Mortgages New York

Front 1

Mortgage Defined

Back 1

A mortgage is any conveyance of land intended by the parties at the time of the making to be security for the payment of money or the doing of some prescribed act.

The debt itself is usually represented by a promissory note (a promise to pay).

In NY, the mortgagee (creditor) has no title but only a LIEN upon the land.

Title and the right to possession remain in the mortgagor (debtor)

Front 2

Statute of Frauds

Back 2

To be enforceable, a mortgage must be in writing and signed by the mortgagor or by an agent acting pursuant written authority

Front 3

Equitable Mortgages: Creation

Back 3

Certain security transactions in land that do not satisfy the requirements of legal mortgages may still be enforceable as equitable mortgages

Front 4

Equitable Mortgages: Priority and Termination

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An equitable mortgage is entitled to preference over subsequent judgment creditors, but will be cut off by a bona fide purchaser

Front 5

Absolute Deed as Legal or Equitable Mortgage

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A deed conveying real property will be construed as a legal mortgage if there is any other written instrument that makes it appear that the legal deed was intended to create a mortgage.

Even in the absence of such other written instrument, a mortgagor may prove by parol evidence that there was an intention to create a mortgage.

If the burden of proof is met, the court will hold that an equitable mortgage--and not a conveyance of title--was accomplished.

Front 6

Obligations Securable by Mortgage: Existing Obligations

Back 6

Any existing monetary obligation or obligation capable of being reduced to a money equivalent may be secured by a mortgage.

This includes:

1. Preexisting debts; and

2. Debts of one other than the mortgagor.

If the sum being secured is not recited in the mortgage or in a separate instrument, remedies of the mortgagee are limited to the property mentioned in the mortgage.

Front 7

Obligations Securable by Mortgage: Future Advances

Back 7

Particularly in construction loan agreements, mortgages may secure advances to be made in the future.

Such a mortgage is valid and constitutes a security interest for all advances made to the mortgagor

Front 8

Property Subject to Mortgage

Back 8

Any transferable interest in real property may be mortgaged.

This includes a fee simple, a life estate, an interest of one spouse in a tenancy by the entirety, or a tenancy for a term.

A mortgage lien may, by appropriate language, be imposed not only on realty described, but on personal property on the premises.

Accessions to mortgaged real property are subject to the mortgagee's lien

Front 9

Defenses: In General

Back 9

A mortgage is subject to the same kinds of defenses as are available against assertion of the underlying obligation that the mortgage secures.

However, an action for foreclosure may be sustained and a mortgage held valid even though the underlying note is illegal or was tainted by fraud.

A defense available to the mortgagor will not be available to a grantee of the mortgagor who takes subject to or assumes the mortgage with consequent reduction in cash paid on purchase.

Front 10

Defenses: In General

Back 10

A mortgage is subject to the same kinds of defenses as are available against assertion of the underlying obligation that the mortgage secures.

However, an action for foreclosure may be sustained and a mortgage held valid even though the underlying note is illegal or was tainted by fraud.

A defense available to the mortgagor will not be available to a grantee of the mortgagor who takes subject to or assumes the mortgage with consequent reduction in cash paid on purchase.

Front 11

Defenses: Usury

Back 11

In NY, usury serves as a defense available against actions both for principal and for interest IF THE MORTGAGOR IS NOT A CORPORATION.

In addition, the mortgagor may seek, without tender of principal or interest, affirmative relief to have the mortgage removed as a cloud on title.

Where a bank or association is a usurious lender, only interest is forfeited and not the principal.

Affirmative relief to remove the mortgage is personal to the borrower and is not available to the borrower's heirs, devisees, or representatives on the borrower's death.

Usury, however, is available as a defense to such persons.

By statute, the defense of usury is available to (and is not waivable by) a corporation whose principal asset is a one- or two-family dwelling if the corporation was organized or acquired within 6 months prior to execution of the mortgage

Front 12

Defenses: Competency

Back 12

A mortgage and bond are valid despite the minority of the mortgagors if the mortgagors are husband and wife entering into a transaction involving real property to be used as their home

Front 13

Defenses: Conflict Between Note and Mortgage

Back 13

In the event of a conflict between the note and the mortgage, the provisions of the note control

Front 14

Mortgagee has Lien

Back 14

A mortgagee merely has a lien.

She is not automatically entitled to possession, although she may take possession until the debt is paid if she has the express or implied consent of the mortgagor.

The mortgagee may be subject to accounting to the mortgagor

Front 15

Mortgagor has Title

Back 15

The mortgagor has, until foreclosure, title and right to possession.

The mortgagor may not commit waste or in any way impair the value of the property securing the mortgage.

Front 16

Mortgage Transfers: General Requirements

Back 16

Notice of the mortgage is necessary to bind a recording purchaser of property.

