On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, F-123-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Skillman, Winkelstein and LeWinn.
In this mortgage foreclosure proceeding, plaintiff Mortgage Electronic Registration Systems (MERS) challenges the trial court's order discharging its mortgage (the MERS mortgage), which had been a first lien against real property in Bayonne owned by defendant Magdy Omar. The discharge elevated the mortgage held by FGC Commercial Finance d/b/a Fremont Mortgage (the Fremont mortgage) to a first lien position. We affirm.
A bench trial revealed the following facts. On January 6, 2003, Omar closed on a loan (2003 loan) originated by Metro Center Mortgage, Inc., in the principal amount of $294,500. That loan was secured by a mortgage on real property owned by Omar known as 25 West 10th Street in Bayonne. The mortgage was recorded on July 15, 2003. MERS, nominee for the mortgagee, subsequently assigned the mortgage to JP Morgan, which retained Homecomings Financial Network, Inc. as its servicer.*fn1
The mortgage included the following provision regarding payment: "Payments are deemed received by Lender when received at the location designated in the Note or at such other location as may be designated by Lender in accordance with the notice provisions in Section 15." The note gave the borrower the right to prepay the loan without penalty. It included the following language:
I have the right to make payments of Principal at any time before they are due. . . .
I may make a full Prepayment or partial Prepayments without paying any Prepayment charge. The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. . . .
Omar defaulted on the 2003 loan soon after it closed. Consequently, on April 21, 2004, purportedly to refinance the MERS mortgage, Omar obtained a loan in the principal amount of $350,000 from Fremont (2004 loan), secured by the same property as the MERS mortgage. The Fremont mortgage was recorded on June 17, 2004. Omar did not, however, use the 2004 loan proceeds to pay off the 2003 loan. Instead, he fraudulently converted the loan proceeds to his own use. The issue to be resolved at trial was which entity, Homecomings, on behalf of MERS, or Yorktown Title, which was retained by Fremont to close the 2004 loan, was responsible for inadvertently sending the 2004 loan proceeds to Omar.
Homecomings generated a payoff statement for the 2003 loan as of the date of the 2004 loan closing. The total outstanding balance due on the 2003 loan was $298,219.57, with $79.95 per diem interest accruing. The payoff statement directed that the payoff check was to be made payable to "Homecomings Financial," and sent to Homecomings's payoff center in Richardson, Texas.
Yorktown closed the 2004 loan on April 21, 2004. Following the closing, Yorktown's title agent, Sabrina Durham, sent Homecomings a payoff check dated April 28, 2004, in the amount of $298,219.57, made payable to "Homecomings Funding," along with a cover letter dated "October 29, 2002." The check did not account for the $79.95 per diem interest that would accrue between the loan closing and when the loan proceeds were received by Homecomings. The cover letter, which Durham inadvertently drafted on letterhead of "All Jersey Title Agency, Inc.," stated that if the funds were insufficient to "completely pay off the entire [MERS] mortgage," Homecomings should accept the check as a partial payment and immediately contact Yorktown. Durham testified that the date of the cover letter was an error, and that the letterhead was from a former title company for whom she had been employed.
According to Federal Express (FedEx) tracking, on April 28, 2004, the letter and check were delivered to Homecomings's payoff center. Homecomings's internal records, dated April 29, 2004, verified that the check had been received, but was short in the amount of $559.65, representing per diem interest that had accrued since the 2004 loan closing. Consequently, on April 29, 2004, Nancy Marks, a Homecomings employee, electronically signed a letter which, along with the payoff check and a payoff statement, were apparently sent to Omar, at 25 West 10th Street in Bayonne. The letter stated that Homecomings was returning the check to Omar because it was not sufficient to satisfy the balance due.
Nevertheless, although the letter was purportedly sent to Omar, Mary Jacob, another Homecomings employee, testified that the letter would have been sent to the party who had sent Homecomings the funds, in this case, Yorktown, which did in fact receive both the letter and the returned check. According to Durham, after Yorktown received the check, one of its employees advised Homecomings that the check was again "being sent out." When asked whether she recalled sending the check back to Homecomings a second time, Durham testified: