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Dime Savings Bank of New York v. Rietheimer


January 2, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No. F-171-02 and F-15121-01.

Per curiam.


Submitted November 17, 2008

Before Judges Carchman and Sabatino.

These related matters, which we consolidate for purposes of appeal, arise out of two mortgage foreclosure actions separately brought in the Chancery Division by appellant, Aurora Loan Services, Inc. ("Aurora"), and respondent, The Dime Savings Bank of New York ("Dime"). The foreclosure actions pertain to contiguous parcels of land in Lower Township, one parcel encumbered by a mortgage of Dime and the other parcel encumbered by a mortgage assigned to Aurora.

The dispute between these two lenders arises because the original owners of the two parcels, after obtaining refinancing from Dime, physically moved their house and detached garage from the lot that is subject to Dime's mortgage to the adjoining lot. Thereafter, a mortgage loan was extended by Aurora's assignor to the purchaser of the adjoining lot, without that lender being aware of Dime's mortgage. The dishonest mortgagors defaulted on both loans, and Dime and Aurora each claimed a security interest in the relocated improvements.

After considering the proofs, the Chancery Division imposed a constructive trust in Dime's favor on the value of the improvements that were moved to the adjoining lot. Aurora appeals that determination, contending that the security on its mortgage should not be so impaired. We reverse.


On June 4, 1997, Diana Rietheimer ("Diana") and John Rietheimer ("John"), husband and wife, took title to Lots 7.18 and 7.20 (formerly known, respectively, as Lots 18 & 19) in Lower Township. The parcels are commonly known as 906 Weeks Landing Road (Lot 7.18) and 904 Weeks Landing Road (Lot 7.20). At the time, Lot 7.18, which consists of approximately fourteen acres of land, was improved with a 4,000 square-foot home, a three-car garage, and a heated in-ground swimming pool. Lot 7.20, the adjoining parcel, was then vacant and consisted of one acre.

Diana and John initially obtained a mortgage loan through Imperial Credit Mortgage Industries to purchase both lots. That mortgage loan was brokered through the services of Joseph Scrocca ("Scrocca") and the closing was conducted by the Title Company of New Jersey. On March 12, 1999, Diana and John conveyed another property - not directly related to this appeal - on the same street, Lot 7.09, commonly known as 893 Weeks Landing Road ("Lot 7.09"), to Robert T. Hartman ("Hartman"). Hartman obtained a mortgage loan in the amount of $142,000 from Source One Mortgage Corporation. The services of both the Title Company of New Jersey and Scrocca were again utilized in the transaction.

On July 14, 2000, Diana and John conveyed Lot 7.18 to Diana, individually, for $1.00 in consideration. One week later, Diana obtained a refinance mortgage loan from Dime in the amount of $350,000. Once again, the Title Company of New Jersey and Scrocca facilitated the transaction.

The Dime's mortgage instrument contains the following relevant language:

For these purposes Borrower does hereby mortgage, grant and convey to Lender the following described property located in CAPE MAY COUNTY, New Jersey: THE LEGAL DESCRIPTION IS ATTACHED HERETO AS A SEPARATE EXHIBIT AND IS MADE A PART HEREOF, . . . . which has the address of 906 WEEKS LANDING Road, ERMA, New Jersey 08204.

TOGETHER WITH all the improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this Security Instrument. All of the foregoing is referred to in this Security Instrument as the "Property." [(Emphasis added).]

A detailed metes and bounds description, reflecting the dimensions of Lot 7.18, was made a part of the Dime's mortgage.

Approximately five months later, on December 7, 2000, Diana and John conveyed Lot 7.20 to John, individually, for $1.00 in consideration. Following that conveyance, John obtained a mortgage loan in the amount of $282,000 from Independence Mortgage Company, using Lot 7.20 as collateral. Once again, the Title Company of New Jersey and Scrocca were involved in the transaction.

About two weeks later, Diana issued a Deed of Easement conveying development rights for the unused portions of Lot 7.18 to the County of Cape May. Diana received in return from the County the sum of $74,981.94. The Title Company of New Jersey likewise conducted that closing. Dime agreed to subordinate its rights on Lot 7.18 to the easement held by the County.

