THE EFFECT OF A FAILURE TO RECORD A SATISFACTION OF MORTGAGE AND SEEKING CLASS ACTION RELIEF

New York State Real Property Actions and Proceedings Law (“RPAPL”) § 1921 and New York Real Property Law (“RPL”) § 275. RPAPL § 1921 and RPL § 275 both require a mortgagee to execute a satisfaction of mortgage and arrange to have the satisfaction recorded within 30 days. Failure of the mortgagee to do so entitles the borrower to a penalty based on when the satisfaction was recorded.

The penalty was sought to be enforced in a class action. Maddox v. BANK OF NY MELLON TR. CO., NA, Court of Appeals, 2nd Circuit 2021:

"The Bank of New York Mellon Trust Company ("BNY Mellon" or "the Bank") appeals from an order of the United States District Court for the Western District of New York (Arcara, J.) denying its motion for judgment on the pleadings. The district court held that plaintiffs Sandra Maddox and Tometta Maddox Holley (the "Maddoxes") have Article III standing to seek statutory damages from the Bank for its violation of New York's mortgage-satisfaction-recording statutes (the "statutes"). N.Y. Real P. Law ("R.P.L.") § 275; N.Y. Real P. Actions & Proc. L. ("R.P.A.P.L.") § 1921. These statutes require mortgage lenders to record satisfactions of mortgage (also known as "certificates of discharge") within thirty days of the borrower's repayment; a failure to record renders the lender "liable to the mortgagor" for escalating statutory damages in amounts dependent on the delay in the ultimate filing. Here, the Bank did not record the satisfaction of the Maddoxes' mortgage, in an amount of over $50,000, until almost one year after full payment was received—nearly eleven months later than the law allows. For the filing of a satisfaction over ninety days after discharge, the lender becomes liable to the mortgagor for $1,500. R.P.L. § 275(1); R.P.A.P.L. § 1921(1). The Maddoxes sued to collect that penalty and to represent a putative class of similarly wronged borrowers.

The district court certified for interlocutory appeal the question whether the Maddoxes have Article III standing to sue the Bank for the statutory damages and other relief. Our initial opinion on this appeal, Maddox v. Bank of N.Y. Mellon Tr. Co., N.A., 997 F.3d 436 (2d Cir. 2021), was the subject of a motion for rehearing in light of the intervening authority of TransUnion LLC v. Ramirez, — U.S. —, 141 S. Ct. 2190 (2021). After briefing on the impact of TransUnion, we grant the motion for rehearing and issue the instant opinion.

We now hold that the Maddoxes' allegations fail to support Article III standing, and that they may not pursue their claims for the statutory penalties imposed by the New York Legislature in federal court.

Accordingly, we vacate the district court's order denying BNY Mellon's motion for judgment on the pleadings and remand with instructions that the case be dismissed.

BACKGROUND

I. The complaint's allegations.

The Maddoxes' complaint alleges the following facts, which we accept as true for purposes of this appeal. See Lynch v. City of New York, 952 F.3d 67, 74-75 (2d Cir. 2020).

On October 6, 2000, sisters Sandra Maddox and Tometta Maddox Holley entered into a mortgage loan with Aegis Mortgage Corporation (the "Loan"). The mortgage and assignment were recorded with the Erie County Clerk's Office. The mortgage encumbered the Maddoxes' property at 149 Hampshire Street, Buffalo, New York 14213 (the "Property"). The Loan was later assigned to BNY Mellon. In September 2014, the Maddoxes sold the Property to individuals who are not parties to this suit.

On or about October 5, 2014, the Loan was fully paid and the debt discharged. However, BNY Mellon failed to file a satisfaction of mortgage with the Erie County Clerk's Office until nearly one year later on September 22, 2015.

BNY Mellon's failure to record the discharge within thirty days of payment violated New York's mortgage-satisfaction-recording statutes, which require that the mortgage lender present a certificate of discharge to the county clerk for filing within thirty days of the full repayment of the debt. See R.P.L. § 275(1) (requiring timely presentation of certificate and imposing monetary penalties for noncompliance); R.P.A.P.L. § 1921(1) (same).

II. Procedural history.

On December 15, 2015, approximately three months after BNY Mellon had recorded the satisfaction, the Maddoxes brought a class action suit against BNY Mellon for violation of New York's mortgage-satisfaction-recording statutes.

In late 2016, after the Supreme Court issued its decision Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), BNY Mellon moved to dismiss on the pleadings for lack of standing. It argued—among other things—that the Maddoxes lack Article III standing because they "suffered no actual damages in relation to the alleged failure to record the satisfaction" and therefore "failed to plead a concrete harm" under Spokeo. Maddox v. Bank of N.Y. Mellon Tr. Co., No. 15-cv-01053, 2017 WL 449962, at *2 (W.D.N.Y. Jan. 30, 2017) (Report and Recommendation ("R&R")) (quoting Bank's Memorandum). The Bank did not dispute that the discharge was untimely filed.^[1]

The Maddoxes countered that the Bank's eleven months of noncompliance impaired access to accurate financial information about them in the interval and created a false impression adverse to their credit status. The Maddoxes argued that the right to be free of these harms was recognized by the state legislature, that the harms bear a strong relationship to harms traditionally actionable at common law, and that the violations caused substantive harms and otherwise created concrete injuries that endow them with standing to seek remedies in federal court. The Maddoxes further argued that the Bank's period of noncompliance subjected them to a sufficiently real risk of other concrete and particularized harms—failure to obtain financing for other properties and damage to personal credit, for example—and that those risks also gave rise to an injury in fact supporting their Article III standing to sue. Finally, in conjunction with their opposition to the Bank's motion, the Maddoxes submitted an affidavit made by Tometta Maddox Holley attesting to her loss of time, her legal expenses, and her emotional trauma occasioned by the belated filing, which she learned about some time before the satisfaction was finally filed. Her attestations were not alleged in the complaint.

