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Mortgage Bankers Association of New Jersey v. New Jersey Real Estate Commission

Decided: April 8, 1986.

THE MORTGAGE BANKERS ASSOCIATION OF NEW JERSEY, A NOT-FOR-PROFIT CORPORATION OF THE STATE OF NEW JERSEY, RESPONDENT,
v.
THE NEW JERSEY REAL ESTATE COMMISSION, APPELLANT, AND THE FIRST BOSTON CAPITAL GROUP INC., ELECTRONIC REALTY ASSOCIATES, INC., WEICHERT CO. REALTORS, WEICHERT MORTGAGE COMPANY, MERRILL LYNCH REALTY, INC., RICHARD L. SCHLOTT REALTORS, INC. AND GREATER METRO FINANCIAL SERVICES, INC., INTERVENORS-APPELLANTS



On appeal from the Superior Court, Appellate Division, whose opinions are reported at 200 N.J. Super. 584 (1985).

For reversal -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For affirmance - None. The opinion of the Court was delivered by Stein, J.

Stein

[102 NJ Page 178] In this case we are asked to consider the validity of a declaratory ruling by the New Jersey Real Estate Commission (Commission) that N.J.S.A. 45:15-17(i)*fn1 does not preclude a real estate brokerage firm that earns a commission from the seller in a real estate transaction from also receiving compensation for its role in placing or originating the mortgage financing necessary to consummate the real estate transaction. In a split decision, the Appellate Division reversed the Commission, holding that N.J.S.A. 45:15-17(i) prohibits a real estate broker from earning compensation for both the sale and mortgage components

of the same transaction. The Appellate Division also concluded that the Commission erred procedurally in failing to decide the issue through the exercise of its rulemaking powers. 200 N.J. Super. 584 (1985). This appeal followed as of right. R. 2:2-1(a)(2).

We hold that the record before the Commission is insufficient to reflect either the diverse and complex economic factors pertinent to the issue or the overlapping regulatory interests of the Commission and the Department of Banking (Department).*fn2 Consequently, we reverse the judgment of the Appellate Division and remand the matter to the Commission and the Department to conduct joint hearings pursuant to the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -15, in order to produce a record sufficiently comprehensive to afford a proper basis for both agency action and judicial review.

I

The facts and procedural history of this matter are set forth at length in the Appellate Division's opinion. 200 N.J. Super. at 589-98. Accordingly, a concise summary is sufficient to describe the proceedings before the Commission that resulted in the declaratory ruling ultimately reversed by the Appellate Division.

In 1983 both the First Boston Capital Group, Inc. (First Boston) and the Mortgage Bankers Association of New Jersey (MBA), a trade association comprised primarily of mortgage bankers and mortgage brokers, asked the Commission for a ruling as to the proper interpretation of N.J.S.A. 45:15-17(i). First Boston had formulated a mortgage-financing program known as "Shelternet" to assist New Jersey real estate brokers in organizing mortgage-origination companies, either directly or through affiliates. First Boston anticipated that it would employ

its capital resources to participate in the New Jersey mortgage market by purchasing at a discount mortgage loans originated by the participating real estate brokers and their mortgage-company affiliates. First Boston requested the Commission to rule that its Shelternet program did not violate the Real Estate Brokers Licensing Act, N.J.S.A. 45:15-1 to -29.5 (Act), when the participating brokers placed mortgage loans with their affiliated mortgage company and simultaneously received commissions for effecting the related sales transaction. MBA sought a ruling from the Commission that the Shelternet program was prohibited by the Act.

When more than ten months elapsed without a reply from the Commission, MBA commenced an action in the Chancery Division against the Commission and appellant, Electronic Realty Associates, Inc. (ERA) and its affiliated mortgage company.*fn3 MBA alleged that ERA was violating the Act by allowing its affiliated mortgage company to pay fees to ERA's brokers and salesmen for referring to it the mortgage component of ERA real estate transactions. The suit sought to compel the Commission to prevent ERA from violating the Act. The suit was dismissed without prejudice when the Commission rendered its advisory opinion on April 24, 1984, in which it concluded that:

The Commission shall not consider it a violation of N.J.S.A. 45:15-17(i) when a duly licensed real estate broker receives fees for services rendered in more than one capacity in a single transaction.

MBA appealed to the Appellate Division, seeking a stay and reversal of the Commission's action. That appeal was resolved by a consent order that remanded the matter to the Commission for reconsideration on the basis of a plenary hearing.

In conducting the remand hearing, the Commission did not observe the rulemaking procedures of the Administrative Procedure Act, N.J.S.A. 52:14B-4, but acted instead under its

authority to issue declaratory rulings, N.J.S.A. 52:14B-8.*fn4 The hearing commenced on June 12, 1984, eleven days after the consent order was signed. Counsel for First Boston and ERA objected to the lack of adequate notice.*fn5 Although counsel for First Boston and ERA attended the hearings, they called no witnesses. The only testimony elicited during the two days of hearings*fn6 was from witnesses called by MBA. At the conclusion of the hearings, the Commission voted 5-3 to reaffirm its prior advisory opinion.

The Appellate Division, which had retained jurisdiction over the matter, granted the applications of First Boston and ERA to intervene. In reversing the Commission's declaratory ruling, the Appellate Division majority observed:

[T]he only question remaining is whether the broker's double compensation in receiving a commission from the seller and a consideration for placing or granting the buyer's purchase money mortgage loan comes within the statutory prohibition. It does if the sale and mortgage transaction are, effectively, components of the same transaction and if the broker represents more than one party to the transaction. The intervenors contend that the broker, in placing the mortgage, does not represent any party to the transaction other than the seller for two ...


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