On appeal from the Superior Court whose Law Division, Camden County, opinion appears at 161 N.J. Super. 129 (1978).
Plaintiffs, purporting to act on behalf of 162 secondary mortgage borrowers as a class, appeal from the trial court decision
rejecting their demand that the subject mortgages be declared void and unenforceable under the Secondary Mortgage Loan Act, N.J.S.A. 17:11A-34 et seq. Defendants cross-appeal from the award of a 15% credit on the original principal of all mortgages not fully satisfied.
Defendant Security Consumer Discount Company (Security), a licensee under the act, is the mortgagee named in all of the second mortgage transactions. Security is now defunct and the mortgages have been assigned to defendant Fidelity Bank. Fidelity has set up a subsidiary, defendant Kenbee Mortgage Company, a New Jersey corporation licensed under the Secondary Mortgage Loan Act, to service the mortgages.
Two individuals, Huber and Malatesta, provided office space to Security for the operation of its secondary mortgage financing business. The trial judge found that both of them played a significant role in a conspiracy to execute and record fictitious first mortgages in 30 of the second mortgage transactions in order to create the appearance of compliance with the act. But the judge reasoned that Huber was merely a "representative" of Security rather than an officer, director or shareholder, and that Security, having no knowledge of such practices, neither condoned nor ratified such illegal acts. Hence the judge concluded that the improprieties were not the acts of the licensee itself and he rejected plaintiffs' demand for the extreme sanction of forfeiture under N.J.S.A. 17:11A-58.
We disagree and remand for entry of judgment declaring void and unenforceable all secondary mortgages which were executed together with fictitious first mortgages.
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 compliance with the provisions of this act. [Emphasis supplied]
The record below leaves no doubt that the 30 "second" mortgages effectuated by the creation of fictitious first mortgages were executed in direct violation of the statute as part of a deliberate scheme to circumvent full compliance with its provisions. A summary of the roles of each of the principals illustrates the extent of the conspiracy.
In 1968 Security rented office space in Camden from Huber, who had been a secondary mortgage licensee but whose license was revoked when he failed to maintain the required $50,000 net worth. N.J.S.A. 17:11A-45(d). Huber received $50 a month for rent and $100 a month for services of his secretary rendered for the benefit of Security. Although Huber never was a paid employee, he managed Security's Camden office and used his staff to process loans, perform title searches, collect on Security's mortgages and prepare all documents in connection with Security's mortgage loans. Huber forwarded all credit applications to defendant Moonblatt in Philadelphia for approval or disapproval. If approved, Moonblatt returned them to Huber to arrange and complete the transaction. Moonblatt was the director, secretary and treasurer of ...