A magistrate judge issued a Report and Recommendation suggesting that the district court deny the motion to dismiss. R&R, 2017 WL 449962, at *4. The district court accepted the recommendation and denied BNY Mellon's motion for judgment on the pleadings. Maddox v. Bank of N.Y. Mellon Tr. Co., No. 15-cv-01053, 2018 WL 3544943, at *2 (W.D.N.Y. July 24, 2018). It held that the Bank's violation was a "procedural violation" that satisfied the injury-in-fact requirement for Article III standing because the Bank's violation of the statutes created a "material risk of harm" to them. Id. (internal quotation marks omitted). The district court reasoned that failure to timely record a mortgage satisfaction could cloud title to real property, inhibit sale of the property, and affect a mortgagor's credit.

At the same time, the district court took note of the Eleventh Circuit's contrary decision in Nicklaw v. Citimortgage, Inc., 839 F.3d 998 (11th Cir. 2016), reh'g en banc denied, 855 F.3d 1265 (2017), and a footnote in our decision in Strubel v. Comenity Bank, 842 F.3d 181, 194 n.15 (2d Cir. 2016), which cites Nicklaw with apparent approval. It accordingly identified the question as a close one and on that basis certified the question for interlocutory appeal. We accepted the certification and addressed that question, which has indeed proved close.

As a threshold issue, we decided that a state legislature, like Congress, has the power to create legal interests whose violation can satisfy Article III standing. See Maddox, 997 F.3d at 443-44 (2d Cir. 2021). We then affirmed the district court's holding on alternative grounds. First, we held that the statutes are "substantive" provisions and that therefore "the Maddoxes need allege no harm greater than that their discharge was untimely recorded . . . to establish a concrete, intangible injury of the sort that gives them Article III standing." Id. at 447. Second, we held that even if the statutes were "procedural" in nature, the Maddoxes still would have established an injury in fact, since the Bank's violation of the statutes exposed them to a "material risk of [concrete] harm," including the risk of not being able to borrow during the period of delay. Id. at 447-48 (alteration in original) (quoting Spokeo, 578 U.S. at 342).

After our initial disposition, BNY Mellon filed a petition for panel rehearing or rehearing en banc (the "Petition"), and the United States Supreme Court decided TransUnion LLC v. Ramirez, ___ U.S. ___, 141 S. Ct. 2190 (2021), which expanded upon the standing principles raised by this case. The parties submitted supplemental letter briefs discussing the impact, if any, of TransUnion on our previous decision. Because TransUnion bears directly on our analysis, we hereby grant the Petition, withdraw our opinion of May 10, 2021, and issue this amended opinion in its place. Additional oral argument is unnecessary.

DISCUSSION

We review a district court's decision regarding judgment on the pleadings de novo. See Lanning v. City of Glens Falls, 908 F.3d 19, 24 (2d Cir. 2018).

Article III standing requires plaintiffs to show (1) an "injury in fact," (2) a "causal connection" between that injury and the conduct at issue, and (3) a likelihood "that the injury will be redressed by a favorable decision." Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992) (internal quotation marks omitted). The central question on appeal is whether the Maddoxes have met the injury-in-fact requirement.

"To demonstrate injury in fact, a plaintiff must show the invasion of a [1] legally protected interest that is [2] concrete and [3] particularized and [4] actual or imminent, not conjectural or hypothetical." Strubel, 842 F.3d at 188 (internal quotation marks omitted). BNY Mellon argues that, although the New York State Legislature may have implicitly recognized that delayed recording can create harms such as a cloud on title and an adverse affect on a mortgagor's credit, the Maddoxes have not alleged, and cannot allege, that they suffered these harms. Therefore, BNY Mellon asks us to conclude that the Maddoxes have failed to show that the injury alleged was either "concrete" or "particularized" enough to amount to an injury in fact for purposes of Article III standing. The Maddoxes argue to the contrary, that where the Legislature has recognized a legal interest or interests and a plaintiff has suffered a harm or risk of real harm to those interests, Article III is satisfied. According to the Maddoxes, the harms that the Legislature aimed to preclude need not have come to fruition for a plaintiff to have suffered a material risk of real harm sufficient to seek the statutory remedy afforded by the Legislature. We discuss these arguments below.

I. Plaintiffs must suffer a concrete harm to establish standing.

"No concrete harm; no standing." TransUnion, 141 S. Ct. at 2200. This equation, which opens the Supreme Court's TransUnion decision, leaves little room for interpretation and may be sufficient to resolve the issue before us. Still, the facts in TransUnion bear a strong enough resemblance to those in this case that the Supreme Court's treatment of them proves highly instructive.

A class of 8,185 individuals sued TransUnion, a credit reporting agency, alleging two violations of the Fair Credit Reporting Act ("FCRA"). Id. First, the plaintiffs alleged that TransUnion's failure to use reasonable procedures led to an inaccuracy in their credit files—namely, that the class member was a "potential match" to an individual on a Treasury Department list of national security threats (the "OFAC list"). Id. 2202. Second, the plaintiffs claimed that TransUnion failed to adhere to FCRA formatting requirements in the mailings used to inform members about the potential match. Id. The class succeeded at trial, but standing became the primary issue on appeal. Id.

Before addressing the specific allegations, the Supreme Court considered the characteristics that make a harm "concrete" for the purposes of Article III. Id. at 2204. The Court explained that whether a harm qualifies as "concrete" hinges on "whether the alleged injury to the plaintiff has a `close relationship' to a harm `traditionally' recognized as providing a basis for a lawsuit in American courts." Id. (quoting Spokeo, 578 U.S. at 341). The Court recognized that physical and monetary harms, along with other traditional tangible harms, readily qualify as concrete, and that certain intangible harms, such as reputational harm, qualify as well. Id. The Court also allowed that Congress's views may be "instructive" in determining whether a harm is sufficiently concrete, id. (quoting Spokeo, 578 U.S. at 341), although "an injury in law is not an injury in fact," id. at 2205.