The mortgagee must record or risk losing her lien if an assignee of property records

Front 17

Mortgage Transfers: Transfers by Mortgage

Back 17

Transfer of a mortgage and note may be effected by delivery.

Because a mortgage is collateral to the debt it secures, the mortgage always follows the debt.

Assignment of the mortgage without the debt is void.

An assignee of the mortgagee takes subject to existing equities in favor of the mortgagor, unless the mortgage secures a negotiable instrument that has been assigned to a holder in due course.

Usually, when the mortgage is assigned, the mortgagor will execute an estoppel certificate, which generally deprives the mortgagor of the defense of criminal usury.

Until the mortgagor receives notice of assignment of the note and mortgage, payment is valid when made to the mortgagee rather than to the assignee, except where the debt is represented by a negotiable instrument that has been transferred to a bona fide purchaser.

A mortgagor tendering final payment can compel the mortgagee to assign the mortgage to the mortgagor or to another.

Front 18

Transfers by Mortgagor: Transfer Subject to Mortgage

Back 18

If mortgaged property is transferred "subject to the mortgage," the property becomes the primary source for payment of the debt; the original mortgagor continues to be liable on the bond.

If the mortgagee and transferee modify the mortgage obligation, the original mortgagor is discharged from his suretyship.

Front 19

Transfers by Mortgagor: Transferee Assumes Mortgage

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If property subject to a mortgage is transferred to one who ASSUMES the mortgage, the TRANSFEREE BECOMES THE PRIMARY OBLIGOR; the original mortgagor is liable only secondarily.

Assumption of a mortgage requires that the party assuming the mortgage execute and acknowledge:

1. A writing stating that she assumes and agrees to pay the mortgage debt and stating the amount of the debt, or

2. A deed reciting the assumption of debt and the amount of the debt.

Assumption does not relieve the original mortgagor of his obligation on the bond.

Any modification in the obligation by agreement of the mortgagee and transferee completely discharges the mortgagor.

Front 20

Exam Tip: Subject to vs. Assumption

Back 20

When a transferee takes subject to a mortgage, if the transferor defaults on the obligation secured by the mortgage, the mortgagee may foreclose on the transferee's property but may not hold the transferee personally liable on the defaulted obligation.

On the other hand, if the transferee assumes the mortgage and there is a default on the obligation secured by the mortgage, the mortgagee not only can foreclose on the transferee's property, but also can seek payment from the transferee personally

Front 21

Transfers by Mortgagor: Transfer to Mortgagee

Back 21

If the mortgagor (or subsequent transferee of the mortgagor) conveys the property to the mortgagee, and if the value of the property is equal to the remaining debt secured by the mortgage, the conveyance satisfies the bond and mortgage.

Front 22

Transfers by Mortgagor: Transfer Upon Death of Mortgagor

Back 22

If a decedent's property is encumbered by a mortgage, the beneficiary takes it subject to the mortgage.

If the mortgage payments are not made, the mortgagee's first recourse is against the property; and if foreclosure of the property does not satisfy the mortgage, he may then proceed against the decedent's estate.

However, neither the personal representative nor the devisee or distributee is personally liable for any deficiency

Front 23

Transfers by Mortgagor: "Due on Sale" Clause

Back 23

A mortgage provision stating that the principal becomes due at the mortgagee's option in the event of a sale or conveyance is enforceable

Front 24

Foreclosure: Suit on Debt vs. Foreclosure

Back 24

When the mortgage debt is due and is unpaid, the mortgagee may either sue on the debt or foreclose the mortgage.

By statute, the mortgagee who has brought suit on the debt may begin the foreclosure action only if he has a judgment on the debt and that judgment is unpaid.

If instead of bringing an in personam action on the debt, the mortgagee chooses first to institute foreclosure, he may not institute an action on the debt except by leave of the court in which the foreclosure action was brought.

Front 25

Judicial Foreclosure Action

Back 25

A foreclosure action is an action brought by a mortgagee to foreclose the exercise of what is otherwise the equitable right of the mortgagor--to redeem the property from the mortgagee by tendering payment.

The mortgagor retains this right in NY until the moment of sale pursuant to a judgment of foreclosure

Front 26

Judicial Foreclosure Action: Requirement--Default

Back 26

A foreclosure action may be brought upon any default on payment of the debt that the mortgage secures.

If the parties so agree, nonpayment of principal or interest can effect an ACCELERATION of the debt so that the entire principal becomes due.

In a foreclosure based on nonpayment, the mortgagee's oral waiver of the right to accelerate the debt and foreclose the mortgage is enforceable.

A foreclosure is prohibited if:

1. The mortgage was secured to pay for legal fees in a matrimonial action

2. It is on the mortgagor's primary residence, and

3. The mortgagor remains the titleholder

Front 27

Judicial Foreclosure Action: Parties

Back 27

Every person whose interest is claimed to be subordinate to the plaintiff's mortgage lien is a necessary party to a foreclosure action.

