, was that the bank stepped into its seller’s shoes and was therefore obligated to ensure that the seller complied with its contractual obligations to the buyer under the contract as well as to the DCA. The Court also rejected the buyer’s claim that it was a third-party beneficiary of a duty the bank, as trustee, owed to the bondholders to ensure that the seller complied with DCA requirements. It found that, as a matter of law, there is no presumed fiduciary duty between a bank and its customer. It also rejected the buyer’s claim that the bank acted with apparent authority as a de facto seller and should have been estopped from claiming it was not acting as such so as to avoid performing the seller’s contractual obligations.


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