With that, the Supreme Court turned to the plaintiffs' claim that TransUnion's failure to use reasonable procedures led to inaccuracy in their credit files. The Court divided the class into two groups: those members whose credit reports were disseminated to third-party businesses; and those whose credit reports never left TransUnion's internal files. Id. at 2200. The Court ruled that the first group "suffered a harm with a `close relationship' to the harm associated with the tort of defamation," and, therefore, "suffered a concrete harm that qualifies as an injury in fact." Id. at 2209. The second group, however, suffered no concrete harm because "[p]ublication is `essential to liability' in a suit for defamation," and their credit files were never published. Id. (quoting Restatement of Torts § 577 cmt. a, p. 192 (1938)). As the Court explained, "there is no historical or common-law analog where the mere existence of inaccurate information, absent dissemination, amounts to concrete injury." Id. (internal quotation marks omitted).

The Court further concluded that these class members could not premise standing on a risk of future harm—that is, the risk that TransUnion would eventually disseminate the misleading information to third-party businesses. While Spokeo stated that "the risk of real harm" can sometimes "satisfy the requirement of concreteness," id. at 2210 (quoting Spokeo, 578 U.S. at 341-42), that observation (the Court explained) applied only to "suit[s] for injunctive relief," id. In suits for damages, "the mere risk of future harm, standing alone, cannot qualify as a concrete harm—at least unless the exposure to the risk of future harm itself causes a separate concrete harm." Id. at 2210-11. Because these class members presented no evidence "that they suffered some other injury (such as an emotional injury) from the mere risk that their credit reports would be provided to third-party businesses," they were unable to establish standing. Id. at 2211.

Regarding the claim that TransUnion failed to adhere to FCRA formatting requirements, the Supreme Court held that the class members (other than the named plaintiff) had failed to demonstrate that they suffered any concrete harm—or "any harm at all"—from such violations, as they presented no evidence that they "so much as opened" the relevant mailings. Id. at 2213. Plaintiffs' distinct argument that TransUnion's formatting violations created a risk of future harm—i.e., the risk that consumers would not learn of, and remedy, the OFAC report in their credit files—failed because "the risk of future harm on its own does not support Article III standing for the plaintiffs' damages claim." Id.

In sum, TransUnion established that in suits for damages plaintiffs cannot establish Article III standing by relying entirely on a statutory violation or risk of future harm: "No concrete harm; no standing." Id. at 2214.

II. The Maddoxes have not suffered a "concrete" harm.

The only allegations that matter are few: the Maddoxes paid off their mortgage when they sold their house; the bank filed the mortgage satisfaction nearly one year afterward. By statute, New York creates a private right to collect an escalating cash penalty if the satisfaction is filed more than thirty days after the mortgage is paid off, up to $1,500 for delay exceeding ninety days.

We need not decide whether state legislatures have the same power Congress enjoys to recognize or create legally protectible interests whose invasion gives rise to Article III standing; TransUnion determined that Congress itself enjoys no such power. 141 S. Ct. at 2205 ("Congress may enact legal prohibitions and obligations. . . . But under Article III, an injury in law is not an injury in fact."). Nor need we decide whether the statutes are "substantive" or "procedural"; TransUnion eliminated the significance of such classifications, which had been a preoccupation.^[2] On this appeal, the determinative standing issue is whether the Maddoxes suffered a concrete harm due to the Bank's violation. It is clear that they have not.

First: for the ordinary borrower, delayed recording of a discharge of mortgage may create and sustain an actionable cloud on title to the property securing the discharged mortgage debt. Long-delayed filings can result in the borrower having to pay a duplicative filing fee for the discharge: once at closing and once when the discharge is actually filed. The Maddoxes did not allege such harms, however, or allege that they were at risk for such harms. This is unsurprising because conveyance of their property was completed several weeks before the mortgage satisfaction occurred. In short, the Maddoxes had no title on which a cloud could settle.^[3]

Second: a mortgage recorded with the county clerk may convey to those viewing the record that the borrower owes a debt secured by a property. Correspondingly, a lender's delay in recording a mortgage satisfaction risks creating the false appearance that the borrower has not paid the underlying debt and is thus more indebted and less creditworthy. This type of reputational harm—i.e., one that flows from the publication of false information—is well established as actionable at common law. See Weldy v. Piedmont Airlines, Inc., 985 F.2d 57, 61-62 (2d Cir. 1993) (discussing elements to establish prima facie claim of slander); see also Spokeo, 578 U.S. at 341-42 (noting libel and slander per se as being actionable).

However, the Maddoxes do not allege that they suffered any reputational harm due to the Bank's violation. The misleading record may have been public and available to all; but, so far as is known, it was read by no one. The public nature of the record is not analogous to the dissemination of the credit reports in TransUnion. There could be no doubt that the third-party businesses viewed those credit reports, which they had specifically requested and paid for.

This distinction from TransUnion is critical, as it is self-evident that "unless the defamatory matter is communicated to a third person there has been no loss of reputation." Restatement of Torts § 577 cmt. b; see also Albert v. Loksen, 239 F.3d 256, 269 (2d Cir. 2001) ("A defamatory writing is not published if it is read by no one but the one defamed.'" (quoting Ostrowe v. Lee, 256 N.Y. 36, 38 (1931) (Cardozo, C.J.))). True, the Maddoxes may have suffered a nebulous risk of future harm during the period of delayed recordation—i.e., a risk that someone (a creditor, in all likelihood) might access the record and act upon it—but that risk, which was not alleged to have materialized, cannot not form the basis of Article III standing.

Third: the Maddoxes contend that the Bank's delay adversely affected their credit during that time, making it difficult to obtain financing had they needed it in an emergency or for a new home. But it is not alleged that this purported risk materialized; so it is similarly incapable of giving rise to Article III standing.

