This is still too commonplace a problem, as mortgage lenders and servicers have learned to their chagrin and it arises most often out of New York State’s procedure for a consolidation, extension and modification agreement (“CEMA”). Helpfully, a new case reminds that the erroneous satisfaction really is no good and is subject to being expunged. [Bank of New York Mellon Trust Company, N.A. v. Claypoole, 150 A.D.3d 505, 55 N.Y.S.3d 19 (1st Dept. 2017)].
The scenario most often occurs in this fashion (although there could be other fact patterns as well). A borrower wishes to refinance its mortgage and for a larger sum. Because there is a significant mortgage tax in New York, should the existing mortgage be assigned, so that only the new money is subject to the mortgage tax, it is a more economical and amenable transaction. This would accordingly elicit an assignment of the existing mortgage which is then consolidated with the new mortgage arriving neatly at the full sum of the new obligation. What happens too often though, as noted, is that the assigning lender later executes and records a satisfaction of the mortgage which it assigned. This probably results from administrative procedures not quite aligned with the CEMA concept whereby a mortgage which has been paid (the assignor has been paid for the mortgage) looks like it needs to be satisfied.
This is likely to go unnoticed until someday when there is a default under the new mortgage as consolidated and the foreclosure search reveals that the mortgage which has been assigned (and now forms a portion of the CEMA) has been satisfied. This then requires a quiet title action to cancel the erroneous satisfaction.
While the mechanics of this pursuit are not so effortless, the helpful law on the subject is clear, again stated anew by the recent case cited. The controlling principle is that a satisfaction of mortgage is void from the outset when the party that executed it had already assigned away its interest under that mortgage. This is logical, but comforting nevertheless to see it enunciated by an appeals court. Not incidentally, the statute of limitations which might otherwise intercede (especially if the error is not discovered for many years) in actuality has no application because the offending satisfaction was void at the outset. This was a point made as well by the cited decision with supporting authority for that.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.