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Amboy National Bank v. Karagjozi

October 20, 2010

AMBOY NATIONAL BANK, PLAINTIFF-APPELLANT,
v.
ZUHDI KARAGJOZI, HORIZONS AT BIRCH HILL HOMEOWNERS ASSOCIATION, INC., THOMAS GOUGH AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR COUNTRYWIDE HOME LOANS, INC., DEFENDANTS, AND CARL SPEZIALE, COUNTRYWIDE HOME LOANS, INC., A/K/A COUNTRYWIDE HOME LOANS, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. F-13875-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 22, 2010

Before Judges Axelrad, R. B. Coleman and Lihotz.

This matter requires review of the January 4, 2010 summary judgment dismissal of a foreclosure action based on the trial court's determination that the culmination of events in the transfer of one lot in a tract of residential homes required plaintiff's construction lien to be deemed "satisfied." More specifically, in 2004, plaintiff Amboy National Bank, n/k/a Amboy Bank (Amboy) extended financing to Horizons at Birch Hill, LLC (Birch Hill), a closely held corporation owned and operated by Zuhdi Karagjozi, for the acquisition, development and construction of a residential development in Old Bridge Township. The debt was secured by a blanket mortgage, covering the acquired realty, including the lot which is the subject of this dispute. In 2005, Birch Hill sold the lot, improved by a single family attached home, to Natalya Belenson a/k/a Natasha Belenson. During Belenson's closing, the purchase monies were released by the closing agent to the realty developer, Kara Homes, Inc. (Kara), Birch Hill's parent company; however, Kara remitted no funds to Amboy. Consequently, the construction mortgage encumbering Belenson's residence was never discharged.

Belenson resold the residence to defendant Carl Speziale. A search error by Speziale's title company failed to report Amboy's lien. Defendant Countrywide Home Loans, Inc. a/k/a Countrywide Home Loans (Countrywide) financed Speziale's purchase, believing its loan was secured by a purchase money mortgage. In actuality, its encumbrance was second to Amboy's. When Birch Hill defaulted on its debt, Amboy commenced foreclosure, which revealed the defects in the transfers of title to Belenson and Speziale.

Cross-motions for summary judgment were filed by Speziale, Countrywide and Amboy. The Chancery Division determined as between these three "comparatively innocent parties[,]" Amboy's "actions rendered the [complained-of] injury possible." Concluding Kara was Amboy's agent during the Belenson closing, the court deemed Kara's receipt of the funds, on behalf on Amboy, necessitated the discharge of Amboy's lien. Accordingly, Amboy's motion was denied and summary judgment was entered in favor of Speziale and Countrywide. Amboy appeals, arguing the court erred as a matter of law.

Following our review of this record, we determine sufficient factual disputes are presented obviating a conclusive legal determination of agency. We affirm the denial of summary judgment to Amboy, but reverse the judgment in favor of Countrywide and Speziale.

The facts are derived from evidence submitted by the parties in support of, and in opposition to, the summary judgment motion, viewed in a light most favorable to plaintiff. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995).

Birch Hill acquired land for the development and construction of 118 condominiums, townhouses and single family attached homes. Funding for the land acquisition, site improvement and construction was secured on January 9, 2004, through a $36,654,100 loan from Amboy. Birch Hill borrowed the funds and its obligation was guaranteed by Karagjozi. More specifically, Birch Hill executed three promissory notes: one in the principal amount of $7,916,000 (Note 1), the second with a principal amount of $24,238,100 (Note 2), and the third with a principal amount of $4,500,000 (Note 3). Only Note 3 was paid in full.

To secure payment of the notes, Birch Hill simultaneously executed a mortgage and security agreement in favor of Amboy, granting a blanket lien on the individual lots in the development, which were designated in the development's Master Deed, along with all amendments and supplements.*fn1 On March 8, 2004, Amboy recorded the mortgage in the Middlesex County Clerk's office, Mortgage Book 9417, Page 427.*fn2

On November 12, 2004, Amboy loaned Birch Hill an additional $4,403,400, increasing the total indebtedness to $41,057,999. Notes 1 and 2 were restated to reflect the increased principal amounts and the parties executed a "First Spreader Agreement" (Spreader Agreement), which granted Amboy a mortgage interest in additional lots within the development. The Spreader Agreement was recorded on December 2, 2004, in the Middlesex County Clerk's Office in Mortgage Book 10217, Page 456 and added two lots in the development as security for the debt.

Before describing the facts surrounding the dispute, we pause to describe the varying procedures employed to assure title of the realty was transferred to the purchaser and Amboy's construction lien was discharged when Birch Hill completed and sold a unit in the tract. Kara facilitated the closings on behalf of Birch Hill by securing payoff requests from, and remitting funds to, Amboy. Specifically, before each closing, Kara requested a payoff letter from Amboy. In correspondence sent to Kara, Amboy confirmed the amount required to release the unit being sold from its mortgage lien. Finally, Kara arranged for payment of the designated amount to Amboy. Most typically, a letter under Kara's letterhead was transmitted to Amboy, identifying the closing attorney to whom the release should be sent.

Often, Kara collected a check from the buyer's funds payable to Amboy. At times, Kara received the entirety of the seller's funds, then issued its check to Amboy. There were instances when a closing took place without Amboy's pay-off letter. Kara would follow-up with a subsequent remittance of an amount believed necessary to secure the release of the lien.

On March 31, 2005, Birch Hill conveyed an improved lot, designated as Block 21001.25, Lot 7.28 on the Old Bridge Township Tax Map, commonly known as 4 McGuire Court, which is the home now titled to Speziale. Belenson, as the buyer, secured financing for the purchase from Countrywide. Prior to Belenson's closing, Kara requested a payoff letter from Amboy. The record contains no separate document relating a release amount. However, Kara's December 28, 2004 payoff request letter, which referenced two separate parcels, included a stamp in the lower left-hand corner titled "PAYOFF QUOTE" listing the amount of $254,160 effective January 3, 2005. As of March 31, 2005 the payoff was asserted to be $297,900.

As we noted above, the residence purchased by Belenson was included among the realty pledged to secure Amboy's construction lien. At closing, Belenson's attorney Igor A. Orak issued a check for $290,264.27 to Birch Hill. Orak "was instructed by Kara Homes to make the entire sale proceeds payable to Horizons at Birch Hill, LLC and that Kara [] would pay the appropriate share of the proceeds to Amboy . . . and that they would record the discharge of the mortgage." Kara took possession of the check. The deed, transferring the unit from Birch Hill to Belenson, was recorded on April 18, 2005 in the Middlesex County Clerk's Office in Deed Book 5480, Page 677.

Kara's records show a June 22, 2005 check request for $324,630 for the Belenson payoff; however, that request was voided on September 22, ...


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