MOREQUITY, INC. v. CHARLES STANTON, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3339-05T23339-05T2

MOREQUITY, INC.,

Plaintiff-Respondent,

v.

CHARLES STANTON, MRS. CHARLES

STANTON, HIS WIFE, COMMERCE

BANK, N.A., CITIBANK, N.A.,

CITI MORTGAGE, INC., and

STATE OF NEW JERSEY,

Defendants,

and

LEHMAN BROTHERS BANK, FSB,

Defendant-Appellant.

_______________________________________

 

Argued January 31, 2007 - Decided March 8, 2007

Before Judges Wefing, Parker and Yannotti.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F-14923-03.

Jeffrey J. Greenbaum argued the cause for appellant (Sills Cummis Epstein & Gross, attorneys; Mr. Greenbaum, Steven D. Gorelick and Scott B. Murray, of counsel and on the brief).

Walter E. Thomas, Jr. argued the cause for respondent.

PER CURIAM

Defendant Lehman Brothers Bank, FSB (Lehman) appeals from an order entered on January 19, 2006, granting summary judgment in favor of plaintiff MorEquity, Inc. (MorEquity), and denying Lehman's motion for partial summary judgment. Lehman also appeals from orders pertaining to discovery that were entered in the matter on May 17, 2005; June 29, 2005; September 30, 2005; and November 16, 2005. After reviewing the record in light of the contentions advanced on appeal, we affirm.

This dispute arises from the following facts. In 2002, Nicholas Infantino (Infantino) was employed as senior loan officer with United Mortgage Services (United), an entity engaged in the business of brokering mortgage loans. Infantino participated with Carl DiMasi (DiMasi), Daniel Ellis (Ellis), and others in a loan fraud scheme, in which mortgage loans were obtained in amounts greater than the true sales prices for the properties being purchased based on false information. Ellis, an attorney who was then licensed to practice law in New Jersey, represented the buyers/borrowers in the fraudulent transactions. Ellis diverted the excess monies obtained in the financings to himself and other participants in the scheme.

In 2002, DiMasi worked as a loan officer at Rose Mortgage Inc. (Rose), which originated mortgage loans and sold the loans to others, either individually or in pools. DiMasi introduced Infantino to Rose sales representative Steven Silverthorne (Silverthorne). Infantino thereafter submitted to Rose an application by Charles Stanton (Stanton) for a loan to purchase certain property located at 12 Schaffer Road in Alpine, New Jersey (the Schaffer Road property). The proposal called for the issuance to Stanton of a purchase money mortgage loan in the amount of $2,925,000, with the balance to be paid by Stanton in cash. United obtained an appraisal which valued the property at $4,500,000. Rose obtained another appraisal which stated that the value of the property was $4,650,000.

Rose intended to sell the Stanton loan to American General Finance, Inc. (AGF) in accordance with an ongoing contractual relationship, under which AGF purchased pools of loans from Rose. In May 2002, Rose sent the loan package to AGF, which pre-approved the loan on June 3, 2002, subject to certain condiditons, including a third appraisal from an approved national real estate appraisal company.

On or about June 4, 2002, Stanton and Rose executed a note evidencing the loan of $2,925,000 and a mortgage to secure its repayment. Stanton later testified that, when he executed these agreements, he did not know that he was purchasing the property. Stanton said that he believed that he was investing in a partnership to renovate old houses. Stanton received $50,000 for his role in this transaction. On June 6, 2002, Rose's lender, Flagstar Bank, wired monies on Rose's behalf to Ellis' trust account to fund the Stanton loan.

Rose obtained an additional appraisal of the Schaffer Road property in order to satisfy AGF's stipulation. The appraisal, which was dated June 11, 2002, had been prepared by Andy Perdikos (Perdikos); however, Perdikos was not a certified appraiser. The appraisal was purportedly signed by a "supervisory appraiser" named James Cassidy (Cassidy), and indicated that Cassidy had State certification. Cassidy testified that he did not sign the appraisal and he did not work on the appraisal with Perdikos. According to this appraisal, the value of the Schaffer Road property was $4,650,000.