On or about January 10, 2001, Diana and John had the home and the three-car garage*fn1 moved from Lot 7.18 to Lot 7.20. It is undisputed that no notice of this physical relocation of the improvements was provided to Dime.

On January 31, 2001, John decided to sell Lot 7.20, now improved with the home and garage, to Hartman for a price of $438,000. To finance his purchase, Hartman applied for a purchase money mortgage with a "no doc" (no documentation from the borrower) loan through Scrocca. Scrocca sought to obtain a mortgage for Hartman with GreenPoint Mortgage Funding, Inc. ("GreenPoint").

Scrocca ordered an appraisal of Lot 7.20 from Appraisal Services, Inc. The appraisal, dated March 15, 2001, was prepared by Herbert W. Erbe, a licensed appraiser. Erbe had previously prepared an appraisal on Lot 7.18 for a refinancing in May 2000, when Lot 7.18 contained the same house that was moved in 2001 to Lot 7.20.

In his March 2001 report, Erbe valued Lot 7.20, with the improvements, at $438,000, as of February 20, 2001, utilizing a comparable sales methodology. The appraisal stated that Lot 7.20 needed its driveway and grading completed. In addition, the appraisal indicated that a home was located on Lot 7.20 that had previously been located on Lot 7.19.*fn2 In relevant part, the appraisal stated:

Subject dwelling needs drive and grading to be completed. Subject dwelling has had proper maintenance to interior and exterior to lower the effective age and appears to be in good condition. Subject dwelling was recently moved from Block: 508.01 Lot 7.19 to Block: 508.01 Lot: 7.20. [(Emphasis added).]

Attached to the appraisal report are photographs of the house on Lot 7.20. The photographs show a pile of earth in front of the house and the absence of a paved driveway.

Scrocca, either just prior to receiving the appraisal of Lot 7.20, or as a result of the appraisal, learned that the house had been moved. Scrocca admits that he never informed Dime about this discovery.

GreenPoint thereafter obtained the services of Marder & Associates ("Marder") to conduct a review of the appraisal report. Marder's review is not substantively discussed in the parties' briefs, and it apparently did not disclose to GreenPoint that Dime had extended a mortgage loan on the property where the house on Lot 7.20 was formerly situated.

On March 27, 2001, GreenPoint issued a commitment letter to Hartman. The letter stated: "Conditions Prior to Funding:" and added that "A3 - 422 from appraiser: new photographs are required. **COST TO CURE FOR SEEDING & GRADING TO BE ESCROWED**." On that same day Hartman and GreenPoint entered into an escrow agreement. Pursuant to that agreement, Hartman agreed to allow GreenPoint to retain in escrow the sum of $5,250, pending completion of grading of the driveway on Lot 7.20.

To further obtain the approval of the purchase money mortgage, Hartman advised GreenPoint that he would lease his other home on Lot 7.09 to Robert and Patricia Gail Schumann for an initial term of one year. Patricia Schumann, a California resident, is John's mother.

On that same day, March 27, John conveyed Lot 7.20 to Hartman for the sum of $438,000. The mortgage in favor of GreenPoint on Lot 7.20 was subsequently recorded on March 29, 2001, in the amount of $400,000. As with the previous closings, representatives from the Title Company of New Jersey, as well as Scrocca, were present.

Although not disclosed in the HUD-1 Settlement Statement for the sale of Lot 7.20, John paid Hartman $46,165.79 on March 27, 2001, to effectuate the transfer. That same day, the Title Company of New Jersey paid the sum of $53,000 to Patricia Gail Schumann.

On May 1, 2001, Diana defaulted on the Dime mortgage on Lot 7.18. On that same day, Hartman failed to make the first payment due on the GreenPoint mortgage, also placing him in default.

