New Jersey’s Appellate Division recently affirmed the dismissal of a foreclosure complaint when the lender’s predecessor mistakenly discharged the mortgage at issue and the property subsequently was encumbered with a new mortgage. See U.S. Bank National Association, v. Wishnia, et al.., 2018 WL 4262061 (N.J. Super. Ct. App. Div. Sept. 7, 2018). In the case, the Wishnias encumbered their home with three mortgages to MERS. In March 2006 they encumbered the property with a mortgage securing a $2 million loan (the “First Mortgage”), in May 2006 they encumbered the property with a mortgage securing a $1 million loan (the “Second Mortgage”) and in 2007 they encumbered the property with a mortgage securing a $1.5 million loan (the “Third Mortgage”). In 2007, MERS executed a discharge of mortgage. Although the discharge referenced the date of the Second Mortgage, the amount and recording information were that of the First Mortgage and the First Mortgage was mistakenly discharged. MERS discharged the Second and Third Mortgages in 2013 and 2014. In 2010, MERS assigned the First Mortgage to plaintiff, although the recording information in the assignment corresponded with the Second Mortgage, which was not discharged at that time. Plaintiff then brought a foreclosure action but, again, the information in the complaint and lis pendens listed the recording information for the Second Mortgage. This action was dismissed in 2013 for lack of prosecution. In 2014—with the foreclosure action dismissed and all three mortgages discharged—the Wishnias conveyed the property to their wholly-owned LLC that then encumbered the property with a mortgage securing two notes totaling $1.8 million. In 2015, plaintiff reinstated the foreclosure complaint and sought to reinstate the First Mortgage and establish its priority over the 2014 mortgage. The new lender moved for summary judgment, and the trial court granted the motion, finding that the new lender was a bona fide encumbrancer for value.
On appeal, the Appellate Division affirmed the trial court’s decision. Among other things, it found that the new lender “would not have been aware of any interest plaintiff claims to have had in the property and [was] justifiably permitted to rely upon the title search inasmuch as there were no extraordinary, suspicious, or unusual facts to prompt any further inquiry. Rather, there were three prior mortgages with three recorded discharges cancelling all three mortgages.” The Court further found that plaintiff had not acted diligently, and that it “cannot hide behind the mistakes of others while it sat idly by and did nothing for almost five years before attempting to rectify the error, and was, in fact, complicit in perpetuating the error.” Accordingly, the Court found that the complaint was properly dismissed.