In an action by plaintiff title insurance company against defendants for claims of fraud and conversion arising out of defendants’ sale of their house and the use of the proceeds thereafter, the United States District Court for the District of New Jersey granted in part plaintiff’s motion for summary judgment as to the conversion claim, but denied the motion with respect to the fraud claim, acknowledging that plaintiff has put forward circumstantial evidence that the husband committed fraud but ultimately determining that there remains genuine issues of fact.  First Am. Title Ins. Co. v. Sadek, 2017 WL 6663899 (D.N.J. Dec. 29, 2017).  In the case, defendants, a husband and wife, owned a home encumbered by two recorded mortgages.  In October 2005, the husband, who was the primary shareholder of a mortgage banking firm (“FFE”), applied for another loan from FFE in order to refinance the two loans.  The husband signed the promissory note and does not dispute that he prepared the mortgage.  Further, the title search for the refinance was performed by Winthrop Abstract, a company used by FFE to perform the title searches for a significant amount of loans.  The wife and the husband’s mother both held positions at Winthrop Abstract, and the husband received a share of revenue from its New York counterpart.  The refinancing loan was then sold to National City Bank, but the mortgage was never recorded.  Defendants sold their home in March 2006, and did not disclose the sale to National City.  The proceeds of the sale were deposited into defendants’ bank account instead of being used to pay off the outstanding loan.  FFE apparently continued to pay the National City loan for another two and a half years following the closing of the sale of the property.  PNC Bank, successor by merger with National City, then brought this action against defendants and later assigned its rights to plaintiff.

Both parties moved for summary judgment.  First, the Court denied summary judgment with respect to plaintiff’s fraud claim, determining that there is a factual dispute as to whether defendant had knowledge of or a belief as to the falsity of the representation he made to the lender regarding the loan or mortgage.  However, the Court acknowledged that plaintiff’s contentions have merit and that plaintiff put forward circumstantial evidence that the husband committed common law fraud (i.e., defendant does not dispute there was a close relationship between FFE and Winthrop Abstract; that the money from the sale was deposited into his bank account; that he executed the mortgage; that the mortgage from National City went unrecorded; or that the loan continued to be paid by FFE after the closing).  Plaintiff argued that all defendant put forth in opposition was his own self-serving and implausible deposition testimony (i.e., that he was not aware that the loan had not been paid, that he never personally advised his employee at FFE to continue paying the loan, and that he did not know that FFE continued to pay it), but the Court noted that “to weigh the evidence and conclude that [defendant] did or did not knowingly perpetrate a fraud would exceed the bounds of the summary judgment standard.”

Second, the Court granted plaintiff’s motion as to its conversion claim, finding all three elements are established by the undisputed facts: first, by depositing the funds in their own bank account, defendants exercised dominion over the aforementioned identifiable funds and thereby repudiated the superior rights of the lender; second, that defendants did this without authorization; and third, the lender had an undisputed interest in the funds because the promissory note entitled the lender to demand immediate payment of the balance of the loan if defendants sold or transferred their interest in the property without prior consent from the lender.  Thus, plaintiff was granted summary judgment on conversion.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.