On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County.
Approved for Publication May 20, 1997.
Before Judges Dreier, Newman and Villanueva. The opinion of the court was delivered by VILLANUEVA, J.A.D. (retired and temporarily assigned on recall).
The opinion of the court was delivered by: VILLANUEVA
The opinion of the court was delivered by
VILLANUEVA, J.A.D. (retired and temporarily assigned on recall).
Defendant, Travelers Mortgage Services, Inc. ("Travelers"), appeals from a summary judgment in the Chancery Division determining that its mortgage is junior in priority to the mortgage of plaintiff, First Fidelity Bank, National Association, South ("First Fidelity"). The issue is whether First Fidelity should receive the benefit of an advance in priority when Travelers paid off a prior first mortgage originally issued to Queen City Savings & Loan Association (assigned to Federal Home Loan Mortgage Corporation and then to PNC Bank), which had been first in priority to First Fidelity's then existing second mortgage. We affirm.
On August 21, 1985, Gregory A. DiSabatino and his wife, Pamela, executed a first mortgage with Queen City Savings & Loan Association ("Queen City") in the amount of $100,000 for property located at 5023 Church Road, Mt. Laurel. On August 28, 1985, that mortgage was recorded in Burlington County. On February 2, 1986, that mortgage was assigned to the Federal Home Loan Mortgage Corporation ("Federal Home Loan") and later to PNC Bank.
On January 9, 1989, the DiSabatinos executed a note and a mortgage on the same property to First Fidelity in the amount of $400,000, which mortgage was recorded on February 28, 1989. On May 10, 1991, the DiSabatinos delivered a promissory note in the amount of $364,415.19 to First Fidelity. This note replaced and superseded, but did not extinguish, the unpaid obligation of the first note.
At the time plaintiff took the mortgage on the property, it knew that the lien constituted a second mortgage. The loan documents specifically stated that Gregory DiSabatino "represents and warrants that [he] is the lawful owner of the Collateral and that the Collateral is and will continue to be free and clear of all security interest in favor of the First Fidelity Bank except a first mortgage in favor of the Federal Home Loan Mortgage Corporation." Further, numerous internal documents, dated as late as November 16, 1992, indicate that plaintiff thought it held a second mortgage on the property. Travelers notes that First Fidelity has not shown that it in any way relied upon its position as a first mortgagee.
On May 25, 1990, the DiSabatinos further encumbered the property by executing a third mortgage in the amount of $135,000 with defendant, Travelers. At the time of the execution of this mortgage, it is undisputed that Travelers was aware of plaintiff's mortgage. Its attorney acknowledged this fact at oral argument in the trial court. Also, the First Fidelity mortgage was noted in the title report Travelers obtained prior to taking the mortgage on May 25, 1990. Travelers' mortgage was recorded on June 14, 1990. It is also undisputed that Travelers did not seek, and has never obtained, a subrogation agreement from plaintiff. Some of the proceeds from the third mortgage, $85,799.83, were used to satisfy the first mortgage, which had since been assigned by Queen City to Federal Home Loan and then to PNC Bank. Although $43,799.83 was paid to the DiSabatinos, none of the proceeds were paid to the plaintiff.
At the time Travelers made the loan, it purported to do so only on the condition that it would then have a first lien on the property. Gregory DiSabatino certified that he intended such when he and his wife applied for and executed said mortgage. Travelers failed, however, to take an assignment of the Queen City mortgage (then owned by PNC Bank) or to obtain a subordination agreement from First Fidelity.
On August 17, 1994, plaintiff, First Fidelity, commenced this foreclosure action against all defendants, including Travelers and borrowers Gregory and Pamela DiSabatino, on its $400,000 mortgage. Also named as a defendant was ITT Residential Capital Corporation, which held a $16,600 mortgage on the property dated December 16, 1993. The claims against ITT have been dismissed without prejudice. Finally, the State of New Jersey was named as a defendant because of a certificate of debt it holds in the amount of $12,825.85, representing taxes owed by the DiSabatinos.
Defendant, Travelers, filed an answer and cross-claim directed against Gregory and Pamela DiSabatino, wherein it asserted breaches of contract and express and implied warranties of title, and sought to be indemnified for any loss sustained in this matter.
Plaintiff moved for summary judgment on its claims against defendant, GE Capital Mortgage, Inc., *fn2 then successor in interest to Travelers, which ...