Realty Law Digest

, New York Law Journal


Scott E. Mollen
Scott E. Mollen

Foreclosures—Lender Took a Mortgage From Only One of Three Joint Owners—Court Rejects Lender's Claim for an Equitable Mortgage or Other Equitable Relief Against the Other Two Owners—Action to Quiet Title

Plaintiffs "A" and "B" initially purchased property as tenants in common (TIC) in 2002. In June 2005, "B" transferred his interest to "C" and that transfer was recorded. On the same day, "A" and "C" entered into a "Consolidation, Extension, and Modification Agreement" (CEMA) with their mortgage lender. The CEMA was also recorded. In May 2008, "A" and "C" brought "B" back into the ownership chain and the property was deeded to "all three as [TIC]" and that transfer was also recorded.

A year later, in March 2009, "A" refinanced the property with the defendant (lender). "B" and "C" "were not grantors or otherwise mentioned in this mortgage or any of the mortgage documents, nor did they sign the mortgage or mortgage note; only ['A'] signed the mortgage and note." The mortgage proceeds were used to pay off a prior mortgage. Part of the proceeds were also distributed to "A," "B's" wife, "C" and a child of "C." The prior lender filed a satisfaction of the CEMA.

At the March 2009 refinance closing, the mortgage was provided to "Empire Land Services for recording. Empire…did not file the mortgage." It took the lender more than two years to discover that the mortgage had not been filed. In October 2011, the lender requested that "A" re-sign the mortgage, so that it could be recorded, which he did. The re-signed mortgage was recorded. The lender had not requested that either "B" or "C" execute the mortgage or the note.

"A," "B" and "C" commenced the subject action to "quiet title" in state court. The defendants removed it on diversity grounds and because one of the defendants was the Federal Home Loan Mortgage Corporation. The plaintiffs had also sued the Mortgage Electronic Registration Systems (MERS), "which is acting either as nominal holder by assignment and/or servicer of the [subject] mortgage."

The plaintiffs asserted that the lender's mortgage was "a 'nullity' or 'void as a matter of law'" based on several alleged "technical deficiencies" and several legal theories.

Thereafter, the plaintiffs had voluntarily dismissed their amended complaint. However, the defendants had asserted counterclaims. The defendants sought "to impose an equitable mortgage on the interests in the property held by ['B'] and ['C'] effectively bringing them within the mortgage granted to [the lender] by ['A']." Alternatively, the defendants sought to "reinstate the [CEMA] and 'equitably subrogate' themselves to that mortgage so they are in effect standing in the shoes that [the prior lender] wore before the proceeds of the [lender's] mortgage to ['A'] satisfied the…CEMA." Alternatively, the defendants sought damages in the amount of the lender's mortgage "under a theory of unjust enrichment." The defendants had also filed a third-party complaint against their title insurer, based on its refusal to provide coverage against the plaintiffs' claims. The defendants had moved for summary judgment on their counterclaims.

The court explained:

Under New York law, a court will impose an equitable mortgage where the facts surrounding a transaction evidence that the parties intended that a specific piece of property be held or transferred to secure an obligation. …"New York Courts have consistently held that the basis for imposing an 'equitable mortgage' is clear evidence of the intent of all the parties to the transaction to encumber or place a lien on a specific parcel of real property."

The court noted that although "'actual intent' was not essential," "even an 'implied agreement' requires a mutual intent of the parties to have imposed a legal mortgage."

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