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Metrobank for Savings v. National Community Bank of New Jersey

Decided: February 9, 1993.


On appeal from the Superior Court of New Jersey, Law Division, Bergen County.

Michels, Baime and Wallace. The opinion of the court was delivered by Wallace, J.s.c. (temporarily assigned).


[262 NJSuper Page 136] Plaintiff, Metrobank For Savings, FSB, appeals from a summary judgment of the Chancery Division in favor of defendant,

National Community Bank of New Jersey, which declared defendant's mortgage on the premises was senior to plaintiff's mortgage for all purposes and permitted defendant to direct the Sheriff of Bergen County to sell the subject property with the priority of mortgages established by the court.

Claiming essentially fraud, plaintiff had instituted this action to compel defendant to subordinate its mortgage. The Chancery Division held that the oral subordination agreement alleged by plaintiff was barred by the Statute of Frauds. The trial court concluded that subordination was akin to a release of mortgage, and therefore, an agreement to subordinate is a contract for the sale of an interest in or concerning real estate subject to the Statute of Frauds. Plaintiff contends that the judgment should be reversed because; (1) the Statute of Frauds does not apply to a subordination of mortgage; (2) if the Statute of Frauds applied, it had been satisfied; (3) its mortgage is subrogated to the right of defendant's mortgage and, therefore, is senior; and (4) defendant is equitably estopped from denying the subordination. We find no basis to disturb the Chancery Division's judgment and affirm.


In August 1989, Jay and Lisa Cohen sought and obtained a $500,000 loan from plaintiff to refinance mortgage liens on their property in Demarest, New Jersey. At that time, defendant held three mortgages on that property: a December 22, 1987 construction mortgage, with an outstanding balance of approximately $460,000 (Construction Mortgage); a January 8, 1988 second mortgage, securing debts to defendant of the Cohens' furniture business, in an unspecified amount (Guaranty Mortgage); and a July 26, 1989 mortgage, with a balance outstanding of approximately $40,000 ($40,000 Mortgage).

On August 21, 1989, the day of closing on the $500,000 loan from plaintiff, the Cohens' attorney, Michael Sassano, determined that after covering the Construction Mortgage and closing expenses, only approximately $25,000 would be left from

the $500,000 for payment on the Guaranty Mortgage and the $40,000 Mortgage. According to Sassano, he telephoned Alan DeFeo, then a commercial loan officer for defendant, who agreed to subordinate the remaining Guaranty Mortgage and the $40,000 Mortgage for the additional $25,000 payment "and work it out with Cohen at some point in the future". Sassano sent a telefax at 3:45 p.m. that day to DeFeo requesting confirmation of the agreement to subordinate. No response was received. Upon closing, Sassano certified that plaintiff's new $500,000 mortgage had first lien position.

On August 24, 1989, Sassano hand-delivered to the drive-in window of defendant's Englewood branch two letters, two checks and a subordination*fn1 (or postponement) agreement, all in one envelope. The three-day delay, he said, allowed for a three-day right of rescission. One letter, addressed to defendant's Hasbrouck Heights office to the attention of "Mortgage Payoff Department/Ms. Deborah Ann Zika," covered a check for $460,261.32 for payoff of the Construction Mortgage. The notation, "Cohen mortgage payoff #350-296-0" was included on the check. The other letter, addressed to DeFeo in the Englewood branch, covered a check for $25,000 for payment on "the above mortgage," the referenced mortgage being that "dated 7/26/89", the $40,000 mortgage. The check in the amount of $25,000 included the notation, "Cohen mortgage payoff Book 7755 Page 637". This was the same mortgage referenced in the letter to DeFeo. The letter to DeFeo further said, "This will also confirm that the following mortgages will be postponed to the new mortgage at this time and that the same will be disposed of in the very near future," listing the 1988 Guaranty Mortgage and the July 1989 $40,000 Mortgage, and requested execution and return of the enclosed subordination agreement for both intervening mortgages. Defendant cashed the $460,261.32 check on August 29, 1989, and the first

mortgage was discharged. Defendant cashed the $25,000 check on September 18, 1989.

On September 20, 1989, defendant loaned the Cohens an additional $75,000, secured by the same property, which expressly included $25,424.66 to be paid on their account for payoff of the commercial loan. This represented the balance on the July 26, 1989 $40,000 Mortgage, which was then paid in full. No subordination agreement was ever executed. However, Sassano did not realize this until around March 1990, when he discovered the title insurance policy showed that defendant still held the first lien.

Defendant's January 8, 1988 Guaranty Mortgage is now the first lien of record, followed by plaintiff's mortgage and defendant's September 20, 1989 loan for $75,000. Defendant denied plaintiff's requests to acknowledge ...

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