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Horn v. Horn

April 28, 2010

CONSTANCE HORN, N/K/A CONSTANCE MANAILOVICH, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
JAMES HORN, DEFENDANT-RESPONDENT/CROSS-APPELLANT.
CONSTANCE HORN, N/K/A CONSTANCE MANAILOVICH, PLAINTIFF-APPELLANT,
v.
MICHAEL HORN, DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Warren County, Docket No. FM-21-97-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: November 5, 2009

Before Judges Stern, Graves and J.N. Harris.

Plaintiff former wife appeals from a "final judgment enforcing the note and mortgage" entered on June 13, 2008, in favor of defendant James Horn, the father of her former husband. She contends that the decision enforcing the note and mortgage is "inconsistent with the undisputed facts proven at the trial" (including that the mortgage was invalid for lack of consideration and was "forgiven"); that defendant James Horn is "equitably estopped from enforcing the note and the mortgage;" and that there was an ethical conflict affecting the validity of the mortgage because one attorney represented "all parties to the transaction."

Plaintiff also appeals from an order of September 19, 2008, denying her application for a plenary hearing on her application to set aside the property settlement agreement (PSA) between her and defendant Michael Horn. Constance and Michael entered into a PSA which included her receipt of the marital home subject to the mortgage to his father as mortgagee but with her right to contest it. When the mortgage was found enforceable (which is the subject of the first appeal), she moved to vacate the PSA claiming Michael did not fully disclose the facts about the mortgage at the time the PSA was entered. When her application to vacate was denied, the second appeal was filed. The appeals were consolidated.

James cross appeals from the denial of his application for counsel fees. We affirm the judgments in all respects.

I.

Constance Manailovich, formerly known as Constance Horn, was married to Michael Horn, the son of defendant James Horn. After they were married, Constance and Michael purchased a home with the help from a loan from James. This loan was secured by a note and mortgage held by James on the house.

James endured catastrophic injuries while at work and as a result he is significantly handicapped by cognitive and physical limitations. James received a large settlement in recompense for his injuries. After his accident, James was cared for by his mother, Grammie Grace Horn ("Grammie Grace"). Grammie Grace possessed a Power of Attorney from James.

Constance testified at trial that she and Michael received the funds necessary to buy a second house from James, and that the house was bought "primarily" to be a place in which James could live. Constance testified that this came about after a meeting between her, Michael, and Grammie Grace near the end of 1995. According to Constance, Grammie Grace agreed to give the funds to her and Michael without it being intended that they return the money, so "essentially . . . [it was] a gift," but Constance qualified her statement by saying the funds to purchase the house were "given to us not gifted." Constance further testified that Grammie Grace told her and Michael that the funds were an advance ("a front"), which would be deducted from Michael's inheritance at James's death.

Michael's testimony at trial contradicted Constance's account of the conversation with Grammie Grace. He testified that plaintiff and he "borrow[ed]" the money for the house from his father. James lent him and Constance the funds to buy the house, just as he had for their first home. Michael denied that the debt on the mortgage would be deducted from his inheritance and claimed that the only advantage Grammie Grace, acting for James, gave to the couple was a "cheaper interest rate" (five per cent) than they could have obtained otherwise.

In January of 1996, Constance and Michael purchased a house in Asbury, Warren County. Shortly after Constance and Michael bought the house, Grammie Grace became sick and was hospitalized for two months. After she left the hospital, she suffered a heart attack and passed away in April of 1996.

Joseph Steinhardt, a Warren County attorney, represented Constance and Michael in the purchase of the house in January 1996, and recorded the deed for them. Constance and Michael received the $100,000 necessary for the purchase from James's account in Phillipsburg National Bank and Trust ("PNBT"). PNBT is the trustee of James's investment account. Acting on behalf of the couple, Steinhardt received a $100,000 check from PNBT, acting as trustee for James, and disbursed it at closing.

No promissory note, mortgage or any other document was executed to record the payment of these funds at the time of the closing of the purchase of the Asbury house. However, Steinhardt testified that there was "supposed to be a mortgage," but that no note or mortgage was signed at the time of closing because the house needed extensive repairs and it was not clear how large the ultimate loan would be. He also "assume[d]" that part of the delay could be attributed to Grammie Grace's inability to handle her son's affairs during her illness. Constance and Michael were also selling their first home and needed approximately an additional $10,000 to pay off the mortgage held by James on that house, which was to be applied to the new mortgage. Steinhardt stated that it was June or July of 1996 before the total sum of the mortgage, $133,432.55, was determined.

After Grammie Grace died, two of her other sons, Robert and Charles, Michael's uncles, began to manage James's affairs under a power of attorney. According to plaintiff, after Grammie Grace's death, Robert visited Constance and Michael's home and requested that they execute a mortgage and note secured by the house to PNBT. Constance testified that Robert convinced her "at that time that it would be in our best interest" to make mortgage payments, which, with interest, "would then be applied back into" Michael's "inheritance account" which they would receive after James's death. Robert testified that he did not recall contacting Constance and Michael about the mortgage. Michael denied that any such conversation had taken place. He claimed that the note and mortgage were signed in Steinhardt's office.

Steinhardt prepared the mortgage note for $133,432.55, which Constance and Michael signed on July 3, 1996. Steinhardt subsequently recorded the mortgage. The mortgage and note was held by PNBT as a fiduciary for James Horn. The note which Constance and Michael signed stated that "[t]his Note can only be changed by an agreement in writing signed by both the Borrower(s) and the Lender."

The trial judge found that Steinhardt also represented "the interests of James Horn" while closing the purchase of the Asbury house and preparing the July 3, 1996 mortgage, though Steinhardt testified that he only considered the borrowers, Constance and Michael, as his clients for that transaction. Over the years, Steinhardt had also represented Robert Horn and James Horn.

Steinhardt testified that his normal practice, which he "always" told his clients, was that "a note was their personal obligation" and that if they did not pay the mortgage the bank could take the property back, or in this case James could. Though Steinhardt was sure he had told this to Constance and Michael and treated the matter as a normal mortgage transaction, he could not specifically recall telling this information to Constance and Michael because after his many years of executing similar transactions "[i]t's just been so many and so long." Steinhardt's only "specific recollection" about the purchase and mortgage of the Asbury house was that the "mortgage didn't go on record for some time after the closing." He did recall "that there was supposed to be a mortgage and I made a lot of phone calls to the bank saying I need to know how much money" should be placed on the mortgage. Steinhardt did acknowledge that it would have been possible for the mortgage to be executed even if the funds from James were a gift for "tax purposes . . . just to show where the money went," but he testified "that wasn't a factor here."

Constance and Michael made five or six payments on the mortgage following its execution in 1996 and early 1997, but never made any further payments. When first asked by her trial counsel why she and her husband had stopped making payments, Constance responded that Steinhardt "informed us that the will had been changed" and that the couple then decided not to make further payments as they "might possibly not see that money back."

Despite Constance and Michael's failure to make payments on the mortgage, neither PNBT and its successors nor James attempted to collect any mortgage payments until March 9, ...


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