Mortgages--New York

Front 1

Define mortgage

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 New York, 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

Do mortgages need to comply with the SoF to be enforceable?

Back 2

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

Front 3

How is an equitable mortgage created?

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

What are the priority and termination rules with respect to equitable mortgages?

Back 4

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

Front 5

When will an absolute deed be treated as a legal or equitable mortgage?

Back 5

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

What obligations are securable by a mortgage?

Back 6

1. Existing obligations--any existing monetary obligation or obligation capable of being reduced to a money equivalent may be secured by a mortgage. This includes (i) pre-existing debts and (ii) 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.
2. Future advances--particular 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 7

What type of property may be mortgaged?

Back 7

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. Accession to mortgaged real property are subject to the mortgagee's lien.

Front 8

What are defenses to the enforcement of a mortgage?

Back 8

In general--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.

2. Usury--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 six months prior to execution of the mortgage.

3. Competency--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.

4. Conflict between note and mortgage-in the event of a conflict between the note and the mortgage, the provisions of the note control.

Front 9

Rights of the mortgagee and mortgagor to the land.

What rights do each possess in a lien theory state, like NY?

Back 9

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 10

Rights of the mortgagee and mortgagor to the land.

What rights do each possess in a title theory state?

Back 10

The mortgagor has, until foreclosure, title and right to possession. The mortgagor may not commit waste or in any way impair teh value of the property securing the mortgage.

Front 11

What are the general requirements to transfer a mortgage?

Back 11

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 12

Transfers by mortgagees--

Explain how a mortgagee can transfer his/her interest in the mortgage.

Back 12

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 mortgage 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

Front 13

Transfers by the mortgagor--

explain how the mortgagor can transfer his interest?

Back 13

1. 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.

2. Transferee assumes mortgage-- if property subject to a mortgage is transferred to one who assumes the mortgage, the transferee becomes the primary obligor; the original mortgage is liable only secondarily.

Assumption of a mortgage requires that the party assuming the mortgage execute and acknowledge:
(i) a writing stating that she assumes and agrees to pay the mortgage debt and stating the amount of the debt,
(ii) a deed reciting the assumption of debt adn teh 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 14

What is the difference between taking property subject to a mortgage and assuming a mortgage on a property?

Back 14

1. 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.

2. 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 teh transferee's property, but also can seek payment from the transferee personally.

Front 15

What results when the mortgagor conveys the mortgaged property to the mortgagee?

Back 15

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 16

What results when a mortgagor dies and his property is transferred to a devisee or distributee?

Back 16

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 mortgage'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 the deficiency.

Front 17

Is a "due on sale" clause enforceable?

Back 17

Yes. 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 18

Foreclosure--

What are mortgagee's remedies when mortgage debt is due and unpaid?

Back 18

When the mortgage debt is due and 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 19

Judicial Foreclosure Action--

What is a judicial foreclosure action?

Back 19

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 New York until the moment of sale pursuant to a judgment of foreclosure.

Front 20

Judicial Foreclosure Action--

When may a foreclosure action be brought?

Back 20

It 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 foreclosure the mortgage is enforceable.

Front 21

Judicial Foreclosure Action--

When is a foreclosure action prohibited?

Back 21

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 22

Judicial Foreclosure Action--

Who is a necessary party in a foreclosure action?

Back 22

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 right under the mortgage.

Front 23

Judicial Foreclosure Action--

What is the effect of a sale in a foreclosure action?

Back 23

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

Front 24

Judicial Foreclosure Action--

Does the purchase at a foreclosure sale take clear title?

Back 24

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 25

Judicial Foreclosure Action--

What is a deficiency judgment?

Back 25

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 the sale.

Front 26

Judicial Foreclosure Action--

What rights of redemption are available in NY?

Back 26

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

Front 27

Priorities--

What are the basic priority rules in absence of recording?

Back 27

Priority in time is priority in right except that a subsequent legal mortgage that is accepted in good faith, w/o notice, and for value, will have priority over a prior equitable mortgage.

Front 28

Priorities--

Are a mortgagee and a mortgage asisgnee purchasers under the recording act

Back 28

Yes.

Front 29

Priority--

If a purchase money mortgage and another mortgage are executed and recorded together, which one has priority?

Back 29

The purchase money mortgage has priority.

Front 30

Priority--

Is a mortgage securing antecedent debt valid?

Back 30

Yes, 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 subequent mortgagee is deemed a purchaser for value and will prevail if he records first.

Front 31

Priority--

If a mortgage obligates the lender to make further advances of funds after the mortgage is executed, what priority do those advances have?

Back 31

They 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 32

Priorities--

Is a judgment creditor a purchaser within the purview of the recording act?

Back 32

No.

Front 33

Priorities--

Is a judgment lien a conveyance?

Back 33

No.

Front 34

Priorities--

What is the priority of a judgment lien?

Back 34

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 purchaser money mortgage on the property.

Front 35

Priorities--

What is the priority of a mechanics' lien?

Back 35

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 payment 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 existence of any such claims is valid.

Front 36

Discharging Mortgage--

How may a mortgage be discharged?

Back 36

1. payment--
(i) paying mortgage discharges the debt.

2. merger--
(i) 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.

3. tender
(i) if the mortgagor makes a 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 underlying debt.

4. statute of limitations as a bar
(i) the SOL applicable to a bond or note secured by a mortgage on real property, or to a mortgage on real property itself, is SIX YEARS.

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

The statute will then run from thw date of the waiver. If the 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 SOL.

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