This matter involves cross motions for summary judgment on a priority dispute between mortgage holders. The essential facts are undisputed.
In January 1986, defendant Burl Brunson (Brunson) purchased a parcel of property in Newark, New Jersey. The deed for the property was properly recorded pursuant to N.J.S.A. 46:21-1 and indexed pursuant to N.J.S.A. 46:20-4 on January 24, 1986. In March 1986, Brunson borrowed $50,000 from plaintiff Howard Savings Bank (Howard) secured by a mortgage which was properly recorded on May 1, 1986. This mortgage was not properly indexed until February 3, 1988.
Brunson subsequently executed two mortgages to defendant Rols Capital Company (Rols) on April 11, 1986 and on May 14, 1986. On May 20, 1986, Brunson executed and delivered a mortgage on the property to Myron Pokross (Pokross). On the same day, Brunson executed and delivered a deed for the
property to Pokross which was recorded in the office of the register of Essex County on July 7, 1988.
On October 6, 1987, Brunson executed and delivered a deed for the property to defendants Jesus Ijalba and Celeste Ijalba (Ijalba), which deed was properly recorded in the office of the register of Essex County on November 4, 1987. On October 6, 1987, Ijalba executed and delivered a mortgage covering the subject premises to defendant Chrysler First Financial Services Corporation (Chrysler). This mortgage was also properly recorded on November 4, 1987.
On the basis of a thorough title search and an affidavit of title executed by Brunson on October 5, 1987, representing that he had not allowed any legal interest to be created which would affect the ownership or use of the property, defendant Chicago Title Insurance Company (Chicago Title) issued a title insurance policy to Chrysler.
On May 19, 1988, Howard brought a foreclosure action against Chrysler and Ijalba, claiming that the proceeds of Brunson's sale of the premises to Ijalba were not applied to the mortgage held by Howard, and that its mortgage had priority over all subsequent encumbrancers of the property. The disposition of the claims, if any, arising from the interests of Rols and Pokross in the property are not before this court; therefore, this opinion is limited to a ruling on the priority between Howard and defendants Chrysler and Ijalba.
The central issue before the court is whether Howard's prior interest in the property, which was recorded but misindexed, has priority over the interests of Ijalba and Chrysler, subsequent lienors who failed to discover Howard's interest due to the misindexing.
Our inquiry begins with the New Jersey Recording Act. N.J.S.A. 46:21-1 provides:
Except as otherwise provided herein, whenever any deed or instrument of the nature or description set forth in section 46:16-1 of this title, which shall have been or shall be duly acknowledged or proved and certified, shall have been or
shall be duly recorded or lodged for record with the county recording officer of the county in which the real estate or other property affected thereby is situate or located such record shall, from that time, be notice to all subsequent judgment creditors, purchasers and mortgagees of the execution of the deed or instrument so recorded and of the contents thereof.
Howard contends that, because its mortgage from Brunson was properly recorded pursuant to the Recording Act, its interest has priority over all subsequent encumbrancers. Plaintiff further argues that valid recordation of a mortgage alone serves as constructive notice to interested parties; thus, defendants had constructive notice of Howard's interest because the ...