Truly elemental aspects of foreclosures should not be the subject of contentious litigation – but they are. This just highlights anew why basic concepts are so often worthy of exploring – a point underscored by a recent case where a lender raised a baseless fuss about the right to redeem. [Blanc Holdings LC v. Midollo, 48 Misc.3d 1212(A), 2015 WL 447138.]
Question: If a borrower wants to pay off a mortgage in full, does he have the absolute right to do so? Sure! (As long as it is before the hammer falls at the foreclosure auction sale.)
Next question: If a junior mortgage holder wants to pay off in full a senior mortgage in foreclosure does it have the absolute right to do so? Same answer, sure. It was this latter point which became litigated in the cited case and merits brief attention to emphasize the maxim.
The right to redeem, that is to pay the full sum due on a mortgage, is inherent in the mortgage and the lender-borrower relationship. This should be readily understandable because the goal of holding a mortgage is to be paid, typically not to foreclose for its own sake or own the property. This right to redeem is so critical that it can never be waived and nuance on the subject is not inconsiderable. For those seeking an in depth review of the subject, attention is invited to 1 Bergman on New York Mortgage Foreclosures, §4.07, LexisNexis Matthew Bender (rev. 2015).
While it should be apparent that the borrower or owner of the property would always have the right to satisfy the mortgage, it might be slightly less intuitive to extend that ability to anyone else having an interest in the property, although that is what the law understandably says. That concept is what presented a point of contention in the cited case.
There, the foreclosing plaintiff obtained a default judgment and the appointment of a referee, in the absence of anyone having appeared. JPMorgan Chase Bank (“junior lender”) had acquired certain assets and liabilities of Washington Mutual Bank from the FDIC and moved after the order of reference was granted to compel the plaintiff to provide it with a payoff letter because, as a junior lienor on the property by virtue of its own mortgage, it had a right to redeem. Note, though, that the junior lender had previously moved to vacate its default in the foreclosure. Because the court denied that motion, in a certain sense it may have looked as if the junior lender was “not in the case”. Of course it was because its subordinate interest was subject to extinguishment at the foreclosure sale.
It is not so often that a foreclosing plaintiff would reject a full redemption, but that is what happened here with the plaintiff opposing the motion to provide a payoff letter, arguing that when the junior lender had previously lost the motion to vacate its default, it was precluded from any relief from the court.
Not so the judge ruled. The equity of redemption allows property owners to redeem their property by tendering the full sum at any point before the property is actually sold at a foreclosure sale. Moreover, this right extends beyond the borrower to all who claim through or under him. Citing this writer, the court stated that “although most often the conception of redemption relates to the owner of the premises secured by the mortgage, the right to redeem extends to all persons holding any equitable or legal interest in the property derived from the mortgagor”.
So, yes, everyone with an interest in the property has the right to redeem and that includes subordinate mortgagees. If anyone with such a right requests a payoff letter from a foreclosing plaintiff, the latter does bear the burden to issue that payoff letter.
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.