DITECH FINANCIAL, LLC VS. CAROL N. MIGLIACCIO (F-052561-14, SOMERSET COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0478-18T4
DITECH FINANCIAL, LLC,
Plaintiff-Appellant,
v.
CAROL N. MIGLIACCIO,
WELLS FARGO BANK, NA,
PORTFOLIO RECOVERY
ASSOCIATES, VINCENZO
TRANI, SOKOL, BEHOT
& FIORENZO, and STATE
OF NEW JERSEY,
Defendants,
and
THOMPSON REALTY COMPANY
OF PRINCETON, INC.,
Defendant-Respondent.
_______________________________
Submitted January 29, 2020 – Decided February 11, 2020
Before Judges Haas and Enright.
On appeal from the Superior Court of New Jersey,
Chancery Division, Somerset County, Docket No.
F-052561-14.
Chiumento McNally, LLC, attorneys for appellant
(Thomas W. Sweet, on the briefs).
Roselli Griegel Lozier & Lazzaro, PC, attorneys for
respondent (Steven W. Griegel, on the brief).
PER CURIAM
Plaintiff Ditech Financial LLC (Ditech) appeals from a Chancery Division
order granting summary judgment to defendant Thompson Realty Company of
Princeton (Thompson), and giving Thompson's 2006 judgment lien priority over
Ditech's 2004 mortgage. We affirm, substantially for the reasons set forth in
Judge Margaret Goodzeit's comprehensive and well-reasoned opinion of
February 22, 2017.1
The essential facts are undisputed. In 2001, Carol Migliaccio borrowed
$252,700 from IndyMac Bank, F.S.B. (IndyMac) to finance the purchase of a
residential property in Somerset Township. IndyMac secured the loan wit h a
purchase money mortgage (mortgage) and recorded the mortgage in the first
1
The February 22, 2017 order was amended by two orders dated March 29,
2017 which corrected a clerical error to confirm Thompson was entitled to
summary judgment on count four (versus count five), of Ditech's second
amended complaint, and returned the matter to the Office of Foreclosure.
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position of priority with the Somerset County Clerk's Office. In March 2004,
Migliaccio obtained a non-purchase money mortgage from IndyMac
(refinancing mortgage) and refinanced the 2001 mortgage. On April 20, 2004,
the mortgage was discharged and properly recorded in Somerset County.
However, on May 4, 2004, IndyMac's title agent erroneously recorded the
refinancing mortgage with the Mercer County Clerk's Office. It was not until
September 20, 2011 that the refinancing mortgage was correctly recorded with
the Somerset County Clerk's Office. Through a series of assignments, Ditech
became the holder of the refinancing mortgage.
On April 21, 2006, Thompson obtained a judgment against Migliaccio.
Thompson properly recorded the judgment in Somerset County.
In 2014, Ditech filed a complaint against Migliaccio to foreclose upon the
refinancing mortgage. In 2016, Ditech filed a second amended complaint
naming various defendants, including Thompson. 2 Thompson and Ditech filed
cross motions for summary judgment, seeking priority over the other party's lien.
On February 22, 2017, Judge Goodzeit granted Thompson partial summary
judgment and declared Thompson's judgment lien superior to Ditech's mortgage.
Her order declared the refinancing mortgage "null and void as against the
2
No other named defendants are involved in the instant appeal.
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Thompson [j]udgment" and confirmed the Thompson judgment "has priority
over said mortgage." Judge Goodzeit also granted Ditech partial summary
judgment to reform its refinancing mortgage to reflect a correct county
designation for recording purposes.
On appeal, Ditech argues that the trial court erred by failing to apply at
least one of the equitable doctrines of subrogation, replacement or modification
in Ditech's favor. We disagree.
Priorities are generally governed in New Jersey by recording statutes,
N.J.S.A. 46:26A-1 to -12. Sovereign Bank v. Gillis, 432 N.J. Super. 36, 43
(App. Div. 2013). The underlying purpose of the New Jersey Recording Act
(Recording Act) is "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 . . . with confidence." Palamarg Realty Co. v. Rehac, 80 N.J.
446 (1979) (quoting Donald B. Jones, The New Jersey Recording Act— A Study of
its Policy, 12 Rutgers L. Rev. 328 (1957)). The Recording Act provides, in pertinent
part, that "[a]ny recorded document affecting the title to real property is . . . notice
to all subsequent . . . mortgagees . . . of the execution of the document recorded and
its contents." N.J.S.A. 46:26A-12(a).
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New Jersey is a "race-notice" state, meaning that when two parties
compete for priority over each other's lien, "the party that recorded its lien first
will normally prevail, so long as that party did not have actual knowledge of the
other party's previously-acquired interest." Sovereign, 432 N.J. Super. at 43.