Fourth: Tometta Maddox Holley attested (in her affidavit opposing BNY Mellon's motion for judgment on the pleadings) that the Bank's failure to timely record the satisfaction after she sold the Property caused her "great stress, mental anguish, anxiety, and distress, which compelled [her] to expend substantial time attempting to determine the status of the recording of the satisfaction of mortgage document, and seeking out legal counsel to assist [her] in having the satisfaction of mortgage recorded." App'x at 88 ¶ 8. These purported harms are of the sort that TransUnion contemplated might form the basis for Article III standing. See TransUnion, 141 S. Ct. at 2211 n.7 ("[A] plaintiff's knowledge that he or she is exposed to a risk of future physical, monetary, or reputational harm could cause its own current emotional or psychological harm."); see also Denney v. Deutsche Bank AG, 443 F.3d 253, 265 (2d Cir. 2006) ("The risk of future harm may also entail economic costs . . . but aesthetic, emotional or psychological harms also suffice for standing purposes.").

However, the Maddoxes must "plead enough facts to make it plausible that they did indeed suffer the sort of injury that would entitle them to relief." Harry v. Total Gas & Power N. Am., Inc., 889 F.3d 104, 110 (2d Cir. 2018). Although "[i]t is well established in principle that the pleading standard for constitutional standing is lower than the standard for a substantive cause of action," id., the attestations in Tometta Maddox Holley's affidavit were not the subject of allegations in the complaint and, in any event, are implausible.

Holley demands opportunity costs because she "expend[ed] substantial time attempting to determine the status of the recording of the satisfaction of mortgage document." App'x at 88 ¶ 8. But if she had, she would have found out that the satisfaction was recorded three months before the filing of a complaint that nevertheless alleges that the satisfaction was unrecorded at the time this litigation began. As to her emotional distress, she offers no reason why the delayed recordation would cause "great stress, mental anguish, anxiety, and distress." Id. A perfunctory allegation of emotional distress, especially one wholly incommensurate with the stimulant, is insufficient to plausibly allege constitutional standing. Even if it were sufficient, "it is extremely unlikely that such an allegation would be typical of the class." R&R, 2017 WL 449962, at *3 n.5.

In any event, the Maddoxes need not show a cloud, reputational harm, or any other injury. The Maddoxes have an easy way to collect their reward for reporting the Bank's delay in recording the mortgage satisfaction: they may recover the statutory penalty in state court.^[4] This is a small claim, in a fixed amount, amenable to a recovery without dispute—and probably without counsel or fees. It is hard to imagine that a bank would press the issue to litigation.

Of course, state court remains an option for all absent class members as well. To the extent that such members (or their lawyers) prefer to form a class and bring their claims in federal court, they must come prepared to prove that they suffered concrete harm due to the Bank's violation of the relevant statutes.

CONCLUSION

For the foregoing reasons, we vacate the district court's order denying BNY Mellon's motion for judgment on the pleadings and remand with instructions that the case be dismissed.

[1] It did argue, however, that it was associated with the Maddoxes' mortgage only as a trustee and therefore had no liability. The district court rejected that argument, and the issue is not part of the question certified for interlocutory appeal. See Maddox v. Bank of N.Y. Mellon Tr. Co., No. 15-cv-01053, 2018 WL 3544943, at *5 (W.D.N.Y. July 24, 2018).

[2] Our original opinion observed that a statutory right is considered "substantive" if it protects against a harm that has a close relationship to a harm traditionally regarded as providing a basis for a lawsuit in American courts. The violation of a substantive right, the opinion explained, constitutes a concrete injury in fact sufficient to establish Article III standing without any additional showing. TransUnion clarified, however, that the type of harm that a statute protects against is of little (or no) import; what matters is "whether the alleged injury to the plaintiff has a `close relationship' to a harm `traditionally' recognized as providing a basis for a lawsuit in American courts." 141 S. Ct. at 2204 (emphasis added) (quoting Spokeo, 578 U.S. at 341). In other words, plaintiffs must show that the statutory violation caused them a concrete harm, regardless of whether the statutory rights violated were substantive or procedural.

[3] True, it may be said that during the period of BNY Mellon's delayed recordation the two nonparty homebuyers ran a risk that if they had flipped the Property the title insurer would flag a vestigial lien. But the Maddoxes, who had already sold the Property, did not suffer a detriment and never ran the risk of one.

[4] "[S]tate courts are not bound to adhere to federal standing requirements. . . ." ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (1989)."

DIVORCE - WHEN ONE SPOUSE REFUSES TO COOPERATE IN SALE OF MARITAL RESIDENCE

Uttamchandani v Uttamchandani, 2019 NY Slip Op 06644, Decided on September 18, 2019, Appellate Division, Second Department:

"...….

In October 2015, the plaintiff moved, inter alia, to enforce certain provisions of the judgment of divorce, including those relating to the defendant's obligation to cooperate in the sale of the marital residence, and for a determination of certain credits to be paid to the plaintiff from the defendant's share of the net proceeds of the sale. Among other things, the plaintiff sought a determination of a credit for 50% of the mortgage, taxes, and insurance she had paid on the marital residence since April 15, 2013. In the order appealed from, the Supreme Court, inter alia, determined that the plaintiff was entitled to credits of (1) $32,472.58, representing 50% of the payments she had made for the mortgage, taxes, and insurance on the marital residence; (2) $45,547.47, representing child support arrears; (3) $49,200, representing her share of the value of the defendant's business, ConnectIt, LLC; and (4) $24,963.25, representing the balance of the TD Ameritrade account. The defendant appeals, arguing that the court erred in awarding the plaintiff these credits.

The defendant contends that the Supreme Court erred in granting the plaintiff a credit for 50% of the mortgage, taxes, and insurance that she had paid on the marital residence since April 15, 2013, arguing that this resulted in the defendant making "double shelter payments" for the parties' children inasmuch as he was paying child support during the relevant period of time. We reject this contention.

