## Facts

- Rosenthal & Rosenthal, Inc. provided factoring and secured financing to related camera-sales businesses and held mortgages on Vanessa Benun’s residence to secure the businesses’ debt and Benun’s personal guarantees.
- Rosenthal’s mortgages expressly covered existing indebtedness and contemplated future advances that Rosenthal could make at its discretion.
- Benun later granted a mortgage on the same property to her law firm, Riker, Danzig, Scherer, Hyland & Perretti, LLP, to secure legal fees.
- Rosenthal recorded its mortgages before Riker recorded its mortgage.
- Before Rosenthal made certain additional discretionary advances, Riker gave Rosenthal actual notice of Riker’s intervening, recorded mortgage.
- Despite actual notice, Rosenthal chose to make additional discretionary advances under its credit arrangement.
- The businesses defaulted and entered bankruptcy; Benun defaulted on obligations to both Rosenthal and Riker.
- Because the secured debt exceeded the value of the property, priority between the mortgages determined which creditor would be paid from foreclosure proceeds.
- Rosenthal filed a foreclosure action; Benun did not answer; Riker intervened to litigate priority, focusing on advances made after Rosenthal received notice of Riker’s mortgage.

## Issues

1. Whether a first-recorded mortgage securing optional future advances retains priority over a later-recorded mortgage for discretionary advances made after the first mortgagee has actual notice of the intervening lien.
2. Whether contractual “future-advance” language in a mortgage can preserve priority for optional advances despite the mortgagee’s actual notice of an intervening mortgage.

## Decision

- The Supreme Court of New Jersey affirmed the Appellate Division and held that optional future advances made after actual notice of an intervening lien are subordinate to that intervening lien.
- Rosenthal retained priority for amounts owed before Riker’s mortgage was recorded and for any advances Rosenthal was contractually obligated to make (if any).
- Riker’s mortgage had priority over Rosenthal’s mortgages with respect to discretionary advances Rosenthal made after receiving actual notice of Riker’s mortgage.
- The matter was remanded to determine which advances were optional and to calculate priorities consistent with the rule.

## Legal Principles

- Future-advance mortgages are governed by a common-law distinction between obligatory advances (required by contract) and optional advances (made in the lender’s discretion).
- A prior mortgage retains priority for obligatory future advances even if the mortgagee has notice of an intervening lien.
- A prior mortgage loses priority, as to optional future advances, when the mortgagee makes those advances with actual notice of an intervening lien.
- A mortgage clause purporting to secure “all future advances” does not displace the common-law, notice-based priority rule for optional advances.

## Conclusion

The court held that a lender with a first-recorded mortgage cannot claim senior priority for discretionary future advances made after receiving actual notice of an intervening mortgage; those optional advances are junior to the intervening lien, while pre-notice debt and any obligatory advances remain senior.


Rosenthal & Rosenthal, Inc. v. Benun, 226 N.J. 41, 140 A.3d 547 (2016)