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Investors Savings Bank v. Keybank National Association

March 12, 2012

INVESTORS SAVINGS BANK, PLAINTIFF-RESPONDENT,
v.
KEYBANK NATIONAL ASSOCIATION, DEFENDANT-APPELLANT, AND DENIS KELLIHER, DEFENDANT.



On appeal from Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-0081-09.

The opinion of the court was delivered by: Skillman, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Submitted October 31, 2011

Before Judges Parrillo, Alvarez and Skillman.

The opinion of the court was delivered by SKILLMAN, J.A.D. (retired and temporarily assigned on recall).

This appeal requires us to determine whether the holder of a mortgage that secures a loan used to discharge a prior mortgage is equitably subrogated to the rights of the prior mortgagee and thus has priority over the lien of a judgment creditor that recorded its judgment before the new mortgage was placed on the property. We conclude that such a refinancing mortgagee is ordinarily entitled to the same priority as the original mortgagee even though it negligently failed to discover the lien of the intervening judgment creditor before closing.

Defendant Keybank lent substantial amounts of money to defendant Denis Kelliher in connection with his operation of a motor home business. Kelliher engaged in extensive fraudulent activity to obtain those loans. This fraudulent activity resulted in Kelliher's conviction for various federal crimes and a sentence of imprisonment.

Keybank brought suit against Kelliher, which resulted in a judgment in its favor in the amount of $27,457,874. Keybank recorded this judgment on September 30, 2008.

Before this judgment was entered and recorded, Kelliher had obtained a construction loan from 1st Constitution Bank in the amount of $1,338,750. This loan was secured by a mortgage on Kelliher's residential property in Toms River, which was recorded on January 23, 2008.

In the summer of 2008, Kelliher sought to refinance his loan from 1st Constitution Bank with a loan from Investors Mortgage Company, which was the predecessor to plaintiff Investors Savings Bank (ISB). In his application for this loan, Kelliher gave false answers to a series of questions concerning his financial condition and the pendency of litigation against him. Thus, in response to the question, "Are you presently delinquent or in default on any federal debt or any other loan, mortgage, financial obligation, bond or loan guarantee?" Kelliher answered "No." In response to the question, "Are you a party to any lawsuit?" Kelliher also answered "No."

ISB retained Quality Closing Services to act as title agent and obtain a title policy for a new mortgage on Kelliher's Toms River property to secure this loan. On August 1, 2008, Quality ran a title search that did not reveal any judgments against Kelliher (Keybank's judgment had not yet been recorded.)

On October 3, 2008, Quality conducted the closing on the ISB loan to Kelliher secured by the mortgage on his Toms River property. At the closing, Kelliher executed an affidavit of title with a handwritten notation, "No judgments per attached search," with a copy of the August 1st judgment search attached. No rundown search, which would have brought the August 1st search up to date at the closing, was conducted.

ISB disbursed $1,330,000 at the closing, which was used to pay off the 1st Constitution Bank construction loan. Because the ISB loan was insufficient to cover the full outstanding balance of the 1st Constitution loan, Kelliher also paid $54,107.64 of his own money to ...


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