Real Property Law

County Clerk May Not Accept MERS Discharges for Recording

Merscorp. Inc. v. Romaine

NYLJ 6/17/04, p. 20, col. 1

Supreme Ct., Suffolk Cty

(Catterson, J.)

In a mandamus proceeding by Merscorp., owner of an electronic mortgage registration company, to compel the Suffolk County Clerk's office to record mortgages, discharges, and assignments naming “MERS as nominee for lender,” Merscorp sought summary judgment. The court granted summary judgment to Merscorp with respect to recording of mortgages, but granted summary judgment to the County Clerk, holding that Merscorp is not entitled to compel the recording of MERS discharges of mortgages that have been assigned or do not pertain to MERS mortgages, and is not entitled to compel the recording of MERS assignments.

The MERS system is a nationwide electronic registration system designed to simplify mortgage transfers among MERS members. Each member contractually agrees to appoint MERS to act as mortgagee on all loans they register on the MERS system. If a MERS mortgage is assigned to a non-MERS member, the assignment is recorded in the local recording office, but if a MERS mortgage is assigned from one member to another, records of the assignment are maintained in the centralized MERS database, but not in the local recording office. The public can obtain the identity of the current servicer of a MERS mortgage by calling a toll-free number that appears on the MERS mortgage document. MERS becomes the mortgagee as nominee of the lender either because borrower and lender name MERS as the mortgagee of record at the time the loan is originated, or because a MERS member acquires the mortgage from a non-MERS member.

On May 1, 2001, the Suffolk County Clerk announced that he would no longer accept MERS instruments for filing unless MERS was the actual mortgagee. The County Clerk concluded that recording MERS as the mortgagee violated Real Property Law section 316 and 316-a, and frustrated the legislative intent of the recording provision. Merscorp then brought this mandamus proceeding, and obtained a preliminary injunction from the Appellate Division.

The court started by concluding that the County Clerk had an obligation to record MERS mortgages. The court noted that RPAPL section 1921(9)(a) defines mortgagee as a “current holder of the mortgage or the agent of the current holder of the mortgage.” The court also emphasized that recording is designed to be a ministerial act; the county clerk is required to record instruments in proper form and has no power to make determinations about the validity of the underlying conveyance. As a result, the court ordered the County Clerk to index MERS mortgages as presented.

With respect to discharges, however, the court noted that Real Property Law section 321(3) provides that any discharge certificate must set forth the date of each assignment in the chain of title, the names of the assignor and assignee, and the interest assigned. MERS discharges do not provide that information. As a result, the court held that the Suffolk County Clerk was not obligated or entitled to record MERS discharges that do not include that information. The court emphasized the statute's intent that at the time a mortgage is discharged, its history should be a matter of public record. For similar reasons, the court held that the County Clerk was powerless to accept MERS assignments; only the relevant assignors may issue and record the assignment.

COMMENT

See article by Stewart Sterk on page 1.

Agreement to Restrict Bidding At Foreclosure Sale Held Enforceable

Republic National Bank v. Ortiz

NYLJ 6/25/04, p. 33, col. 2

AppDiv, Second Dept

(memorandum opinion)

In a foreclosure action, mortgagor appealed from the Supreme Court's denial of a motion to set aside the foreclosure sale. The Appellate Division affirmed, holding that the agreement between mortgagor and mortgagee to restrict bidding at the sale was fully enforceable.

The mortgagor and mortgagee agreed that the mortgagor would not bid at the foreclosure sale, but that mortgagor could redeem the property by paying mortgagee $275,000 in return for the assignment of mortgagee's successful bid. The agreement was designed to protect the mortgagor against inability to close on the foreclosure sale if the mortgagor were himself to bid and then be unable to secure the necessary funds. At a previous foreclosure sale, the mortgagor had incurred $4000 in referee's fees when he failed to close on the sale. As the agreement contemplated, mortgagee bid, successfully, at the foreclosure sale. After the sale, mortgagor's lawyer declared, in open court, that his client did not want to set aside the sale, but wanted to carry out the deal with the mortgagee. Some time later, however, the mortgagor sought to set aside the sale, relying on the general rule that a mortgagee may not enter into an agreement to restrict bidding to benefit itself at the expense of the mortgagor. Supreme Court denied the motion.