Persons with an interest superior to that of the foreclosing mortgagee are not permitted to be joined as defendants.

The effect of omitting a necessary party is to preserve his interest despite foreclosure and sale.

A tenant need not be joined as a party if the tenant and the mortgagee have made a subordination and nondisturbance agreement.

Such an agreement effectively makes the tenant's right to possession under the lease from the mortgagor superior to the mortgagee's rights under the mortgage

Front 28

Judicial Foreclosure Action: Effect of Sale

Back 28

It is the sale, and not the judgment, that extinguishes all subordinate interests of persons included as defendants in the foreclosure proceedings

Front 29

Judicial Foreclosure Action: Purchaser at Foreclosure Sale Takes Clear Title

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The purchaser at a foreclosure sale acquires a title clear of any claim of the parties to the foreclosure action--a title that reverts back to the date of the mortgage, cutting off any intervening rights.

The mortgagee may buy at the sale.

If the last owner or his nominee purchases property at the sale, junior liens on the property cut off by the foreclosure action are revived and attached.

Front 30

Judicial Foreclosure Action: Deficiency Judgment

Back 30

If sale proceeds are less than the judgment in the foreclosure action, and if the mortgagor was personally served in the foreclosure action, the mortgagee can ask the court for a deficiency judgment.

Demand for such judgment must be made within 90 days of sale.

Front 31

Judicial Foreclosure Action: Redemption

Back 31

In NY, there is only an equitable right of redemption prior to sale; there is no statutory right of redemption after sale regardless of who buys at the sale.

Front 32

Priorities: Basic Rules in Absence of Recording

Back 32

Priority in time is priority in right except that a subsequent legal mortgage that is accepted in good faith, without notice, and for value will have priority over a prior equitable mortgage.

Front 33

Priorities: Recording Act

Back 33

A mortgagee and a mortgage assignee are purchasers under the recording act.

If a purchase money mortgage and another mortgage are executed and recorded together, the purchase money mortgage has priority.

A mortgage securing an antecedent debt is valid, but the mortgagee is not a purchaser for value within the meaning of the recording act and his rights will be inferior to a prior unrecorded mortgage even if the subsequent mortgagee records first.

However, any extension of time for paying the antecedent debt is concurrent consideration, and thus the subsequent mortgagee is deemed a purchaser for value and will prevail if he records first.

Front 34

Priorities: Future Advances

Back 34

If a mortgage obligates the lender to make further advances of funds after the mortgage is executed, those advances have the same priority as the original mortgage.

However, an optional advance (i.e., one the lender is not contractually bound to make) made with notice of a junior lien will lose priority to the junior lien

Front 35

Priorities: Judgment Creditors

Back 35

A judgment creditor is not a purchaser within the purview of the recording act; a judgment lien is not a conveyance.

A docketed lien of a judgment creditor is superior to subsequent mortgages whether or not recorded, but is inferior to prior mortgages whether or not recorded.

Existence of a docketed judgment lien does not prevent a transfer of property in satisfaction of a purchase money mortgage on the property

Front 36

Priorities: Mechanics' Liens

Back 36

A subsequently recorded mortgage will have priority over previously recorded mechanics' liens to the extent of advances of the mortgage made prior to the mechanics' lien, provided that the mortgage includes a provision reciting that payments under it are subject to the trust fund provisions of the Lien Law.

The Lien Law protects against granting of collusive mortgages used to avoid provisions of that law; it voids a mortgage taken by a contractor when the mechanics' lienors already possess claims against the property.

But a mortgage given in good faith prior to the existence of any such claims is valid.

Front 37

Discharging Mortgage: Payment

Back 37

Payment of the mortgage debt discharges the mortgage

Front 38

Discharging Mortgage: Merger

Back 38

A mortgage may be terminated by acquisition by the same person of both the fee and the mortgage.

However, any manifest intention not to merge will prevent a judicial determination of merger and termination

Front 39

Discharging Mortgage: Tender

Back 39

If the mortgagor makes an appropriate tender of payment of the debt secured by the mortgage and tender is refused, the mortgage is terminated.

Termination has no impact on the underling debt.

Front 40

Discharging Mortgage: Statute of Limitations as a Bar

Back 40

The statute of limitations applicable to a bond or note secured by a mortgage on real property, or to a mortgage on real property itself, is 6 years.

Waiver of the statute is effective if contained in a writing signed by the obligor, despite the absence of consideration.

The statute will then run from the date of the waiver.

If a grantee of property executes a written assumption of the mortgage, such a writing constitutes a waiver unless it also contains a statement of intent not to waive the statute.

Part payment of a past-due indebtedness secured by the mortgage revives both the statute of limitations on the debt AND the right to foreclose on the mortgage