Typically in a home purchase closing, the buyers sign a mortgage which gets recorded in the County Clerk’s Office, and the house is rarely sold without paying off the mortgage. The recent unpublished New Jersey District Court opinion in Gianninoto v. Sywilok gives us a look at what can happen when the mortgage is not recorded.
Husband and wife sign a mortgage which is not recorded. Only the husband signed the note. The husband later filed a Chapter 7 bankruptcy petition, which would have the effect of discharging any money owed under the mortgage loan. The bankruptcy trustee sought to sell the home and to avoid the unrecorded mortgage as to the husband’s one half interest in the home. The bankruptcy court upheld the trustee’s position, finding that the mortgage company was not entitled to be paid from the husband’s share of the sale proceeds. It did however find that the mortgage company was entitled to enforce its mortgage against the wife’s one half interest in the house. The wife’s efforts to stop the sale of the home by the trustee were unsuccessful and she appealed to the District Court, which then upheld the bankruptcy judge’s decision.
What interests me as a bankruptcy and title law practitioner is that the District Court did not discuss at all why the unrecorded mortgage was a lien against the wife’s interest, and why she should have to pay the mortgage company from her share of the sale proceeds when she did not sign the note. It also did not discuss in its opinion whether it found that the mortgage company had some kind of equitable mortgage on the property. It is also interesting to me that the mortgage company did not seek a court order pursuant to New Jersey statute to record a signed copy of the mortgage when it discovered that the mortgage was not recorded. The question is whether any of these arguments were submitted to the court.
Experience counts in knowing how and when to make these arguments for your clients.