On or about June 14, 2002, Jeffrey Pennington, AGF's district manager, sent an e-mail to Benny D. Hendrix (Hendrix), AGF's chief operating officer, indicating that the conditions imposed by AGF for purchase of the loan had been satisfied. Hendrix signed off on the purchase of the loan. Apparently at AGF's direction, Rose assigned the loan to MorEquity, AGF's wholly-owned subsidiary.

On or about June 17, 2002, Rose and AGF executed a purchase and sale agreement for the Stanton loan, at a purchase price of $2,944,613.53. The Stanton mortgage was recorded on July 23, 2002, in the office of the Bergen County Clerk. The assignment of the mortgage from Rose to MorEquity was recorded in the Clerk's Office on October 4, 2002.

At some point, Stanton agreed to sell the Schaffer Road property to Akinyele Adams (Adams). Ellis represented Adams in this transaction. In late July 2002, Infantino submitted a fraudulent loan application to Lehman in Adams' name with a fictitious purchase price of $4,500,000. Lehman did not perform a title search on the Schaffer Road property and apparently was unaware of the recorded Stanton mortgage. Lehman made the loan to Adams in the amount of $2,925,000, and transmitted the loan proceeds to Ellis' trust account. However, no documents evidencing the transaction were executed. Ellis and other participants in the loan fraud scheme misappropriated the loan proceeds.

On April 11, 2003, Lehman filed a lis pendens with respect to the Schaffer Road property. Several months later, MorEquity commenced this foreclosure action, naming Lehman and others as defendants. Lehman filed an answer, counterclaim and cross-claim, asserting that it had an equitable lien on the property which had priority over any lien held by MorEquity. Lehman also sought the imposition of a constructive trust in respect of any Lehman funds that may have been paid to MorEquity; priority over any other party with a claim respecting the property; and possession of the subject property.

In June 2004, the judge approved the sale of the property to a third party for about $2.2 million. The proceeds of the sale were deposited with the Clerk of the Superior Court. MorEquity subsequently filed a motion for summary judgment. Lehman opposed the motion and filed a cross-motion for partial summary judgment on its counterclaim.

The judge granted MorEquity's motion for summary judgment and denied Lehman's cross-motion. The judge filed a written opinion in which he stated that there was insufficient competent evidence to support Lehman's claim that it had "unusual equities" which gave it a superior claim to the proceeds from the sale of the property. The judge wrote:

There are innuendoes but no facts presented to the court to suggest that [MorEquity] was privy through Rose Mortgage to the chicanery undertaken by the perpetrators of the fraud and that it could and should have undertaken action first not to complete the transaction between it and Rose Mortgage and second to have concealed the fraud from the authorities and somehow thereby preventing Lehman from being taken in. As to the former, the facts presented by Lehman are inadequate and incompetent to raise a factual dispute in that regard. As to the latter, it would appear that the fraud perpetrated on Lehman could have and did in fact happen without regard to whether or not there had been a prior transaction that involved [MorEquity] and Rose Mortgage . . . .

The judge wrote that it was not logical to assume that MorEquity had defrauded itself by agreeing to purchase the Stanton Mortgage for $750,000 more than it was worth, without any recourse to recover that amount. The judge found that Lehman's equities could not be considered "equal to or superior to those of" MorEquity, noting that both parties had been victims of the fraud.

The judge added that there was a legitimate transaction underlying the fraudulent scheme, specifically the sale of the property to Stanton at a price of $2.2 million. The judge wrote that, regardless of whether the fraudulent actions of certain Rose personnel are imputable to MorEquity, MorEquity had the status of a holder in due course, as to the amount advanced for the legitimate underlying transaction. The judge stated, "Since that amount is also the amount for which the property has been sold, [MorEquity] can claim all of the funds resulting from that sale." An order was entered on January 19, 2006, granting summary judgment to MorEquity and denying Lehman's motion for partial summary judgment. This appeal followed.

Lehman raises the following arguments for our consideration: 1) the court erred by denying Lehman's cross-motion for partial summary judgment because MorEquity did not endorse the Stanton note and because MorEquity was "so intertwined" with the Rose mortgage transaction that its purchase of the mortgage could not be considered a separate transaction; 2) the judge erred by granting summary judgment to MorEquity because there were genuine issues of material fact as to whether MorEquity was a holder in due course and whether there were "unusual equities" that gave Lehman priority over MorEquity; 3) the court erred by finding that MorEquity is a holder in due course because its ruling is contrary to principles barring equitable relief to parties acting with unclean hands; 4) the judge abused his discretion by granting summary judgment to MorEquity after denying Lehman's requests for further discovery; and 5) the judge erred in failing to address Lehman's alternative bases for relief.

