In a recent unpublished decision, the Appellate Division again confirmed that a zoning board may not reverse course without justification once it has made findings regarding a specific property.

In Oster v. Zoning Board of Adjustment of the Township of Middletown (Docket No. A-0037-17T3, decided January 11, 2019), the applicant sought and obtained a hardship variance from the Zoning Board (the “Board”) pursuant to N.J.S.A. 40:55D-70(c)(1).  The variance, which was obtained in 2009, permitted construction of an underground storage area and above-ground conservatory within the side yard setback.  The Board concluded that a variance was warranted because of the construction difficulties posed by the property’s unique shape, irregular configuration and use as a vineyard.

In 2016, the applicant abandoned the original development plan approved by the Board and filed an application seeking a variance to build an underground storage area/garage with a peaked roof in the same location.  The Board, however, disregarded its prior 2009 ruling concerning the property’s unique characteristics (even though the property’s shape and use remained unchanged) and denied the requested variance relief.  The applicant subsequently challenged the decision in a prerogative writ action, but the trial court sided with the Board.

The Appellate Division reversed after finding that the Board was required to honor its prior ruling concerning the property’s unique character.  The court held that the doctrine of collateral estoppel bars a zoning board from re-litigating any issue that was actually determined by it during a prior application.  Consequently, the court instructed the Board to conduct further proceedings on the sole issue of whether the applicant had satisfied the other requirements for c(1) variance relief.

This decision underscores the importance of reviewing all prior land use applications and decisions when pursuing or objecting to variance relief for any given property.

Thanks to a recent appellate court decision, refinancing mortgage lenders in New Jersey who seek to subrogate to an original mortgagee’s position, but are negligent in discovering intervening judgment liens, can rest easier and not worry that their liens will be subordinated.

In Investors Savings Bank v. Keybank National Association, 2012 WL 762087 (N.J. Super. App. Div. March 12, 2012), Denis Kelliher (“Kelliher”) sought to refinance the mortgage held by 1st Constitution Bank (“1st Constitution”) on his residential property.  In the summer of 2008, Kelliher submitted a loan application to Investors Mortgage Company (“Investors”), the predecessor-in-interest to the plaintiff, in which he stated that he had not defaulted on any loan and was not a party to any lawsuit.  A title search performed by Investors’ title agent, Quality Closing Services (“Quality”), on August 1, 2008, did not reveal the existence of any judgments against Kelliher.  At the time, however, Kelliher had defaulted on a business loan from and was sued by Keybank National Association (“Keybank”).

Keybank obtained a multimillion dollar judgment against Kelliher and recorded it on September 30, 2008.  Three (3) days later, Quality conducted the closing on Investors’ loan to Kelliher.  At the closing, Kelliher provided an affidavit falsely stating that no judgments had been entered against him.  Quality did not conduct an updated title search, which might have revealed the existence of the Keybank judgment.  Investors eventually recorded its mortgage on October 21, 2008.  Several weeks later, Keybank notified Investors of the existence of its judgment lien and claimed priority over Investors’ mortgage.

Investors filed suit against Keybank in the Superior Court of New Jersey for a declaration that its mortgage had priority over Keybank’s judgment lien, pursuant to the doctrine of equitable subrogation.  The trial court ruled in Investors’ favor, reasoning that Keybank would have been in the same subordinate position if the refinancing had not occurred.  Keybank appealed the trial court’s ruling to the Appellate Division.

The court in Investors Savings Bank began its analysis by stating that pursuant to the doctrine of equitable subrogation, “a mortgagee who negligently accepts a mortgage without knowledge of intervening encumbrances will subrogate to a first mortgage with priority over the intervening encumbrances to the extent that the proceeds of the new mortgage are used to satisfy the old mortgage.”  In that event, the new mortgagee assumes the same priority afforded the old mortgagee.  An exception to this rule exists, however, where the new mortgagee possesses “actual knowledge of the prior encumbrance.”

Keybank failed to uncover any evidence that Investors had actual knowledge of Keybank’s judgment lien.  Thus, the main issue on appeal was whether, as Keybank argued, Investors’ “gross negligence” in failing to discover the existence of Keybank’s judgment lien precluded the application of equitable subrogation.  Although the court in Investors Savings Bank initially questioned whether Quality’s negligence rose to the level of “gross negligence,” it ultimately concluded that the degree of Quality’s negligence was irrelevant.  As long as Investors had no actual knowledge of Keybank’s judgment lien, the court held, it was entitled to subrogate to 1st Constitution’s first lien position.  Accordingly, the court affirmed the trial court’s decision.

Obviously, the court’s decision in Investors Savings Bank is no substitute for the proper exercise of due diligence, and mortgage lenders in New Jersey must continue to take all necessary investigatory measures before closing on a refinancing loan.  Nevertheless, where an intervening judgment lien goes unnoticed at closing, the refinancing lender’s lien priority will likely not be affected.