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Posting for
Monday, August 31, 1998
by: Bert Rush
brush@firstam.com
CREDIT LINES/RELEASES TO COME/ESCROW AND CLOSING
In one of the replies to last Wednesday's posting on "Releases to Come, "Frank Melchior asked "What about the Goldome case?" Frank subsequently provided the citation: Goldome Realty Credit Corp. v. Harwick, 236 N.J.Super. 118, 562 A.2d 463 (1989).
Goldome was, as I recall, one of the first decisions dealing with a priority dispute between credit line and refinancing lenders. The Court in Goldome took a strong stand--so the case merits a re-visit.
Homeowners Clifford and Cynthia Harwick had a first mortgage with Goldome. In December 1986 the Harwicks got a line of credit from First National Bank of Central Jersey in the amount of $40,000, secured by a second mortgage.
Six months later the Harwicks were wooed over by HFC--which gave them another line of credit, supposedly secured by a second mortgage against their home. HFC sought to pay off and release the First National credit line by sending HFC's check in the amount of $37,000, payable to First National and bearing the endorsement:
"For payment in full for Clifford Harwick Account # 06562051"
After crediting this check to the Harwick account, First National showed an additional $2,564.92 to be due. There was no other evidence of communication between the parties about closing the First National credit line. Later, the Harwicks drew again from the First National line--maxing it out. Then they defaulted under their first mortgage, and all the lenders wound up in court following Goldome's action for judicial foreclosure.
The trial court entered summary judgment in favor of First National, recognizing priority of its mortgage over that of HFC. HFC appealed and the Court of Appeal affirmed.
The Court relied on express language in the First National note and mortgage docs, which "absoultely required" First National to make advances to the Harwicks--up to $40,000--when requested, and which also provided the mortgage would remain "until the (Loan) Agreement and Note made by Borrower is paid in full and the Agreement is terminated." Said the Court:
"The general rule to be applied in situations such as this is plainly stated by Cunningham and Tischler. `It is well settled that a duly recorded advance money mortgage, where the making of the advances is obligatory on the mortgage, creates a valid lien for the full amount actually advanced thereunder [up to the stated maximum] as against all subsequent claims,...even if the advance money mortgagee continues to make advances after he has actual notice of the subsequent claim. Thus the advance money mortgagee has priority over all subsequent judgment creditors, purchasers, and mortgagees even as to advances made after he had actual notice of subsequent judgments against, or conveyances by, the mortgagor. [29 N.J. Practice (Cunningham & Tischler, Law of Mortgages) (1975) section 111 at---; citations omitted.]
The Court found the endorsement on HFC's check insufficient to give notice to First National of an intention on the part of the Harwicks to terminate the credit line, and since the check was insufficient to pay off the line the mortgage could not be released by its own terms.
The Court went on to rule that HFC would not have the benefit of equitable subrogation (ie., would not enjoy priority to the extent of its $37,000 payment) because First National had not been unjustly enriched, and because HFC had been negligent.
Comment: No quarrel with the result--and this Court makes it clear the burden is on a refinancing lender to do everything right.
As Jim Dondero says in a late (unposted) reply: "I also would like to reiterate the importance of the BORROWER'S written demand for termination of the account and for the lender to record a release."
Don't think we'll need more on this for awhile....
