On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No. F-171-02 and F-15121-01.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 ...