Aurora filed a foreclosure complaint against Hartman in the Chancery Division on August 14, 2001. Subsequently, and without knowledge of Aurora's lawsuit, Dime filed a foreclosure complaint against Diana and John and other various parties in the Chancery Division on January 3, 2002. Dime thereafter amended its complaint to include, among other parties, Hartman and Aurora as named defendants. The foreclosure actions were not consolidated at the trial level, but they were assigned to the same chancery judge.*fn3

Aurora's foreclosure action resulted in a judgment in its favor. Consequently, Lot 7.20 was scheduled for a sheriff's sale in March 2002. Dime filed an order to show cause seeking to restrain Aurora from acquiring Lot 7.20 at the sheriff's sale, vacating Aurora's judgment, and consolidating the foreclosure actions. The trial court granted the restraint on the sale but otherwise denied Dime's application. Discovery ensued.

In September 2002, Dime filed a motion to enforce a constructive trust on the house and the property located at Lot 7.20. That motion was initially denied, without prejudice, and discovery continued.

Meanwhile, the respective mortgagors sought relief in bankruptcy. On February 12, 2004, Hartman filed a voluntary Chapter 7 Bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey. The chancery court stayed the foreclosure matters in May 2004, pending the outcome of the Hartman bankruptcy proceeding.

On October 6, 2005, the Bankruptcy Court entered an order permitting Hartman to sell Lot 7.20. That property sold for the amount of $449,229.75. The sale proceeds were placed in a trust account with Aurora's counsel, where they still remain.

Diana similarly filed for relief in the United States Bankruptcy Court for the District of New Jersey. According to Dime's brief on appeal, Dime settled the bankruptcy matter with Diana by agreeing with her to sell Lot 7.18, with all sale proceeds going to Dime.

On April 17, 2007, Aurora filed a motion in the Chancery Division with respect to distribution of foreclosure sale proceeds. The trial judge heard oral argument on the motion on June 14, 2007. An oral opinion and order were issued on that same day. The order imposed a constructive trust in favor of Dime on the sale of the house on Lot 7.20, subject to the parties' rights to obtain new appraisals to calculate the value of the relocated improvements.

The trial judge made a number of significant findings. He first noted that neither Dime nor Aurora will be in a position to fully recover, out from the sale of the two properties, their respective debts, including interest charges. In particular, the $459,000 escrowed from the sale proceeds for Lot 7.20 would not be enough to satisfy Aurora's unpaid $400,000 loan and the accrued interest charges and fees on its mortgage. Nor would the anticipated sale proceeds on the now-vacant Lot 7.18 satisfy Dime's $350,000 loan on that property and accrued interest. The judge also observed that the bankruptcy proceedings involving Hartman and Diana constrained the ability of the two lenders to obtain satisfaction from the individual mortgagors.

In addition, the trial judge determined that neither the mortgage broker (Scrocca), the appraiser (Erbe), nor the title company (Title Company of New Jersey) were "agents of either Dime or Aurora for purposes of these transactions." The judge recognized that both lenders at different points in time had "some contractual relationships" with these third parties, but found that "whatever relationship those individuals may have had with one [lending] institution, they also had it with the other [lending] institution, albeit at a different point in time."

Of particular significance to Aurora's present appeal, the trial judge rejected the notion that "one or the other of these lenders [bore] some special responsibility or some special duty with respect to the problem that was created by the movement of the home from the one property to the other." The judge specifically found that Aurora lacked actual notice of Dime's security interest in the home. The judge also found that the reference to the recent movement of the home in Erbe's appraisal did not trigger a duty on Aurora's part to conduct an investigation of whether any other lender had an interest in that relocated structure.

The judge made the following salient observations about Aurora's lack of notice, which he characterized as "a crucial issue":

I understand that there was a reference in the appraisal, one of the appraisals that was done for the Aurora mortgage application, that the home had been moved.

