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Stubbs v. Security Consumer Discount Co.

Decided: April 24, 1978.

GUSSIE LEE STUBBS, FLORENCE STEVENSON AND FANNIE M. DOSS, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
SECURITY CONSUMER DISCOUNT COMPANY, A PENNSYLVANIA CORPORATION, KENBEE MORTGAGE COMPANY, A NEW JERSEY CORPORATION, LEONARD MOONBLATT, ROBERT HUBER, ROBERT L. MALATESTA, ADMINISTRATOR OF THE ESTATE OF LOUIS J. MALATESTA, DECEASED, AND FIDELITY BANK, A PENNSYLVANIA CORPORATION, DEFENDANTS



Rossetti, J.c.c. (temporarily assigned).

Rossetti

[161 NJSuper Page 131] This is a class action which arises out of numerous secondary mortgages obtained from New Jersey homeowners by Security Consumer Discount Company (Security), a now defunct secondary mortgage company. The plaintiff class is seeking to set aside these mortgages, alleging that they were executed in violation of the New Jersey Secondary Mortgage Loan Act, N.J.S.A. 17:11A-34 et seq.

Security was a corporation licensed under the Secondary Mortgage Loan Act. Its mortgages are being serviced by defendant Kenbee Mortgage Company, a corporation wholly controlled by defendant Fidelity Bank. Fidelity was the primary source of monies for the loans Security made (see 146 N.J. Super. 160 (Law Div. 1976)).

Security commenced operations in New Jersey in 1968 by renting office facilities from defendant Robert Huber. For an additional consideration Huber provided personnel to staff the office and receive loan applications, make credit checks and forward other information to the Philadelphia office of Security. In 1971 Security established a second New Jersey office on premises let by defendant Louis Malatesta, a home repair contractor.

Security engaged Anthony Cavuto, an attorney licensed to practice in the State of New Jersey, to prepare the documents in connection with secondary mortgage Loan closings, for which he was paid $235. for such transaction. Cavuto, in turn, employed Huber, who was formerly licensed under the Secondary Mortgage Loan Act, and delegated to him the bulk of the responsibility for preparing the necessary documents, scheduling and conducting the closings, and ensuring that the requirements of the act were met. In consideration of his services Cavuto paid Huber a large part of the fee which he received from Security. Cavuto reviewed all documents to ensure conformity to the act.

At some time during the course of Huber's employment he persuaded Malatesta to pay him 15% of each loan from Security to Malatesta's customers. Malatesta paid these "kickbacks" to ensure the approval of every application made by one of his customers. The primary thrust of the Huber-Malatesta conspiracy was the creation and recordation of fictitious first mortgages in anticipation of obtaining secondary mortgages.

This court finds from the evidence that Security, its officers and directors had no knowledge of these practices by

Huber and Malatesta. The files of Security indicate that all necessary documents were executed in compliance with the Truth in Lending Act, 15 U.S.C.A. § 1601 et seq.; Regulation Z, 12 C.F.R. § 226.1 et seq. , and the Secondary Mortgage Loan Act, N.J.S.A. 17:11A-34 et seq. There is no evidence that Security attempted to withhold information from borrowers or deceive them.

The members of the class were afforded ample opportunity to review all documents, make inquiries, obtain legal representation and cancel the transaction by acting within the prescribed 72-hour "cooling-off" period. 15 U.S.C.A. § 1635.

I

N.J.S.A. 17:11A-58 provides:

Any obligation on the part of a borrower arising out of a secondary mortgage loan shall be void and unenforceable unless such secondary mortgage loan was executed in full ...


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