INVESTORS BANK v. TRYLON/CREST CONSTRUCTION INC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2800-14T1

INVESTORS BANK,

Plaintiff-Respondent,

v.

TRYLON/CREST CONSTRUCTION,

INC., and LARRY D. MCNEIL,

SR.,

Defendants-Appellants,

and

EBONI FREMPONG and STATE

OF NEW JERSEY,

Defendants.

____________________________

October 12, 2016

Argued March 9, 2016 Decided

Before Judges Fuentes, Koblitz, and Kennedy.

On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. F-00600-12.

Charles D. Hellman argued the cause for appellants (Guarino & Co. Law Firm, LLC, attorneys; Philip L. Guarino and Michael D. Camarinos, on the brief).

David H. Stein argued the cause for respondent (Wilentz, Goldman & Spitzer P.A., attorneys; Louis J. Seminski, of counsel and on the brief).

PER CURIAM

In this appeal we must determine whether the motion judge erred by discharging New Vistas Corporation, the court appointed receiver, without requiring it to make certain payments to defendant Trylon/Crest Construction, Inc. (Trylon), and by denying defendants' motion for reconsideration. Following our review of the arguments advanced on appeal, and in light of the record and applicable law, we affirm.

I.

On April 24, 2008, Trylon borrowed $5,200,000 (the loan) from plaintiff Investors Savings Bank1 (the Bank). To evidence the obligation, Trylon executed and delivered a $5,200,000 promissory note payable to the Bank. The note was secured by a first mortgage on 49 Prospect Street, East Orange (the property). Trylon also executed an assignment of rents and leases on the property in favor of the Bank to secure payment of the loan. As further security for the loan, defendant Larry D. McNeil, Sr. (McNeil) executed a guaranty agreement, whereby he guaranteed the repayment of the loan and prompt performance of Trylon's obligations to the Bank. Defendants also provided plaintiff with an indemnification agreement, indemnifying the Bank from any loss or damage arising from any matter in connection with the loan. Also, pursuant to the mortgage, the Bank was granted the right to appoint a rent receiver for the mortgaged property.

Beginning in 2011, Trylon failed to pay the amounts due and owing under the note and mortgage. As a result, in 2012, the Bank filed a complaint in foreclosure2 against Trylon and a complaint in the Law Division3 against Trylon and McNeil seeking to enforce the note and guaranty. The Bank asserted that Trylon misappropriated tenant security deposits, and as a result the court appointed the receiver on February 28, 2012. During the course of the receivership, monthly operating reports for the property were sent by the receiver to defendants, which were not questioned until this appeal arose.

In November 2012, the parties reached a settlement resulting in, among other things, an agreement by the Bank to permit the sale of the property in exchange for payment by March 31, 2014, time of the essence, of $3.5 million in satisfaction of the loan. Among other terms, the settlement agreement provided that defendants grant a general release of claims in favor of the Bank and the receiver. Defendants failed to execute and deliver the settlement agreement and the Bank filed motions in both the Law Division and Chancery Division to enforce the agreement, which were granted. The property was sold for $4.2 million with the Bank receiving $3.5 in satisfaction of the loan and defendants receiving the balance of the proceeds. The Chancery judge made the following findings in his statement of reasons accompanying the denial of defendants' motion for reconsideration

On April 28, 2014, this Court entered an order enforcing the settlement agreement concerning the Mortgaged premises. The agreement acknowledges the fact that the settlement was a result of negotiations and compromise. The significant issue in regards to the settlement was the ultimate short sale price of $4.2 Million (which netted Defendant several hundred thousand dollars at closing). This resulted in a discount of the original loan amount by over one million dollars. This Court reasoned that the advances made in December 2013, the expenditures made in the 1st quarter of 2014 and the unpaid tax, sewer and water charges were part of the decision to accept the short sale price of $4.2 million. It is likely that any other payments of expenses would have directly affected one amount paid at closing.

McNeil, on behalf of Trylon, contends that at the property closing on April 2, 2014, he became aware that there were outstanding real estate taxes, water and sewer charges in an aggregate amount of $50,329.28 that had not been paid by the receiver. He believed that this money was paid to the Bank and contends it should have been paid to the municipality. He also argues that $21,854.64 in security deposits should have been paid to Trylon by the receiver. Defendants assert that the court erred in discharging the receiver and approving the final accounting.

The court in a comprehensive statement of reasons accompanying the November 14, 2014 order, noted that the wire transfer receipt indicated the Bank received from the closing $3.5 million. The court also recognized the line item on the final accounting for "Distribution of Funds." The judge acknowledged that the Bank contended that the amount "in question refers to all costs and bills up to the April 2014 agree upon settlement and that no additional funds were transferred to the [Bank] in 2014." Importantly, the court found that all of the receiver's monthly reports were served upon counsel for defendants, and at no point were any expenditures or payments of any bills questioned. The court concluded defendants' claim was meritless for lack of specificity stating "Defendants' claim ... makes a blind assertion."

Further, in denying defendants' motion for reconsideration by order dated February 5, 2015, in its comprehensive written statement of reasons, the court discussed repairs made to the property, increased vacancies, and the settlement agreement that led to the short sale. Ultimately the court found the expenditures were proper and "defendant [sic] has not demonstrated any grounds to vacate the settlement in this matter." Defendants' appeal ensued.

The authority to appoint a rent receiver is purely contractual, normally arising from the provisions of a mortgage or other loan documents; its purpose is to protect the mortgagee's interests by imposing a court-supervised, disinterested person to collect the rents and pay expenses pending the ultimate disposition of the mortgaged premises. Kaufman v. 53 Duncan Investors, L.P., 368 N.J. Super. 501, 506 (App. Div. 2006).

Here, the loan documents expressly authorized the lender to seek the appointment of a rent receiver to collect rents, pay operating expenses, and take reasonable steps to protect the collateral securing the loan. The record shows the receiver carried his responsibilities in a manner consistent with the court s instructions. We discern no legal basis to disturb the Chancery Division s decision to discharge the receiver.

1 In September 2011, plaintiff changed its name to Investors Bank.

2 Investors Bank v. Trylon/Crest Construction, Inc., No. F-0600-12 (Ch. Div. 2012).

3 Investors Bank v. Trylon/Crest Construction, Inc., No. L-403-12 (Law Div. 2012).