(citing Cox. v. RKA Corp., 164 N.J. 487, 496 (2000)). "As a corollary to that
rule, parties are generally charged with constructive notice of instruments that are
properly recorded." Cox, 164 N.J. at 496. "In the context of the race notice statute,
constructive notice arises from the obligation of a claimant of a property interest to
make reasonable and diligent inquiry as to existing claims or rights in and to real
estate." Friendship Manor, Inc. v. Greiman, 244 N.J. Super. 104, 108 (App. Div.
1990). Typically, a subsequent mortgagee "will be bound only by those instruments
which can be discovered by a 'reasonable' search of the particular chain of title."
Palamarg, 80 N.J. at 456. These principles, however, are subject to certain
equitable concerns. Sovereign Bank, 432 N.J. Super. at 44.
"An exception to the normal 'race-notice' determination of mortgage
priorities can occur when a third party advances money to pay off a mortgage."
Ibid. (citing Metrobank for Sav., FSB v. Nat'l Cmty. Bank, 262 N.J. Super. 133,
143-44 (App. Div. 1993); Trus Joist Corp. v. Nat'l Union Fire Insurance Co.,
190 N.J. Super. 168, 179 (App. Div. 1983), rev'd on other grounds, 97 N.J. 22
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(1984); Equity Sav. & Loan Ass'n v. Chicago Title Ins. Co., 190 N.J. Super. 340,
342 (App. Div. 1983)). On occasion, our courts have utilized the doctrine of
equitable subrogation to allow a third-party lender "to inherit, in full or in part,
the original lien position of the mortgage that it paid off," even if another lien
arose in the interim. Ibid. (citing Inv'rs Sav. Bank v. Keybank Nat'l Ass'n, 424
N.J. Super. 439, 443 (App. Div. 2012)). Then, "the new mortgagee by virtue of
its subrogated status can enjoy the priority afforded the old mortgagee." Ibid.
(quoting Inv'rs Sav. Bank, 424 N.J. Super. at 443-44). "This result is reached so
that the holders of the intervening encumbrances [are not] unjustly enriched at
the expense of the new mortgagee." Inv'rs Sav. Bank, 424 N.J. Super. at 443-
44 (quoting Trus Joist Corp., 190 N.J. Super. at 179). Further, the doctrine of
equitable subrogation has been applied to protect the priority of a new mortgagee
who has advanced monies to pay off a prior mortgage on the mistaken belief
there was no intervening lien. See UPS Capital Bus. Credit v. Abbey, 408 N.J.
Super. 524 (Ch. Div. 2009).
On appeal, Ditech advances the argument that it should enjoy priority over
Thompson's judgment based, in part, on the doctrine of equitable subrogation.
We are not convinced.
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Firstly, Thompson's lien is not an intervening lien; it was docketed two
years after both IndyMac loans were disbursed. More importantly, by 2006, the
2001 IndyMac mortgage was discharged of record. Because the 2004
refinancing mortgage was not recorded in Somerset County until 2011, there
was no legally effective notice of this lien in Somerset County's land records in
2006.
As Judge Goodzeit aptly stated:
Here, the [judgment] lien is not [an] intervening lien in
the sense contemplated by the doctrine of equitable
subrogation, as it was docketed years after both
Indy[M]ac loans were disbursed. Thus, it is
questionable that such a doctrine would even apply on
the facts presented to the [c]ourt . . . .
Foremost, no intervening lien existed for the new
mortgagee [IndyMac] to have known about here
because defendant recorded its judgment lien in 2006,
years after the 2001 and 2004 loans were disbursed.
The [c]ourt emphasizes that both the original 2001
Indy[M]ac loan and the 2004 Indy[M]ac [r]efinancing
loan . . . came into existence prior to the 2006
Thompson [j]udgment . . . . [T]he 2001 and 2004 loans
would have priority if legally effective notice existed
. . . . However, [in 2006] . . . no legally effective notice
existed as to either of the Indy[M]ac loans . . . . With
no valid notice, Ditech's position necessarily fails.
[(Fifth alteration in original).]
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Even if Thompson's lien was considered an intervening lien (which notion
Judge Goodzeit properly rejected), it would appear equitable subrogation does
not apply here, where the same lender is seeking to succeed to the priority of
one of its own loans. As the Restatement (Third) of Property: Mortgages (Am.
Law Inst. 1997) (Third Restatement) informs, "[o]bviously subrogation cannot
be involved unless the second loan is made by a different lender than the holder
of the first mortgage; one cannot be subrogated to one's own previous
mortgage." Third Restatement § 7.6, cmt. e. Accordingly, Ditech's claim of
priority on the basis of this equitable theory is unavailing.
Ditech also contends its lien is entitled to priority over Thompson's
judgment due to equitable principles of replacement and modification. Again,
we are not persuaded.