I understand there is a record that I have before me, I think arising out of depositions, suggesting that the appraiser and the owner specifically discussed the dynamics of the mortgage encumbering the property when it was on the Dime property and - and the need to deal with that as a part of the transfer, but none of that in my mind gets to the crucial issue which is whether there was any notice to Aurora of the problem that had been created because of the actions essentially of Reitheimer. And I don't see any meaningful notice of that, partially because I don't consider the appraiser to be an agent of Aurora. I certainly don't think on this record there is anything to indicate Aurora had actual notice, and I'm not convinced that there is anything in this record that would read - lead one to reasonably conclude that Aurora should have made some type of further inquiry. I suppose the closest you can come to that is the reference in the appraisal report to the property having been moved, but again, the fact that the home may have been moved doesn't necessarily mean that it was encumbered by a mortgage. In any event, it seems to me that the legal relationships that were presented by these transactions aren't particularly helpful in dealing with the equitable issues that I have before me and aren't particularly helpful in trying to assess the respective interests of each of the banks. [(Emphasis added).]

The judge later went on to state in his oral ruling that he was "not convinced" that he could "attribute fault to either one of [the lenders]." The judge also concluded that the law of fraudulent transfers did not somehow authorize the interests of Aurora, a bona fide purchaser, to be impaired.

Despite his findings that Aurora did not have notice of Dime's interest, had no duty to investigate after receiving Erbe's appraisal, and was entirely without fault, the judge determined that it was nevertheless appropriate to impose a constructive trust and to require Dime and Aurora to share, on an equal basis, the value of the improvements that had been moved from Lot 7.18 to Lot 7.20. Relying upon general principles of constructive trusts, the judge determined that the two prongs necessary to support such relief were present here: (1) a wrongful act, and (2) unjust enrichment. The judge particularly relied on the Supreme Court's explication of these concepts in Flanigan v. Munson, 175 N.J. 597 (2002).

With respect to the wrongful act element, the judge observed that the concept is a "term of art" and "can be nothing more than a mistake." The judge then determined, as a matter of law, that Aurora had made such a mistake here, although an innocent one. The mistake, in the judge's view, was Aurora's incorrect assumption that the recently-moved house on Lot 7.20 was not encumbered by another mortgage. As the judge explained:

First of all, is there a wrongful act that is, as I understand the cases, including Flanigan, a requirement before a constructive trust can be imposed? I think - I think the answer to that is yes, but it is only because the law is very clear in indicating that the wrongful act, that term, is really a term of art, and it can be nothing more than a mistake. In this particular case how do you apply that analysis? I think you apply it by recognizing that Aurora made a mistake. It made a mistake that I think was innocent.

Its mistake was that it lent money on a piece of property which included an improvement, not knowing that that home was encumbered, that is the improvement itself, was encumbered by another mortgage. I think it's fair to characterize that as a mistake.

It certainly wasn't fraudulent. In the sense that most lay-people would use the term, I think it would be hard to refer to it as wrongful, but in the sense that the Supreme Court has used the term wrongful act, I think it's fair to say that it can be - it can be - that mistake can be categorized in that fashion. So it strikes me that it's appropriate to say that in this circumstance that first prong of that test has been satisfied.

[(Emphasis added).] The judge then turned to the second requirement for a constructive trust, the presence of unjust enrichment. He concluded that Aurora would not, "on a basic level," be unjustly enriched if no such trust were imposed and it collected the full remaining proceeds of the sale of Lot 7.20, which are insufficient to satisfy the amounts it is owed. However, the judge found that Aurora would be unjustly enriched, in a different sense, in comparing its circumstances relative to the circumstances of Dime:

Can I conclude on this record that if a constructive trust is not imposed Aurora will be unjustly enriched? I think reasonable people could debate that. In the most basic sense I think it would be fair to argue, as I'm sure Aurora would, that leaving it with $450,000 from that sale can't, from its own perspective, be unjust.

It lost - it - even if it retained all of that money it would suffer a fairly substantial loss assuming it didn't recover funds from some other form. So on that basic level I think it would be hard to say that one would be offended by the fact that Aurora would walk away from this transaction with $450,000 being somewhat less than the amount that would otherwise be due it. But I don't think that's the end of the inquiry because I think it's fair to say that one can consider the question of Aurora's unjust enrichment - potential unjust enrichment not simply by reference to its own particular circumstances but by comparing its circumstances with Dime's, and if I am correct about that, and I think I am, I think it is fair to say that, in fact, if a constructive trust is not imposed to secure to Dime some portion of the value of the improvement, Aurora would be unjustly enriched, not in the absolute sense but at least relative to its relationship with Dime.

