This case comes before the court on cross-motions for summary judgment. Plaintiff B.J.I. Corp. seeks to foreclose the $105,000 mortgage it holds on two lots,*fn1 shown on a map as "Ivy Hill" in Hillsborough Township, which are owned by defendant Larry W. Corp. George and Theresa Barile, also named defendants in this action, hold a docketed judgment in the amount of $21,700 recovered in an earlier Chancery Division action against Larry W. Corp.
The sole remaining issue here is one of priority:*fn2 both B.J.I. Corp. and the Bariles assert that their interest in the mortgaged premises is superior to the other's claim, and both seek a declaration to this effect. The resolution of this apparently straightforward issue, however, requires a reconsideration of New Jersey's lis pendens statute, N.J.S.A. 2A:15-6 et seq. , in light of recent decisions dealing with its constitutionality, and a determination of the validity and scope of a general subordination clause in a residential real estate sales contract.
A brief chronology of events will be helpful.
In September 1978 George and Theresa Barile entered into a contract with American Dream Builders Group (American Dream) for the purchase of a lot in "Ivy Hill" on which
American Dream agreed to construct a single-family home. The contract was never recorded, despite a provision therein expressly appointing each party agent for the other for the purposes of recording and filing the contract in the event of a dispute or repudiation.
In December of the same year American Dream informed the Bariles that it was cancelling the contract and would return the Bariles' deposit of $7,100. The deposit was returned to the Bariles' attorney in February 1979. Because the Bariles at that time were considering bringing suit against American Dream for specific performance of the contract, the refund check was deposited in their attorney's account, in trust for them.
On March 30, 1979 the Bariles filed suit against American Dream and against Larry W. Corp. as well, since investigation revealed that the land which the Bariles had contracted to purchase, and on which their home was to be built, was in fact owned by Larry W. Corp. The Bariles' complaint, alleging that Larry W. Corp. was an agent and affiliate of American Dream, sought specific performance of the contract to construct a home, conveyance of the lot in question to the Bariles or the declaration of a constructive trust in their favor as to the property described in the contract, and damages for breach of the contract.
On May 25, 1979 the Bariles filed a notice of lis pendens.
On June 19, 1979 Larry W. Gardner, registered agent for both American Dream and Larry W. Corp., was personally served with the summons and complaint.
On June 26, 1979 Larry W. Corp. executed a $105,000 mortgage to B.J.I. Corp., whose president and principal is Larry W. Gardner. This mortgage covered three lots in the "Ivy Hill" development, one of them the lot which was the subject of the
Bariles' action for specific performance.*fn3 On July 3, 1979 B.J.I. Corp. recorded its mortgage.
By the fall of 1979 the Bariles had determined that they could not wait the year or more it would apparently take for the resolution of their suit, the conveyance of the property to them and the construction of a home. As a result, they closed title on another home in October 1979, at which time the deposit previously refunded by American Dream and held in trust for them by their attorney was released to the Bariles.
On December 12, 1979 the Bariles took a default judgment in their suit against American Dream and Larry W. Corp., recovering $21,700. An abstract of judgment was filed on December 20, 1979.
On May 4, 1981 B.J.I. Corp. brought this foreclosure action against Larry W. Corp., naming the Bariles as defendants by reason of their notice ...