The burden of repaying marital debt should be equally shared by the parties, in the absence of countervailing factors, and any such liability should be distributed in accordance with general equitable distribution principles and factors (see Westreich v Westreich, 169 AD3d 972, 976; Minervini v Minervini, 152 AD3d 666, 668; Gillman v Gillman, 139 AD3d 667, 671). It is generally the responsibility of both parties to maintain the marital residence and keep it in good repair during the pendency of a matrimonial action (see Brinkmann v Brinkmann, 152 AD3d 637, 639; Goldman v Goldman, 131 AD3d 1107, 1108; Hymowitz v Hymowitz, 119 AD3d 736, 742; Le v Le, 82 AD3d 845, 846). "Where . . . a party has paid the other party's share of what proves to be marital debt, such as the mortgage, taxes, and insurance on the marital residence, reimbursement is required" (Le v Le, 82 AD3d at 846; see Morales v Carvajal, 153 AD3d 514, 515; Goldman v Goldman, 131 AD3d at 1108).

Here, the plaintiff was entitled to receive a credit against the proceeds of the sale of the martial residence for the money that she paid to reduce the balance of the mortgage during the pendency of the action (see Morales v Carvajal, 153 AD3d at 515; Le v Le, 82 AD3d at 845-846). In deciding to award the plaintiff credit for 50% of the carrying charges, the Supreme Court considered the defendant's payment of child support, but nonetheless concluded that the plaintiff should receive 50% reimbursement. Under the circumstances of this case, where the plaintiff effectively was compelled to live in the marital residence during the subject time because of the defendant's refusal to cooperate in its sale, we agree with the court's determination to award the plaintiff a credit for 50% of the payments she made on the mortgage, taxes, and insurance on the marital residence since April 15, 2013 (cf. Markopoulos v Markopoulos, 274 AD2d 457, 459). The amount of child support paid by the defendant was less than the amount of the expenses the plaintiff incurred with respect to the marital residence and the defendant's refusal to cooperate in the sale prevented the plaintiff from reducing the housing expense for herself and the children."

ERRONEOUS DISCHARGE OF MORTGAGE

Recently, I conferred with a client, who was in foreclosure, and they had discovered a satisfaction of mortgage was filed - yet admitted that they did not pay off the mortgage. So this situation is not unique.

Beltway Capital, LLC v Soleil, 2019 NY Slip Op 06057, Decided on August 7, 2019, Appellate Division, Second Department:

"The underlying facts and procedural history of this case can be found in our decision and order on a prior appeal in this action (see Beltway Capital, LLC v Soleil, 104 AD3d 628). On that prior appeal, this Court reversed an order of the Supreme Court, Kings County, dated January 7, 2011, and concluded that, while the discharge of a mortgage held by Beltway Capital, LLC [*2](hereinafter Beltway), on the subject property (hereinafter the Soleil mortgage), was accomplished by the fraud and misrepresentation of the defendant Andre Soleil, whether Beltway was entitled to reinstatement of the Soleil mortgage turned on the question of whether the defendant Deborah Hughes, a subsequent purchaser of the subject property, was a bona fide purchaser for value. On the record before us, and with only limited discovery having been conducted, this Court concluded that the Supreme Court erred in determining conclusively that Hughes was a bona fide purchaser for value. As such, we reversed the order insofar as appealed from, reinstated the Soleil mortgage, and, effectively, remitted the matter for further discovery (see id. at 631-632).

Upon the completion of that discovery, Hughes and Sperry Associates Federal Credit Union (hereinafter Sperry), an alleged subsequent encumbrancer, separately moved for summary judgment dismissing the complaint insofar as asserted against each of them. Hughes also moved for summary judgment declaring her a bona fide purchaser for value and discharging the mortgage as to her, and Sperry also moved for summary judgment declaring it a bona fide encumbrancer with first priority of lien on the property, and discharging the Soleil mortgage as to it. In an order dated February 9, 2016, the Supreme Court granted the motions. Judgment was thereafter entered on May 17, 2016, in Hughes's and Sperry's favor. Beltway appeals from both the order and the judgment.

The appeal from the intermediate order must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal from the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1]).

"A mortgagee may have an erroneous discharge of mortgage, without concomitant satisfaction of the underlying mortgage debt, set aside, and have the mortgage reinstated where there has not been detrimental reliance on the erroneous recording" (New York Community Bank v Vermonty, 68 AD3d 1074, 1076; see Bank of Am. N.A. v Snyder, 154 AD3d 671; Deutsche Bank Trust Co., Ams. v Stathakis, 90 AD3d 983, 984). Only bona fide purchasers and lenders for value are entitled to protection from an erroneous discharge based upon their detrimental reliance thereon (see Bank of Am., N.A. v Snyder, 154 AD3d at 672; Beltway Capital, LLC v Soleil, 104 AD3d at 631).

Here, Hughes and Sperry each met their prima facie burden of establishing their status as bona fide purchaser and encumbrancer for value, respectively.

Hughes demonstrated that, at the time she purchased the subject property for value from Soleil, an order of the Supreme Court dated July 18, 2008, which, inter alia, cancelled and discharged the Soleil mortgage (hereinafter the 2008 order) had been duly recorded and that she was entitled to rely upon that order without conducting any further inquiry. Her deed was recorded on October 14, 2008, well before Beltway moved, in February 2009, inter alia, to vacate the 2008 order discharging the Soleil mortgage. Thus, Hughes was not on notice at the time of the purchase of any prior lien against the property which would lead a reasonably prudent purchaser to make inquiry, and there was nothing on the face of the 2008 order that would have alerted Hughes to Beltway's claim. Contrary to Beltway's contention, Hughes had no duty to conduct any further inquiry into the propriety of the discharge of the Soleil mortgage by the Supreme Court (see DLJ Mtge. Capital, Inc. v Windsor, 78 AD3d 645, 647; Baron Assoc. v Latorre, 74 AD3d 714, 716; Regions Bank v Campbell, 291 AD2d 437, 438).