[(Emphasis added).]

Having been satisfied that both prongs of the constructive trust doctrine were established, the trial judge concluded that it was appropriate to impose a constructive trust here. The judge did so "[b]ecause the parties are in relative equipoise with respect to this issue and that without that adjustment there would be . . . an inequity." Finding that the two faultless lenders are "in a relatively equal position" and "seem to have relatively equal shares or interests in the improvement" that was moved to Lot 7.20, the judge ordered that the net proceeds of the sale of Lot 7.20 continue to be held in escrow, and that the two lenders share equally in the value of the improvement.

Subsequent to that hearing, the parties obtained new appraisals and on December 4, 2007, the judge conducted a trial to determine the value of the house and garage located on Lot 7.20. Based upon the testimony of the real estate appraisers who testified at that trial, the judge found that Dime was entitled to $164,000 out of the sale proceeds.

Aurora now appeals, seeking to overturn the trial judge's imposition of a constructive trust. Aurora argues that the judge erred in finding it "guilty of a wrongful act" and in also finding that it would be "unjustly enriched" if a constructive trust were not imposed. Aurora further maintains that any equitable justification to permit Dime to share in the sale proceeds from Lot 7.20 are outweighed by the general policies underlying the property recording statute, N.J.S.A. 46:9-8, that affords purchase money mortgagees with priority liens. It argues that the trial court's imposition of a constructive trust is this case undermines the policies favoring reliance upon the recording system.


A constructive trust is a measure through which a court of equity can prevent unjust enrichment and compel a restoration of property to a plaintiff that "in good conscience does not belong to the defendant." Flanigan, supra, 175 N.J. at 608 (quoting Dan B. Dobbs, Remedies § 4.3, at 241 (1973)). Our courts have traditionally applied a two-part test when determining whether a constructive trust is an appropriate remedy. The test requires proof of (1) a wrongful act, which (2) resulted in an unjust enrichment. Ibid. (citing D'Ippolito v. Castoro, 51 N.J. 584, 589 (1968)).

Although constructive trusts have been imposed in a range of contexts, our Supreme Court has "caution[ed] courts generally that a constructive trust is a powerful tool to be used only when the equities of a given case clearly warrant it." Id. at 611. The suitability of imposing a constructive trust must be established "by clear, definite, unequivocal and satisfactory evidence." Gray v. Bradley, 1 N.J. 102, 104 (1948).

With respect to the first prong requiring a "wrongful act," we have recognized that our courts no longer require proof that the party upon whom the constructive trust is imposed have engaged in "fraud." See Callahan v. Callahan, 142 N.J. Super. 325, 329-30 (App. Div. 1976) (repudiating the former requirement of fraud); cf. Gordan v. Griffith, 113 N.J. Eq. 554 (Ch. 1953) (reflecting the court's former approach requiring fraud). Of course, fraud may still satisfy the first prong of a wrongful act. In any event, it is unquestionable, here, that regardless of the apparent misconduct of the Rietheimers and Hartman, neither Dime nor Aurora engaged in any fraud in this matter.

Our evolved law has more expansively described a "wrongful act" in this context to include, but not be limited to, "fraud, mistake, undue influence, or breach of a confidential relationship which has resulted in a transfer of property." D'Ippolito, supra, 51 N.J. at 589; see also Thompson v. City of Atlantic City, 386 N.J. Super. 359 (App. Div. 2006), aff'd in part and modified in part, 190 N.J. 359 (2007).

Applying these principles, the Supreme Court in D'Ippolito held that a co-guarantor of a promissory note had engaged in a wrongful act, sufficient to authorize a constructive trust, by his failure to pay his proportionate share of the overdue debt. His non-payment thereby placed the principal debtor in peril of being evicted from his home. The Court noted that the coguarantor, who objected to the imposition of the constructive trust, had notice of the principal debtor's default and knew that the debtor would lose his home if the debt was not paid. Id. at 590-92. The Court ruled that the co-guarantor, who had subsequently obtained the house at a sheriff's sale, "cannot so benefit from his illegal conduct." Id. at 592. Consequently, the Court concluded that the co-guarantor held title to the home as a constructive trustee of the principal debtor. Ibid.

