LAKELAND BANK, Plaintiff–Appellant, v. GRAHAM G. SAMPSON and CAROL DIPASQUALE SAMPSON, Defendants, BANK OF AMERICA, N.A., Defendant–Respondent.
In this mortgage priority dispute between plaintiff Lakeland Bank and defendant Bank of America, N.A. (BofA), Lakeland appeals from orders reopening its final judgment of foreclosure and granting summary judgment to BofA on a late-filed counterclaim. We affirm both orders, substantially for the reasons expressed by Judge McVeigh.
The essential facts are undisputed. Lakeland obtained final judgment of foreclosure against its mortgagor, Graham G. Sampson, on an $800,000 home equity line of credit (HELOC) secured by a purchase money mortgage. Lakeland included BofA as a defendant in that action in order to wipe out a mortgage BofA recorded against the same property subsequent to Lakeland's mortgage. BofA failed to answer, and Lakeland timely entered default against it on its way to final judgment.
On the eve of Lakeland's sheriff's sale, BofA filed an order to show cause with temporary restraints seeking to cancel the sale and reopen the judgment to allow BofA to file an answer and counterclaim. Although BofA offered no explanation for its failure to answer Lakeland's foreclosure complaint, it asserted that Lakeland's mortgage should have been cancelled of record and, in any event, was subordinate to BofA's mortgage of $1,500,000.
Judge McVeigh reopened the judgment, and the parties took discovery regarding the priority of their mortgages. They subsequently filed cross-motions for summary judgment.
Discovery revealed that subsequent to the recording of Lakeland's mortgage, Sampson borrowed $1,500,000 from BofA, secured by a mortgage on the same property encumbered by Lakeland's mortgage. In anticipation of the closing of the BofA loan, the closing attorney contacted Lakeland for a payoff figure on the HELOC, which Lakeland provided. After the closing, the attorney sent Lakeland a trust account check for $805,378.47, with instructions to “completely pay and satisfy the Mortgage and Note/Bond that you hold” and return “the original Mortgage properly endorsed for cancellation.”
Later that same day, Lakeland received an “Authorization to Reopen Home Equity Line of Credit” signed by its customer, Sampson. The authorization referenced the same loan number included in the instructions accompanying the trust account check. At the bottom of the authorization was a handwritten note, “Please do not close this [HELOC] now or in the future, unless you receive written authorization from me. Thank you.” The note was signed by Sampson.
Lakeland did not close the HELOC and send the cancelled mortgage to the closing attorney in accordance with his instructions. Instead, Lakeland applied the proceeds of the trust account check to pay down the HELOC to zero but did not close the account. Sampson subsequently obtained additional principal advances on the HELOC totaling $800,000.
Judge McVeigh granted BofA's motion for summary judgment and denied Lakeland's cross motion. She found the facts here “almost identical” to those of United Orient Bank v. Lee, 208 N.J.Super. 69 (App.Div.1986), in which we held that a bank that accepts funds for the purpose of satisfying a mortgage debt and cancelling the outstanding mortgage has an independent duty to carry out the instructions. Id. at 73. The judge held that faced with conflicting instructions, Lakeland's paramount obligation was to the closing attorney who tendered funds subject to explicit directions to pay off the HELOC and cancel the mortgage. She determined that if the closing attorney's instructions put Lakeland in the position of acting against its customer's direction, then Lakeland was obligated to return the check to the closing attorney or, at the very least, ask the attorney for instructions. The judge concluded that the funds BofA advanced were intended to put it in the first lien position, and that BofA would not have made the loan had it known that Lakeland's HELOC would stay open and its mortgage remain in first position.
We agree with Judge McVeigh that having accepted the trust check from the closing attorney with instructions to pay off the HELOC and cancel the mortgage, Lakeland was not free to disregard those instructions at the request of its customer. If the rule were different and “the original mortgagee could accept the tendered payoff and then refuse to deliver the mortgage endorsed for cancellation, no title closing of encumbered property could take place until such delivery had been made.” Id. at 74. Such a result is obviously untenable. Lakeland was obligated upon acceptance of the check to cancel the mortgage in accordance with counsel's instructions.
We find no error in the judge granting BofA's motion to reopen Lakeland's foreclosure judgment in these circumstances. It is true, as Lakeland asserts, that BofA could provide no explanation as to why it had allowed Lakeland's foreclosure complaint to go unanswered. It has long been the rule, however, that “the opening of default judgments should be viewed with great liberality, and every reasonable ground for indulgence
․ tolerated to the end that a just result is reached.” Marder v. Realty Constr. Co., 84 N.J.Super. 313, 319 (App.Div.), aff'd, 43 N.J. 508 (1964).
The proofs on the motion to reopen the judgment, while not dispositive, were certainly sufficient to suggest that Lakeland had benefitted itself and its customer at BofA's expense. Given that showing and the lack of any prejudice to Lakeland, the judge did not err in reopening the judgment with the end of reaching a just result.