Importance Of Understanding The Voluntary Payment Doctrine


15 July, 2022


Mortgage Lender and Servicer Alerts

It should be apparent that when a mortgage default is encountered, particularly when that leads to a mortgage foreclosure action, the borrower is rarely cheerful about satisfying the mortgage. This is particularly so where additional charges accrue – especially legal fees.  This can lead from time to time to the unfortunate situation of a borrower paying off a mortgage, receiving a satisfaction, but later demanding return of, for example, legal fees paid.  A typical situation might be where the borrower has the opportunity to refinance, the timeframe is limited and so even though aggrieved, the full sum due is paid with the borrower only later attacking that payment.

Fortunately, for lenders, there is the Voluntary Payment Doctrine which provides in short that when a sum is paid with full knowledge of the facts and without protest, it is deemed voluntary and no later attack on the payment can succeed.  It is apparent that such a legal approach is essential – otherwise no mortgage payoff would ever be final.  It would always be open to a clawback by the borrower claiming that the sums were incorrect.

But a new case reminds there are circumstances which can create peril for lenders on this subject [U.S. Bank, N.A. As Trustee for Truman 2013 SC4 Title Trust v. Cordero, 191 A.D.3d 490, 142 N.Y.S.3d 488 (1st Dept. 2021)]

Here, the defendant in the foreclosure action sold the property before the referee even computed the amount due.  After the payoff, the court granted defendant’s motion for an accounting of fees, charges and expenses and other payments related to the payoff of the mortgage and referred the matter to a referee.  This occurred because the foreclosing plaintiff was unable to show application of the Voluntary Payment Doctrine because the defendant had sent written protests to the plaintiff in correspondences on three different days.

The foreclosing plaintiff also failed to demonstrate that the defendant had full knowledge of the facts necessary to invoke the Voluntary Payment Doctrine.  Among other things, the payoff statement sent to the borrower had not reflected any itemization for legal fees.

In the end, the court found that given the borrower’s written protests, it could not be concluded that the defendant voluntarily and intentionally abandoned his right to challenge the payoff amount.

So, care remains in order when addressing this issue and the standards should be clear.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), is a partner with Berkman, Henoch, Peterson & Peddy, 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.