Similarly, Sperry met its prima facie burden by demonstrating that, at the time it granted a mortgage to, among others, Hughes, secured against the subject property, the 2008 order had been duly recorded, that a title search did not reveal the prior lien, and that it was entitled to rely upon the title search and 2008 order without conducting any further inquiry into the propriety of the recorded order (see Andy Assoc. v Bankers Trust Co., 49 NY2d 13, 22-23; Maiorano v Garson, 65 AD3d 1300, 1302; Emerson Hills Realty v Mirabella, 220 AD2d 717)."

A GOOD FAITH PURCHASER?

Of course, one wonders why the bank waited over 6 years to record the mortgage but still.....

Emigrant Bank v Drimmer, 2019 NY Slip Op 03026, Decided on April 24, 2019, Appellate Division, Second Department:

"In August 1999, the defendant Levi Drimmer purchased real property in Brooklyn, financed by a $472,500 purchase money mortgage from the plaintiff's predecessor-in-interest, Emigrant Mortgage Company, Inc. (hereinafter the Emigrant mortgage). The Emigrant mortgage was not recorded until February 2006. In September 2002, Drimmer sold the property to the defendant Yosef Sternberg. Sternberg obtained a title report prior to closing, which did not show the unrecorded Emigrant mortgage. Following the sale of the premises, Drimmer continued to make monthly payments on the Emigrant mortgage, which included escrowed payments for real estate taxes on the premises. In August 2007, after learning of the sale, the plaintiff's predecessor accelerated the loan and demanded payment from Drimmer of the full balance. It thereafter stopped accepting monthly payments.

The plaintiff commenced this action, inter alia, to impose its mortgage on the premises, to foreclose the mortgage, and for a judgment declaring that its mortgage is a valid lien against the premises. Sternberg moved for summary judgment dismissing the complaint insofar as asserted against him. In an order dated May 24, 2016, the Supreme Court granted Sternberg's motion and declared that he was a good faith purchaser for value of the subject premises and took the property free of the subject mortgage. The plaintiff appeals.

"The New York Recording Act (Real Property Law § 290 et seq.), inter alia, protects a good faith purchaser for value from an unrecorded interest in a property, provided such a purchaser's interest is first to be duly recorded" (Yen-Te Hsueh Chen v Geranium Dev. Corp., 243 AD2d 708, 709 [emphasis omitted]; see Real Property Law § 291; Gregg v M & T Bank Corp., 160 AD3d 936, 940). " The status of good faith purchaser for value cannot be maintained by a purchaser with either notice or knowledge of a prior interest or equity in the property, or one with knowledge of facts that would lead a reasonably prudent purchaser to make inquiries concerning such'" (Gregg v M & T Bank Corp., 160 AD3d at 940, quoting Yen-Te Hsueh Chen v Geranium Dev. Corp., 243 AD2d at 709; see Anderson v Blood, 152 NY 285, 293). "The intended purchaser must be presumed to have investigated the title, and to have examined every deed or instrument properly recorded, and to have known every fact disclosed or to which an inquiry suggested by the record would have led" (Fairmont Funding Ltd. v Stefansky, 301 AD2d 562, 564). "If the purchaser fails to use due diligence in examining the title, he or she is chargeable, as a matter of law, with notice of the facts which a proper inquiry would have disclosed" (id. at 564; see Congregation Beth Medrosh of Monsey, Inc. v Rolling Acres Chestnut Ridge, LLC, 101 AD3d 797, 799; Matter of Hill, 95 AD3d 889, 889; Booth v Ameriquest Mtge. Co., 63 AD3d 769, 769).

Here, Sternberg established his prima facie entitlement to judgment as a matter of law by submitting evidence demonstrating that he purchased the subject property for valuable consideration, without prior notice of the Emigrant mortgage, and without knowledge of facts that would lead a reasonably prudent purchaser to make such an inquiry, and that he recorded his deed prior to the recording of the Emigrant mortgage (see 139 Lefferts, LLC v Melendez, 156 AD3d 666, 667; Washington Mut. Bank, FA v Peak Health Club, Inc., 48 AD3d 793, 797-798). However, viewing the evidence in the light most favorable to the plaintiff and resolving all reasonable inferences in its favor (see Derise v Jaak 773, Inc., 127 AD3d 1011, 1011), the plaintiff raised triable issues of fact in opposition. Specifically, evidence that the plaintiff's predecessor-in-interest paid the real estate taxes on the property both before and after Sternberg's purchase of the premises raised triable issues of fact as to Sternberg's actual knowledge of the Emigrant mortgage prior to his purchase and whether due diligence in examining the tax records for the property would have placed him on inquiry notice of the Emigrant mortgage prior to his purchase (see Ward v Ward, 52 AD3d 919, 921; 7 Vestry LLC v Department of Fin. of City of N.Y., 22 AD3d 174, 184)."

WHEN BUYER FAILS TO GET A MORTGAGE COMMITMENT BECAUSE BUYER CAN'T SELL THEIR CURRENT HOME

The standard form residential contract of sale (jointly Prepared by the Real Property Section of the New York State Bar Association, the New York State Land Title Association, the Committee on Real Property Law of the Association of the Bar of the City of New York and the Committee on Real Property Law of the New York County Lawyers' Association) has a clause (if the sale is conditioned on a mortgage) which states in part:

"To the extent a Commitment is conditioned on the sale of Purchaser's current home, payment of any outstanding debt, no material adverse change in Purchaser's financial condition or any other customary conditions, Purchaser accepts the risk that such conditions may not be met;"

That clause came into issue earlier this year in Gonzalez v. CHAR & HERZBERG, LLP, 2017 NY Slip Op 30473 - NY: City Court, Civil Court 2017:

"Plaintiffs received a Mortgage Loan Commitment from loanDepot.com, LLC dated August 29, 2016 (Ex 4). The document listed conditions that had to be met prior to closing and at closing, including that Plaintiffs had to have a contract of sale executed for their current home prior to the closing.