Pursuant to Section 7.3 of the Third Restatement, "[w]here a mortgage
loan is refinanced by the same lender, a mortgage securing the new loan may be
given the priority of the original mortgage under the principles of replacement
and modification of mortgages." Further, Section 7.3(a) of the Third
Restatement provides as to replacement:
(a) If a senior mortgage is released of record and, as
part of the same transaction, is replaced with a new
mortgage, the latter mortgage retains the same priority
as its predecessor, except
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(1) to the extent that any change in the terms of the
mortgage or the obligation it secures is materially
prejudicial to the holder of a junior interest in the real
estate, or
(2) to the extent that one who is protected by the
recording act acquires an interest in the real estate at a
time that the senior mortgage is not of record.
[(Emphasis added).]
Moreover, subsections (b) and (c) of Section 7.3 provide as to
modification:
(b) If a senior mortgage or the obligation it secures is
modified by the parties, the mortgage as modified
retains priority as against junior interests in the real
estate, except to the extent that the modification is
materially prejudicial to the holders of such interests
and is not within the scope of a reservation of right to
modify as provided in [s]ubsection (c).
(c) If the mortgagor and mortgagee reserve the right in
a mortgage to modify the mortgage or the obligation it
secures, the mortgage as modified retains priority even
if the modification is materially prejudicial to the
holders of junior interests in the real estate, except as
provided in [s]ubsection (d).
In Sovereign, when discussing the equitable doctrines of "replacement"
and "modification," we concluded that if a lender holding a priority lien replaces
it with a new mortgage through a refinancing, this replacement lien is entitled
to priority regardless of the lender's knowledge of other liens. Sovereign, 432
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N.J. at 47. However, we cautioned that when a court is asked to apply principles
of replacement and modification, "the critical question of priority must revolve
around whether the junior lienor . . . has been materially prejudiced." Id. at 50.
Importantly, the refinancing mortgage was "not of record" in Somerset
County when Thompson acquired and docketed its 2006 judgment.
Furthermore, the record shows Thompson had no knowledge, constructive or
actual, of Ditech's refinancing mortgage because the underlying 2001 mortgage
was discharged in 2004 and the discharge was properly recorded in Somerset
County. Thus, Judge Goodzeit correctly found Thompson was entitled to the
protections of the recording act, consistent with Section 7.3(a)(2) of the Third
Restatement. As the judge explained, "the Thompson judgment cannot be
branded as an intervening lien" and "an exception to [Ditech] retaining priority
clearly exists here under the Restatement's approach to the extent that one who
is protected by the recording act [such as Thompson] acquires an interest in the
real estate at a time that the senior mortgagee is not of record." (Second
alteration in original). Referencing Section 7.3(a), comment b, of the Third
Restatement, Judge Goodzeit noted this approach "recognizes that recordation
of the new [refinancing mortgage] is an element required to retain priority."
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Accordingly, she correctly found "the recording statute trumps Ditech's bold
claim that equity would allow it to be given priority in this case."
Lastly, Ditech's argument that it is entitled to priority over Thompson on
the theory that the refinancing mortgage modified the 2001 mortgage is not
persuasive. Judge Goodzeit correctly found the refinancing mortgage was not a
mere "modification" of the 2001 mortgage. N.J.S.A. 46:9-8.1(d)(1) defines
"modification," in part, to mean: "[w]ith respect to a mortgage loan other than a
line of credit, a change in the interest rate, due date or other terms and conditions
of a mortgage loan except an advance of principal." As Judge Goodzeit
observed, a "modification transaction" occurs when "[n]o money is advanced by
the lender." See Grant S. Nelson and Dale A. Whitman, Adopting Restatement
Mortgage Subrogation Principles: Saving Billions of Dollars for Refinancing
Homeowners, 2006 B.Y.U. L. Rev. 305 (2006). Yet, in the fifth count of its
second amended complaint, Ditech admitted "[t]he proceeds given to . . .
Migliaccio for [the refinancing mortgage] were used to pay off a mortgage given
to IndyMac . . . dated January 26, 2001." Accordingly, Ditech's reliance on the
equitable doctrine of modification is misplaced.
"Because equitable remedies are largely left to the judgment of the court,
which has to balance the equities and fashion a remedy, such a decision will be
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reversed only for an abuse of discretion." Customers Bank v. Reitnour Inv.
Props., LP, 453 N.J. Super. 338, 348 (App. Div. 2018). We find no such abuse
of discretion here. Further, our review of a grant of summary judgment is de
novo, applying the same standards that governed the trial court. Henry v. N.J.
Dep't of Human Servs., 204 N.J. 320, 330 (2010). Summary judgment must be
granted if "the pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, if any, show that there is no genuine issue
as to any material fact challenged and that the moving party is entitled to
judgment as a matter of law." R. 4:46-2. Guided by these principles, we
perceive no basis to disturb Judge Goodzeit's February 22, 2017 decision.
To the extent not discussed here, Ditech's remaining arguments are
without sufficient merit to warrant discussion in a written opinion. R. 2:11-
3(e)(1)(E).
Affirmed.
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