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Malpractice Trap: First Mortgage Liens

Commonwealth Land Title. & Citicorp Mortgage. v. Kurnos 340 N.J.Super. 25 (App. Div. 2001)

NJ Underlying mortgage refinance

Student Contributor: Maninder (Meena) Saini 

Facts: New Jersey property owners (the borrowers) wanted to refinance their home mortgage and retained attorney/defendant (Kurnos). The plaintiffs to this action are Citicorp Mortgage (the bank) and Title Insurance Company (the title company). The defendant was to refinance the property by discharging the existing liens on the property. The title company was to provide title insurance certifying that the bank’s mortgage was the first lien on the property. One of the existing liens on the home was held by Midlantic National Bank (Midlantic). Midlantic issued a letter to the defendant indicating that a written statement instructing Midlantic to close the account was required. However, no letter was sent and Midlantic’s mortgage became the first lien on the property. So, the bank’s mortgage was actually the second lien instead of the first. In June 1991, within nine months of the error, the title company knew of the defendant’s error. The borrowers then withdrew money on their available line of credit from Midlantic. In 1996, the borrowers defaulted on the loan, forcing a foreclosure. The bank paid Midlantic the outstanding balance in order to protect their interest and then filed a malpractice lawsuit against the defendant in 1998, alleging that he failed to secure the bank’s first lien position.

Issue: When did the six-year statute of limitation for the attorney’s malpractice start to run?

Ruling: The six-year statute of limitation commenced at the time the negligent conduct was discovered by plaintiffs even though monetary damages were not readily ascertainable at the moment of discovery. The appellate court held that the statute began running in June 1991 when the title company first became aware of the attorney’s error.

The cause of action accrues when the mortgagee knows or has reason to know that its lien has been impaired or endangered by the defendant’s negligence. At that time of negligent discovery, the mortgagee has suffered a legal injury.

Lesson: The lawyer committed malpractice by failing to secure the plaintiff’s first lien on the property. At the moment an individual discovers an error, a legal injury had occurred even though monetary damages are not present. According to N.J.S.A. 2A:14-1, after six years of discovery, the client is barred from collecting damages.

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Posted in: New Jersey, Real Estate, Statute of Limitations