The Supreme Court most recently applied the "wrongful act" predicate for a constructive trust in Flanigan, supra. There, a mother had entered into a property settlement agreement embodied in a divorce judgment. Flanagan, supra, 175 N.J. at 601. The agreement required, among other things, the mother to name her two children as irrevocable beneficiaries on any life insurance policies that she thereafter obtained through her employment. Id. at 600. The mother subsequently remarried. She obtained two life insurance policies through her employer, but failed to designate her children as beneficiaries on those policies. The mother died, and the second husband was about to receive the proceeds of the life insurance in the absence of any beneficiary designation by the decedent.

The grandparents of the children in Flanigan filed suit to prevent the dissipation of the life insurance proceeds to the second husband. Id. at 605. The trial court imposed a constructive trust on those proceeds, which the Supreme Court affirmed on appeal. In its analysis, the Court agreed with the trial judge that the mother's breach of the property settlement agreement, in failing to name her children as beneficiaries, comprised a "wrongful act," even though her oversight was claimed to be inadvertent. Id. at 608-09. In this regard, the Court recognized that "'innocent misstatements, or even simple mistakes' can qualify as a wrongful act in these circumstances." Id. at 609 (quoting Dobbs, supra, § 4.3, at 243) (emphasis added).

The law additionally requires that the wrongful act be one that resulted in an unjust enrichment. D'Ippilito, supra, 51 N.J. at 588. This concept is aptly illustrated in Stewart v. Harris Structural Steel Co., Inc., 198 N.J. Super. 255 (App. Div. 1984). In that case, a corporation received $275,000 from the plaintiff for the purchase of 900 shares of common stock in that corporation. It was subsequently determined that the corporation lacked the authority to issue those shares, and that the stock certificate issued to plaintiff was invalid. Under those circumstances, we held that "[t]here cannot be the slightest doubt that it would be unjust and unfair for [the corporation] to retain this money." Id. at 267. To prevent such unjust enrichment, we sustained the trial court's imposition of a constructive trust on the $275,000 payment, plus accrued interest. Id. at 269-71.

Similarly, in Hirsch v. Travelers Ins. Co., 134 N.J. Super. 466, 470-71 (App. Div. 1971) we imposed a constructive trust on land purchased with life insurance proceeds that had been wrongfully diverted from the rightful beneficiaries. We observed in Hirsch that "where the recipient [of property] is a gratuitous transferee, she holds the property subject to the equitable rights of the wronged party and a constructive trust can be impressed." Id. at 471 (citing Restatement, Restriction, § 168 at 684 (1937); 5 Scott on Trusts, §§ 470, 510 at 3444, 3595 (3rd. ed. 1967)). Accordingly, we held that the wife of the man who had wrongfully diverted the life insurance proceeds and who had used them to purchase the realty with her jointly before he died, was not a bona fide purchaser of the property. Ibid. Instead we held that the wife may be classified as a gratuitous transferee, who took title subject to the equitable interests of the plaintiffs from whom the insurance proceeds had been diverted. Ibid.

Likewise, in Flanigan, the Supreme Court ruled that the second husband would have been "enriched unjustly by his receipt of the insurance proceeds." Flanigan, supra, 175 N.J. at 609. The insurance policies had not listed the second husband as a beneficiary. Although the late wife's payroll deductions had been used to fund the premiums on one of the two policies and thereby reduced the couple's household income, we rejected the second husband's claim that he was a "bona fide purchaser for value for purposes of defeating a constructive trust." Id. at 610. By comparison, the late wife's property settlement agreement with her first husband "unambiguously established" the children's right to be listed as beneficiaries. Id. at 611. Accordingly, the Court sustained the constructive trust to assure the children's receipt of those benefits.