When reviewing an order granting summary judgment, we apply the same standard that governs the grant of summary judgment by the trial court. Busciglio v. DellaFave, 366 N.J. Super. 135, 139 (App. Div. 2004) (citing Prudential Prop. & Cas. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998)). Summary judgment should issue when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. R. 4:46-2(c). Summary judgment should be granted when the evidence on a fact issue is "so one-sided that one party must prevail as a matter of law." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)).

Notwithstanding Lehman's arguments to the contrary, we are convinced that the judge did not err in granting MorEquity's motion for summary judgment, and denying Lehman's cross-motion. We are satisfied that there was no genuine issue as to the facts that were material to MorEquity's claim to the proceeds of the sale of the Schaffer Road property. We are additionally satisfied that, based on the record presented below, MorEquity was entitled to judgment as a matter of law.

In our view, MorEquity's recorded purchase money mortgage gave it priority over Lehman's claim respecting the property. N.J.S.A. 46:21-1 provides in pertinent part that

whenever any deed or instrument . . . which shall have been or shall be duly acknowledged or proved and certified, shall have been or shall be duly recorded or lodged for record with the county recording officer of the county in which the real estate or other property affected thereby is situate or located such record shall, from that time, be notice to all subsequent judgment creditors, purchasers and mortgagees of the execution of the deed or instrument so recorded and of the contents thereof.

Furthermore, N.J.S.A. 46:22-1 provides that, until a deed or instrument is duly recorded in the appropriate county recording office, it shall be

void and of no effect against subsequent judgment creditors without notice, and against all subsequent bona fide purchasers and mortgagees for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded or whose mortgage shall have been first duly recorded or registered; but any such deed or instrument shall be valid and operative, although not recorded, except as against such subsequent judgment creditors, purchasers and mortgagees.

These statutes were intended "to compel the recording of instruments affecting title, for the ultimate purpose of permitting purchasers to rely upon the record title and to purchase and hold title to lands within this state with confidence." Cox v. RKA Corp., 164 N.J. 487, 496 (2000) (quoting Palamarg Realty Co. v. Rehac, 80 N.J. 446, 453 (1979)). The "compulsion to record is accomplished by favoring a recording purchaser, both by empowering him to divest a former non-recording title owner and by preventing a subsequent purchaser from divesting him of title." Id. at 496-97 (quoting Palamarg, supra, 80 N.J. at 453). In the absence of some "unusual equity," a court should decide competing claims respecting interests in real property in a way "that will best support and maintain the integrity of the recording system." Id. at 497 (quoting Friendship Manor v. Greiman, 244 N.J. Super. 104, 113 (App. Div. 1990), certif. denied, 126 N.J. 321 (1991)).

Here, it is undisputed that the Stanton mortgage was recorded in the Bergen County Clerk's Office on July 23, 2002, and the assignment of the mortgage from Rose to MorEquity was recorded with the Clerk on October 4, 2002. There is no evidence that Rose was aware of any previously acquired interest in the property, nor is there any evidence that Rose was aware of any secret liens on the property. In these circumstances, MorEquity's recorded instrument gave it priority over Lehman's claim as a judgment creditor arising from the fraudulent loan it made respecting the sale of the property from Stanton to Adams.

We reject Lehman's contention that it presented sufficient evidence to raise a genuine issue of material fact regarding its equitable claim to the property. As the judge found, Lehman did not offer sufficient evidence to establish that MorEquity either directly or indirectly took part in the fraud that led to the issuance by Lehman of a mortgage loan to Adams. Indeed, as the judge correctly pointed out in his opinion, the fraud perpetrated upon MorEquity in respect of the Stanton loan was separate and independent of the fraud that was later perpetrated upon Lehman in the Adams transaction.