Plaintiffs submitted a "Statement of Credit Denial, Termination or Change" dated September 1, 2016 (Exs 3 & 5) which provided that Plaintiffs application was denied, because the institution did not" . . Grant Credit to Any Applicant on the terms and conditions . . ." requested and that Plaintiffs were unable to meet the condition for sale of their current residence prior to closing.

On September 2, 2016, Plaintiffs' counsel notified Defendant that Plaintiffs' mortgage application had been denied, and requested return of their security deposit (Ex 7). Defendant responded pursuant to a letter dated September 9, 2016, stating the cancellation provision was only contingent upon a commitment letter which had been issued, and advising that they intended to proceed with the scheduled closing on or about September 10, 2016 (Ex 1). Plaintiffs' counsel responded on September 9 that no "firm" commitment has ever been issued and the commitment that was issued had conditions which could not be met. Plaintiffs' counsel again requested return of the funds or stated legal action would be instituted against Defendant as escrow agent (Ex 8).

Further correspondence between counsel ensued. Defendant alleged that the conditions in the original commitment letter could have easily been met, and that Plaintiffs "bad faith" actions resulted in the denial (Ex 9). Defendant set a closing date pursuant to a Time Is of the Essence demand for October 21, 2016 (Ex 11) and stated that failure to close would result in retention of the down payment for breach of contract."

The court held:

"Where, as here, a mortgage commitment letter is revoked after issuance Plaintiffs' right to return of the escrowed down payment turns on whether the commitment revocation and consequent failure of the transaction was attributable to bad faith on the part of the Plaintiffs (Kapur v Stiefel 264 AD2d 602). There is no evidence of any bad faith on the part of Plaintiffs in the underlying record at inquest."

NOTE - an inquest was held. That is because the defendant in this action was the attorney for the seller who was also the escrow agent. The attorney refused service and defaulted. The court awarded a judgment for the down payment plus interest and costs.

TRANSFERING THE MARITAL HOME ISSUES - AN OPINION

I have an opinion based upon several consultations and cases I have handled.

Marital residences are divided in most divorces. Recently I saw several separation agreements and/or stipulations of settlement that just list the property and state which party gets the home. But if the home is to be transferred, a deed should be prepared, signed and filed simultaneously with the agreement, since the separation agreement clause, standing alone, will not be effective to transfer title.

And while it is true that when the home is mortgaged, an "assumption clause" would be used, making one of the parties responsible for the mortgage (and perhaps binding him/her to hold harmless and indemnify the other in regard to the mortgage debt as such transfers generally do not trigger the "due on sale" clause contained in most mortgages under the Garn – St. Germain Depository Institutions Act of 1982, 12 U.S.C. 1701j-3) may not be the best approach.

Assume the following: the agreement provides that the the departing spouse, the transferor, agrees that the house will be transferred to the remaining spouse, the transferee, but the departing spouse will be responsible for the mortgage. A deed may or may not have been signed and filed. Later, departing spouse, for whatever reasons stops payment. Foreclosure action begins.

Assume the following: the agreement provides that the the departing spouse, the transferor, agrees that the house will be transferred to the remaining spouse, the transferee, who will be responsible for the mortgage. After the agreement and judgment, a deed is prepared, signed and filed but there was no discharge from the bank to the departing spouse. Later, remaining spouse, for whatever reasons stops payment. Foreclosure action begins.

A best practice would be for the home to be transferred with the transferee refinancing the original debt thereby discharging the transferor spouse. Under this view, the departing spouse, the transferor, is paid its equitable share and is gone. The transferee, the remaining spouse, is responsible for the mortgage. However, financial circumstances may not allow this and each party should be made aware of the potential risks involved.
 

MORTGAGE LOAN APPLICATIONS AND MISREPRESENTATIONS

According to ABA Journal for September 2015, the most common misrepresentations on a mortgage loan application, from 2013 through 2015, were:

1. 62% - the amount of liabilities.

2. 18% - intent to occupy as primary residence.

3. 9% - material facts about property or comparable sales.

According to The Washington Post:

"What happens to borrowers who lie about property use and subsequently are found out? Usually it’s not pretty. Lenders can call the loan — demanding immediate, full payment of the outstanding mortgage balance. If the borrowers can’t afford to or refuse to pay, the lender typically moves to foreclose — wrecking whatever plans of long-term investment or vacation-rental-home ownership the borrowers might have had. In cases involving multiple misrepresentations, lenders can also refer the case to the FBI: Lies on mortgage applications are bank fraud and can trigger severe financial penalties, prosecution and prison time if convicted."

See http://www.washingtonpost.com/realestate/a-little-lie-on-mortgage-application-can-cost-you-big/2015/06/30/2e2dcff0-1e6b-11e5-aeb9-a411a84c9d55_story.html

NEW RULES ON MORTGAGE EFFECTIVE OCTOBER 3

The Consumer Financial Protection Bureau (CFPB) issued a final rule moving the effective date of the Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule, to October 3, 2015. The rule requires easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer.

