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First Union National Bank v. Nelkin

October 25, 2002


On appeal from the Superior Court of New Jersey, Chancery Division, Union County, F- 14738-99.

Before Judges Braithwaite, Lintner and Parker.

The opinion of the court was delivered by: Lintner, J.A.D.


Submitted September 23, 2002

This is a dispute between two banks, Bankers Trust and First Union National Bank (First Union), concerning the priority given to their respective mortgage liens. Judge Span entered judgment in favor of First Union, finding Bankers Trust's mortgage lien subordinate to the open end mortgage held by First Union. Bankers Trust appeals and we affirm.

On September 9, 1999, First Union filed a Chancery Division complaint seeking foreclosure against Merwin and Elaine Nelkin, mortgagors, resulting from their default on a $100,000 note secured by a mortgage on their residence dated February 13, 1989. In October 1999, First Union amended its complaint adding defendant, Bankers Trust, as a defendant after a title search revealed the existence of another mortgage on the property in the name of Bankers Trust recorded subsequent to First Union's 1989 mortgage. Neither defendant answered, and on April 7, 2000, First Union obtained a default judgment against both the Nelkins and Bankers Trust. At the sheriff's sale on June 21, 2000, a third-party bidder, J. Holder Inc., bought the property for $175,500.

On June 28, 2000, Bankers Trust filed a motion seeking to set aside the sheriff's sale and vacate First Union's judgment. Judge Span denied Bankers Trust's motion to vacate the June 21 sheriff's sale and confirmed the sale and the judgment in favor of First Union. She also found Bankers Trust's lien subordinate to First Union's. The judge also denied Bankers Trust's motion for reconsideration, however, she ordered the proceeds of the sheriff's sale held in escrow pending the resolution of the dispute between Bankers Trust and First Union. We denied Bankers Trust's emergent application and dismissed its notice of appeal as interlocutory.

On December 13, 2000, and February 27, 2001, First Union introduced evidence of the amount it was due under its mortgage, and Bankers Trust objected to that evidence. An additional hearing was held on April 25, 2001, concerning the amount due, and on May 4, 2001, Judge Span issued a letter opinion finding that there was sufficient credible evidence to establish First Union's entitlement to its $110,592.88 judgment to be paid from the monies held in escrow. The balance of the escrow funds, a sum equal to $53,096.85, was to be turned over to Bankers Trust. Orders memorializing Judge Span's findings were entered on June 8 and July 31, 2001.

The facts, which are substantially undisputed, are as follows. Merwin and Elaine Nelkin executed a mortgage document entitled Open End Mortgage, account no. 202-113-965, in the amount of $100,000 with The National State Bank (National) on February 13, 1989. National subsequently became New Jersey National Bank, which in turn became CoreStates Bank, N.A., which was acquired by First Union, thus becoming the holder of the open end mortgage on the Nelkins' condominium located at 955 South Springfield Avenue, Unit 604, Springfield Township, New Jersey. *fn1 The mortgage was recorded on March 13, 1989.

The open end mortgage was a revolving line of credit from which the Nelkins could obtain advances not to exceed $100,000 that would be repaid to First Union with interest. The Nelkins' right to obtain advances expired on February 13, 2004, whereas First Union's right to receive payment extended beyond the expiration date but ceased after the Nelkins (1) paid off all amounts due; and (2) were no longer permitted to request advances under the credit agreement. The mortgage document stated that the mortgage remained open until the mortgagor pays "all amounts due" and the mortgagee is "no longer required to make loan advances" to the mortgagor.

In early 1997, the Nelkins began experiencing financial difficulties. They applied for a loan through Target Mortgage, Inc. (Target) to satisfy their obligations to National and other creditors. Target retained a closing attorney and obtained insurance in the amount of $160,000 from the Coastal Title Agency to ensure that Target had the first lien on the Nelkins' property. *fn2 Wilson Orozco of Target requested and obtained a payoff statement from First Union, which indicated that the amount needed to satisfy the First Union mortgage, as of April 18, 1997, was $99,628.58, after which a per diem amount of $28.53 was to be added to the payoff amount. The payoff statement also stated that if the payment is intended to close the "Revolving Line of Credit," the payor must "include written authorization from all individuals whose names appear on our account records." On April 23, 1997, the attorney for Target handled the closing, at which time the Nelkins executed and delivered a mortgage to Target in the amount of $165,000 against their Springfield Township condominium. The closing attorney issued a check dated April 28, 1997, made payable to First Union in the amount of $99,942.41 that was intended to fully satisfy the First Union mortgage. It could not be established, however, that Target or its attorney obtained and forwarded the necessary authorization from the Nelkins to close their open end mortgage account. Target recorded its mortgage on May 23, 1997. Target subsequently assigned its mortgage to Walsh Securities, Inc., who in turn assigned the mortgage to Bankers Trust. *fn3

First Union received and posted a check in the amount of $99,942.41 from the closing attorney. According to First Union, there still remained an unpaid balance of $714.98. However, Bankers Trust maintains that its payment satisfied the Nelkins' mortgage in full. In any event, the open end mortgage held by First Union was never closed, and there was no evidence establishing that the required written authorization from the Nelkins was ever sent. Thereafter, the Nelkins drew upon the $100,000 line of credit established by the open end mortgage held by First Union, notwithstanding their execution of the subsequent mortgage and receipt of the Target loan.

The Nelkins thereafter defaulted on both mortgages, triggering the filing of the First Union complaint. The Nelkins then filed for Chapter 7 Bankruptcy on September 23, 1999. On January 3, 2000, the servicing agent for Bankers Trust obtained an order from the Bankruptcy Court allowing it to foreclose on the Nelkins' condominium. On March 30, 2000, Bankers Trust filed its own foreclosure complaint against the Nelkins, who defaulted. A judgment was entered in favor of Bankers Trust in June 2000.

Upon discovering First Union's mortgage, Bankers Trust searched its loan origination file for information about the Nelkins' mortgage. Although a copy of the title insurance policy was not found, the search turned up a check that had been issued for $1,106 to pay the title insurance premium. Bankers Trust also found the HUD-1 settlement statement that was prepared by the closing ...

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