Lehman argues, however, the evidence establishes that, after Rose funded the Stanton loan, Silverthorne learned that the sales price of the property was $2,200,000 rather than $4,500,000. According to Lehman, Silverthorne called Infantino and said that he and Jamila Davis (Davis) should come to the Rose office for a meeting to discuss the matter. At the meeting, Davis provided Silverthorne and others with details concerning the fraud scheme. Davis said that she would assist Rose with the daily interest on the Stanton loan until it was sold to AGF. The Rose personnel purportedly told Davis they would contact her but apparently did not do so. Later, Davis had Shaheer Williams (Williams) contact Ralph Vitiello at Rose, who told Williams that Rose was not interested in doing business with Davis and Infantino. However, even assuming that these facts are true, they do not establish that MorEquity was aware of or participated in the loan fraud scheme.

Lehman additionally asserts that Pennington of AGF knew about and participated in the loan fraud scheme. In a certification submitted by Lehman to the trial court, Infantino stated that in or around November 2004, DiMasi said that Silverthorne told him that Richard DiBenedetto of Rose made a $15,000 payoff to ensure the sale of the Stanton loan, $10,000 of which was for an AGF representative, and the remainder for the appraiser. DiMasi testified at his deposition that he met Silverthorne at a pub where DiMasi was tending bar and Silverthorne told him that "he heard that somebody had paid $10,000 to somebody at the track to buy the loan." DiMasi was asked if Silverthorne told him to whom the monies were paid and DiMasi said, "If he did I don't remember." Silverthorne denied discussing the matter with DiMasi.

We are convinced that Lehman's evidence is insufficient to raise a genuine issue of material fact as to whether Pennington or anyone at AGF received a payoff to facilitate the assignment of the loan from Rose to AGF/MorEquity. Infantino's statements as to what DiMasi told him about what Silverthorne said are hearsay, as are DiMasi's assertions about what Silverthorne said to him. Even if these assertions are admissible under some exception to the hearsay rule, the fact remains that DiMasi never identified the purported recipient of the alleged payoff. Lehman insists that the payoff was made to Pennington with monies deducted from Silverthorne's commission but that is pure speculation.

We also reject Lehman's contention that MorEquity should not be considered a holder in due course of the Stanton mortgage. A holder in due course is the person or entity who takes a negotiable instrument for value, in good faith, and without notice of any defense or claim against it. N.J.S.A. 12A:3-302a(2). Good faith is defined as "honesty in fact and the observance of reasonable commercial standards of fair dealing." N.J.S.A. 12A:3-103a(4).

Lehman argues that Rose and AGF/MorEquity acted together in consummating the Stanton mortgage loan, and therefore Rose could not confer upon MorEquity holder in due course status by assigning the mortgage to MorEquity. In support of this contention, Lehman relies upon Westfield Inv. Co. v. Fellers, 74 N.J. Super. 575 (Law Div. 1962). However, Lehman's reliance upon the Westfield decision is misplaced.

In Westfield, the trial court held that a company that financed the purchase of consumer goods was not entitled to holder in due course status because it was closely involved with the seller of the goods, which had engaged in certain "reprehensible" sales practices. Id. at 590-91. According to the trial court, the finance company was "inextricably a part of the original transaction" and thus could not "thereafter stand aloof in the role of a holder in due course in good faith." Id. at 591. In our view, Westfield is clearly distinguishable because the evidence does not establish that MorEquity was "inextricably" a part of the loan fraud scheme that resulted in Rose's issuance of the Stanton loan.

We have considered Lehman's other contentions, including its contention that MorEquity cannot be a holder in due course because the note was not endorsed, and its assertion that the judge erred by denying its requests for additional discovery. We are satisfied that Lehman's contentions are not of sufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E).

 
Affirmed.

DiMasi, Infantino, and Ellis pled guilty to various federal charges for their participation in the loan fraud scheme.

All defendants other than Lehman either defaulted or failed to appear in the trial court proceedings.

Davis was charged with federal bank fraud for her participation in the loan fraud scheme. The record does not reflect the disposition of the charge. Williams pled guilty to federal criminal charges arising from his involvement in the scheme.

Lehman asserts that the Silverthorne's statements are admissible under N.J.R.E. 803(b)(5), as statements made at a time a party and declarant were engaged in a plan to commit a crime or civil wrong. Lehman also contends that the statements are admissible under N.J.R.E. 803(c)(25) as statements against interest.

(continued)

(continued)

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A-3339-05T2

March 8, 2007