A copy of the final rule is available here:

http://files.consumerfinance.gov/f/201507_cfpb_2013-integrated-mortgage-disclosures-rule-under-the-real-estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z-and-amendments-delay-of-effective-date.pdf

DELAY IN NEW MORTGAGE DISCLOSURE RULES

See http://www.nationalmortgagenews.com/news/regulation/cfpb-delays-mortgage-disclosures-due-to-administrative-error-1053797-1.html

ON "WELFARE MORTGAGES"

According to an email from Empire Justice Center:

"The 2014-15 New York State budget contains Article VII legislation that amends SSL 106 to clearly state that HEAP, child care and SNAP cannot be charged against welfare mortgages.  Although this was true before the law was amended, the rules appeared only in regulation and sub-regulatory materials resulting in errors in the calculation of these mortgages.  The errors have been particularly egregious since there is no right to a fair hearing to challenge erroneous liens. 18 NYCRR 358-3.1(f)(5).  Effective May 30, 2014, the bill requires a signed acknowledgement from all applicants who are asked to sign a welfare mortgage that  

• HEAP, child care and food stamps cannot be charged against the mortgage;
• Child support retained by the district, as well as any other payment (lottery winnings, etc.), must be applied to reduce the mortgage;
• That a person can refuse to sign a mortgage and still get a grant for their children."

See:http://www.empirejustice.org/policy-advocacy/legislative-updates/new-law-makes-the-rules.html

HOPE LOAN PORT - MORTGAGE FORECLOSURE AND MODIFICATIONS

"Hope LoanPort^® (HLP) is a neutral, national, and non-profit utility providing technology-based solutions that facilitate transparency, accessibility, consistency of treatment and a superior experience to consumers and their advocates in pursuit of foreclosure alternatives and affordable home loans in underserved markets. Use of HLP is free for the authorized HUD-approved nonprofit housing counselors working on behalf of the homeowner. For mortgage servicers, homeowners and their advocates, HLP is an established communication and processing platform dedicated to providing homeowners with a neutral assistance option. HLP is regularly updated to facilitate compliance with evolving Federal and Investor assistance programs and servicing guidelines. HLP's secured web-based portal includes real time messaging between counselors and servicers, status updates, and electronic document storage."

See https://www.hopeloanportal.org/

NEW MORTGAGE RULES EFFECTIVE JANUARY 10, 2014

High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X):

http://www.consumerfinance.gov/regulations/high-cost-mortgage-and-homeownership-counseling-amendments-to-regulation-z-and-homeownership-counseling-amendments-to-regulation-x/#consumers

FOR LONG ISLAND HOMEOWNERS FACING FORECLOSURE

Newsday reports today:

"Long Island homeowners in distress will soon be eligible to apply for a new low-cost loan program meant to help avert foreclosure.

Homeowners will be able to obtain loans this fall of up to $40,000 to pay down delinquent home loans or satisfy liens, which can interfere with troubled homeowners' ability to have their mortgages modified by lenders, New York Attorney General Eric T. Schneiderman said Wednesday.

For many families, "receiving a small loan through this program will mean the difference between a mortgage modification and the loss of a home," Schneiderman said in a statement. He is expected to officially announce the initiative, called the New York State Mortgage Assistance Program, Thursday in Hempstead. Recipients must earn less than 120 percent of their area's median income."

I could not find the press release on the AG web site but here is the link to the New York State Mortgage Assistance Program website:

http://nysmap.org/

LATEST NUMBERS ON HOMES IN DANGER OF FORECLOSURE

The numbers with respect to homes valued less than the debt are staggering - nationwide 37% are "effectively" underwater with New York at 29.9%:

http://zillow.mediaroom.com/index.php?s=159&item=437

NEW YORK MORTGAGE FORECLOSURE - AFFORDABLE HOUSING

This chart is from a web article on the subject titled "1 in 3 homes is unaffordable and a bubble is forming". Line 2 states that in New York,  41.8% of the homes are unaffordable by historic standards while the percentage of monthly income that needs to be devoted to median housing is 31.6% (not sure if that figure of mortgage payments also includes real estate taxes).

The full link to this article, which appeared last month, can be found here:

http://www.housingwire.com/articles/29553-in-3-homes-is-unaffordable-and-a-bubble-is-forming

HMDA

"
Each year thousands of banks and other financial institutions report data about mortgages to the public, thanks to the Home Mortgage Disclosure Act, or “HMDA” for short. These public data are important because:

• Help show whether lenders are serving the housing needs of their communities;
• Give public officials information that helps them make decisions and policies; and
• Shed light on lending patterns that could be discriminatory"

See their site:

http://www.consumerfinance.gov/hmda/explore

E RECORDING IN NASSAU COUNTY

Although not yet on the Coiunty Clerk's website, this notice was forwarded to me:

ON NEW YORK'S NEW FORECLOSURE RULES

Does the following statement apply to all homeowners in foreclosure (taken from AARP November magazine):

"In a state previously riddled by a lengthy foreclosure process, a law that took effect Aug. 30 has begun to shorten the duration and help homeowners avoid snowballing interest charges and penalties.
Backed by AARP New York, the law requires lenders to file certification paperwork at the same time they file a foreclosure suit, which speeds up cases and gives thousands of New Yorkers a better chance at affording a settlement. Additionally, the measure reduces blight from “zombie foreclosures” when legal delays prompt people to walk away from their homes.
New York’s foreclosure process previously averaged nearly three years—the longest in the nation—with about 25,000 unresolved cases statewide."

A link to the article can be found here:

AARP - Mortgage Relief to Avoid Delays

SAVING YOUR HOME FROM FORECLOSURE

A video presentation offering practical tips and advice for homeowners facing mortgage foreclosure from the New York State Bar Association:

http://204.8.127.102/peopleslaw/SaveYourHome.htm

REVERSE MORTGAGES

Yesterday I attended a CLE on reverse mortgages sponsored by Tradition Title Agency.

A reverse mortgage is actually called a Home Equity Conversion Mortgage (HECM). It is a FHA program and, in my opinion, may not be completely explained in the commercials I see on television. Some basic information about them, the costs, eligibility, etc. can be found at these links which I found to be helpful:

HUD - Frequently Asked Questions about HUD's Reverse Mortgages

WIKI - Reverse mortgages in the United States

Another interesting fact I learned is that not all banks are offering reverse mortgages.