In affirming, the Appellate Division noted that in this case, the challenged agreement was for an honest purpose, was advantageous to the mortgagor, and did not suppress the price paid at the auction. The court emphasized that mortgagor was a willing party to the agreement. As a result, the court held that Supreme Court had properly denied mortgagor's motion.

Encroachments Do Not Make Title Unmarketable

Axys, LLC v. Ng

NYLJ 6/16/04, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Ramos, J.)

In a dispute over the rights of the parties to a real estate sale contract, the parties agreed that the sale would close unless the court determined that the seller is unable to convey marketable title. The court concluded that the seller could convey the marketable title, and that the sale should close.

The subject contract involves the sale of residential property on 20 East 10th Street, which the purchaser agreed to buy for more than $11,000,000. Paragraph 9(c) of the sale contract provides for waiver of objection to encroachments of stoop, areas, cellar steps, trim and cornices upon any street or highway. Paragraph 30(c) provides that the parcel would be sold subject to any state of facts an accurate survey would disclose, provided that the additional facts would not render the title unmarketable. The purchaser reads these provisions together as establishing that there shall be no waiver of objection to any encroachments other than those listed in paragraph 9. Hence, since the survey revealed encroachments of a leader, vent pipes and window guards, the purchaser contends that title was unmarketable, excusing her from closing on the premises.

In rejecting the purchaser's contention, the court cited expert testimony that virtually every parcel within the city of New York has one or more encroachments. If these were enough to render title unmarketable, no purchaser would be required to close on a sale contract, an absurd result the court was unwilling to countenance. Moreover, the court noted that the encroachments cited in this case were de minimis, and were open an notorious to the purchaser. As a result, the court held that title was not unmarketable.

County Clerk May Not Accept MERS Discharges for Recording

Merscorp. Inc. v. Romaine

NYLJ 6/17/04, p. 20, col. 1

Supreme Ct., Suffolk Cty

(Catterson, J.)

In a mandamus proceeding by Merscorp., owner of an electronic mortgage registration company, to compel the Suffolk County Clerk's office to record mortgages, discharges, and assignments naming “MERS as nominee for lender,” Merscorp sought summary judgment. The court granted summary judgment to Merscorp with respect to recording of mortgages, but granted summary judgment to the County Clerk, holding that Merscorp is not entitled to compel the recording of MERS discharges of mortgages that have been assigned or do not pertain to MERS mortgages, and is not entitled to compel the recording of MERS assignments.

The MERS system is a nationwide electronic registration system designed to simplify mortgage transfers among MERS members. Each member contractually agrees to appoint MERS to act as mortgagee on all loans they register on the MERS system. If a MERS mortgage is assigned to a non-MERS member, the assignment is recorded in the local recording office, but if a MERS mortgage is assigned from one member to another, records of the assignment are maintained in the centralized MERS database, but not in the local recording office. The public can obtain the identity of the current servicer of a MERS mortgage by calling a toll-free number that appears on the MERS mortgage document. MERS becomes the mortgagee as nominee of the lender either because borrower and lender name MERS as the mortgagee of record at the time the loan is originated, or because a MERS member acquires the mortgage from a non-MERS member.

On May 1, 2001, the Suffolk County Clerk announced that he would no longer accept MERS instruments for filing unless MERS was the actual mortgagee. The County Clerk concluded that recording MERS as the mortgagee violated Real Property Law section 316 and 316-a, and frustrated the legislative intent of the recording provision. Merscorp then brought this mandamus proceeding, and obtained a preliminary injunction from the Appellate Division.