We now consider the trial court's determinations that these two necessary elements of a constructive trust were established by the record. In doing so, we apply a de novo standard of review to those legal determinations, as the underlying factual scenario and the factual determinations by the trial judge, who took no testimony on these issues, are not challenged by either party on appeal. See Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995) (noting that it is well established that a "trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.").

Significantly, Dime does not challenge or appeal the trial judge's finding that GreenPoint, as Aurora's assignor, had no notice of Dime's security interest in the house that was moved to Lot 7.20. Dime, itself in the lending business, also does not contest the trial court's conclusion that GreenPoint did not have a legal duty to investigate whether the moved house was encumbered by a mortgage by a different lender from a loan extended on a different property.

Because Dime has not cross-appealed or otherwise contested those important determinations, we shall accept them for purposes of our review. In this regard, we accept for the sake of our analysis the unchallenged premise that the reference to a "recently moved" house in Erbe's appraisal did not place Aurora or GreenPoint on notice of Dime's mortgage interest in the house nor did it trigger a legal duty of the lender to investigate further.

We turn to the first predicate for a constructive trust, proof of a wrongful act. The trial judge correctly found that Aurora and its predecessor, GreenPoint, committed no fraud here, although a fraud evidently was perpetrated by others. We do not concur with the trial judge, however, that Aurora or GreenPoint committed a mistake that, as a matter of law, rises to the level of culpability that comprises to a "wrongful act" for purposes of the law of constructive trust.

In extending a loan to Hartman to purchase Lot 7.20, GreenPoint did not do anything wrong. To be sure, GreenPoint assumed that the house physically located on that property was not encumbered by any other mortgage, but that erroneous assumption is not the sort of mistake that is comparable to the mistakes involved in Flanigan or the other pertinent constructive trust cases that we have cited. GreenPoint entered into what it had every reason to believe was a bona fide mortgage loan, and, it had no notice of Dime's encumbrance.

Nor are we satisfied that Aurora would be unjustly enriched unless its security interests in the sale proceeds from Lot 7.20 are diminished. Even without a constructive trust in Dime's favor, Aurora will not be able to fully recoup all that it is owed in principal and interest on the mortgage loan secured by Lot 7.20. Although we appreciate the trial judge's desire to protect Dime, which was also an innocent party, the remedy chosen imposes an inequity upon Aurora that it does not deserve.

As we have noted, the trial judge principally relied upon Flanigan as authority for imposing the remedy of a constructive trust here. We are mindful that the second husband in Flanigan, like Dime and Aurora here, was an innocent party. He did nothing to cause his late wife to fail to discharge her legal obligation to execute beneficiary designations for her two children. The key distinction is that the second husband in Flanigan did not obtain his right to the life insurance proceeds through a bargained-for transaction. Like the spouse in Flanigan, he was not "a bona fide purchaser" of property. Hirsch, supra, 134 N.J. Super. at 471. Instead, he was a gratuitous transferee. By contrast, GreenPoint was a bona fide purchaser for value.

Although we accept the trial judge's unchallenged factual findings and much of his reasoning, we are persuaded that the elements necessary under the law to sustain a constructive trust simply are not fulfilled in this case. The record does not present "clear, definite, unequivocal and satisfactory evidence," see Gray, supra, 1 N.J. at 104, to warrant the application of such a "powerful tool." Flanigan, supra, 175 N.J. at 611. In doing so, we heed the Supreme Court's admonition that constructive trusts are to be granted with caution. Ibid.

Consequently, the constructive trust must be dissolved, and Aurora may receive, without apportionment, the sale proceeds from Lot 7.20 that remain in counsel's trust account. We regret that this disposition is likely to leave Dime with a larger shortfall on its mortgage deficiency, but other relief may be available to Dime to recoup some or all of its losses from the culpable parties.*fn4 Our disposition also makes it unnecessary to address Aurora's policy arguments under the recording statute, as well as the propriety of the trial court's computation of the divisible proceeds.

The trial court's final order of December 4, 2007, is reversed, and the matter is remanded for the entry of a judgment consistent with this opinion.

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