Based on proof that a seller had presented a forged discharge of an existing, recorded lien at the time of sale, a New Jersey appellate court has affirmed a judgment of $1.3 million plus prejudgment interest in favor of a title company as subrogee for the buyer of an apartment building.

The trial judge found against the seller on claims of fraud, fraudulent inducement, fraudulent misrepresentation and breach of covenant. The Superior Court of New Jersey, Appellate Division upheld those rulings on Jan. 8, 2019 in its 19-page opinion in Chicago Title v. Union Avenue Holding, LLC, et al.

According to the opinion, Union Avenue Holding LLC (UAH) sold an apartment building to Golden Union LLC (Golden Union) for $1.4 million. At the time of the sale, West 58th Street LLC (58th Street) and TSR Group LLC (TSR) held a $1.1 million outstanding mortgage on the property.

UAH was required to satisfy all liens prior to or at closing, but had not satisfied the 58th Street/TSR mortgage. At closing, UAH delivered to Golden Union a forged discharge of the mortgage. The sale closed and Chicago Title issued the title policy to Golden Union.

Golden Union was informed of the falsified discharge four months after closing. It brought suit against UAH, 58th Street, and TSR. 58th Street and TSR sued Golden Union, UAH, and three individuals associated with UAH – Judah Bloch and Stuart Bienenstock, the principals of UAH, and Ariel Gantz, their business partner. Golden Union filed a contesting answer alleging fraud, negligent misrepresentation and breach of covenant. By settlement, Chicago Title paid 58th Street $1.3 million and 58th Street’s claims were assigned to Golden Union. Chicago Title proceeded as subrogee to Golden Union.

Following a bench trial, the trial court determined that UAH’s principals unquestionably acted intentionally when they delivered the forged discharge to Golden Union. Accordingly, the trial court dismissed the negligence claims and entered judgment against UAH and its principals on claims of fraud, fraudulent inducement, fraudulent misrepresentation and breach of covenant. The trial court entered judgment against UAH and its principals in the amount of $1.3 million plus prejudgment interest.

On appeal, Bloch argued that not all elements of the fraud were proven because Chicago Title's settlement agent was also an attorney and principal of Golden Union who had handled the closing, reviewed the documents and certified to Chicago Title that all of the insurance commitment requirements were satisfied, including the discharge of the 58th Street/TSR mortgage. 

The settlement agent’s failure to discern the discrepancy on the discharge defeated any finding of “reasonable reliance,” Bloch argued, and the fraud claim therefore failed as a matter of law.

But the trial judge rejected that argument, holding that a defendant will not be excused from fraudulent conduct "merely because the plaintiff might have or should have discovered the fraud by its own diligence or investigation."

The appellate panel agreed, adopting the trial judge’s finding that Golden Union “acted reasonably diligently in demanding the form of discharge, obtaining the form of the discharge, obtaining approval from the title company for the proposed discharges and receiving an executed discharge at closing.”

The mere fact that Golden Union did not discern that it was being defrauded with a forged discharge, the court said, “does not defeat [its] claims for fraud.”