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Johnson-Shea Associates v. Union Valley Corp.

Decided: November 17, 1994.

JOHNSON-SHEA ASSOCIATES, A NEW JERSEY PARTNERSHIP, PLAINTIFF-RESPONDENT,
v.
UNION VALLEY CORPORATION, UNION VALLEY PROPERTIES, INC. FIRST FIDELITY BANK, NATIONAL ASSOCIATION, NEW JERSEY, THE FIRST NATIONAL BANK OF TOMS RIVER, NJ, DEFENDANTS, AND FIRST FIDELITY BANK, N.A., NEW JERSEY, DEFENDANT-APPELLANT, AND FIRST FIDELITY BANK, N.A., NEW JERSEY, THIRD-PARTY PLAINTIFF, V. WINDING WAYS HOMEOWNERS ASSOCIATION, THIRD-PARTY DEFENDANT.



On appeal from Superior Court, Chancery Division, Ocean County.

Before Judges Dreier, Villanueva and Bilder.

Bilder

The opinion of the court was delivered by

BILDER, J.A.D. (retired and temporarily assigned on recall).

This is a mortgage foreclosure action. A junior lienholder, defendant First Fidelity Bank, appeals from an order of the Chancery Division, entered as the result of cross-motions for summary judgment, denying its claim to a priority based upon a subordination clause in plaintiff Johnson-Shea Associates' primary mortgage.*fn1

I.

The mortgage being foreclosed was given on January 19, 1988 in connection with the sale of a 131 acre tract of vacant land in Jackson Township by plaintiff Johnson-Shea Associates to a developer, Union Valley Corporation, for the development of a planned

retirement community. Part of the purchase price was represented by a note secured by the mortgage being foreclosed. Although entitled a "Wraparound Mortgage" because it also secured the unpaid balance due on a pre-existing First Mortgage,*fn2 the mortgage in controversy acknowledges itself to be a purchase money mortgage.*fn3 As normally occurs in such transactions, the mortgage contained a clause which permitted the developer to use the property as collateral to obtain funds for its development by subordinating the purchase money mortgage to a subsequent mortgage given to an institutional lender for that purpose.*fn4 See B. J. I. Corp. v. Larry W. Corp., 183 N.J. Super. 310, 321, 443 A.2d 1096 (Ch. Div. 1982). The clause read as follows:

The Wraparound Mortgage shall be made subordinate to the lien and provisions of a mortgage (the "Development Mortgage") to be executed and delivered by Mortgagor to an institutional lender as security for the payment of a promissory note (the "Development Note") to be executed by Mortgagor on the following terms and conditions:

1. Mortgagee shall not be obligated to pay any such loan or any part thereof;

2. Mortgagor shall be obligated for the payment of the Development Note;

3. Mortgagor shall have paid to Mortgagee on or before May 24, 1988 the installment of principal necessary to satisfy and pay ...


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