The court started by concluding that the County Clerk had an obligation to record MERS mortgages. The court noted that RPAPL section 1921(9)(a) defines mortgagee as a “current holder of the mortgage or the agent of the current holder of the mortgage.” The court also emphasized that recording is designed to be a ministerial act; the county clerk is required to record instruments in proper form and has no power to make determinations about the validity of the underlying conveyance. As a result, the court ordered the County Clerk to index MERS mortgages as presented.

With respect to discharges, however, the court noted that Real Property Law section 321(3) provides that any discharge certificate must set forth the date of each assignment in the chain of title, the names of the assignor and assignee, and the interest assigned. MERS discharges do not provide that information. As a result, the court held that the Suffolk County Clerk was not obligated or entitled to record MERS discharges that do not include that information. The court emphasized the statute's intent that at the time a mortgage is discharged, its history should be a matter of public record. For similar reasons, the court held that the County Clerk was powerless to accept MERS assignments; only the relevant assignors may issue and record the assignment.

COMMENT

See article by Stewart Sterk on page 1.

Agreement to Restrict Bidding At Foreclosure Sale Held Enforceable

Republic National Bank v. Ortiz

NYLJ 6/25/04, p. 33, col. 2

AppDiv, Second Dept

(memorandum opinion)

In a foreclosure action, mortgagor appealed from the Supreme Court's denial of a motion to set aside the foreclosure sale. The Appellate Division affirmed, holding that the agreement between mortgagor and mortgagee to restrict bidding at the sale was fully enforceable.

The mortgagor and mortgagee agreed that the mortgagor would not bid at the foreclosure sale, but that mortgagor could redeem the property by paying mortgagee $275,000 in return for the assignment of mortgagee's successful bid. The agreement was designed to protect the mortgagor against inability to close on the foreclosure sale if the mortgagor were himself to bid and then be unable to secure the necessary funds. At a previous foreclosure sale, the mortgagor had incurred $4000 in referee's fees when he failed to close on the sale. As the agreement contemplated, mortgagee bid, successfully, at the foreclosure sale. After the sale, mortgagor's lawyer declared, in open court, that his client did not want to set aside the sale, but wanted to carry out the deal with the mortgagee. Some time later, however, the mortgagor sought to set aside the sale, relying on the general rule that a mortgagee may not enter into an agreement to restrict bidding to benefit itself at the expense of the mortgagor. Supreme Court denied the motion.

In affirming, the Appellate Division noted that in this case, the challenged agreement was for an honest purpose, was advantageous to the mortgagor, and did not suppress the price paid at the auction. The court emphasized that mortgagor was a willing party to the agreement. As a result, the court held that Supreme Court had properly denied mortgagor's motion.

Encroachments Do Not Make Title Unmarketable

Axys, LLC v. Ng

NYLJ 6/16/04, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Ramos, J.)

In a dispute over the rights of the parties to a real estate sale contract, the parties agreed that the sale would close unless the court determined that the seller is unable to convey marketable title. The court concluded that the seller could convey the marketable title, and that the sale should close.

The subject contract involves the sale of residential property on 20 East 10th Street, which the purchaser agreed to buy for more than $11,000,000. Paragraph 9(c) of the sale contract provides for waiver of objection to encroachments of stoop, areas, cellar steps, trim and cornices upon any street or highway. Paragraph 30(c) provides that the parcel would be sold subject to any state of facts an accurate survey would disclose, provided that the additional facts would not render the title unmarketable. The purchaser reads these provisions together as establishing that there shall be no waiver of objection to any encroachments other than those listed in paragraph 9. Hence, since the survey revealed encroachments of a leader, vent pipes and window guards, the purchaser contends that title was unmarketable, excusing her from closing on the premises.

In rejecting the purchaser's contention, the court cited expert testimony that virtually every parcel within the city of New York has one or more encroachments. If these were enough to render title unmarketable, no purchaser would be required to close on a sale contract, an absurd result the court was unwilling to countenance. Moreover, the court noted that the encroachments cited in this case were de minimis, and were open an notorious to the purchaser. As a result, the court held that title was not unmarketable.