Real Property Law

Second Mortgagee Entitled to Surplus Moneys Despite Application Delay

Washington Mutual Home Loans Inc. v. Jones

NYLJ 4/10/06, p. 31, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a first mortgage, second mortgagee appealed from a Supreme Court order awarding surplus moneys to mortgagor. The Appellate Division reversed and awarded surplus moneys to second mortgagee, holding that second mortgagee's failure to apply for the money was an irregularity for which an extension was appropriate.

In 1999, mortgagor obtained a first mortgage in the amount of $119,325. In 2000, mortgagor obtained a second mortgage (from a different lender) in the amount of $30,000. When mortgagor defaulted on the first mortgage in 2001, first mortgagee foreclosed and second mortgagee made a claim for any surplus moneys. Second mortgagee was the high bidder at the foreclosure sale, paying $205,000 for the property. After satisfying the first mortgage, taxes, and fees (but not the second mortgage), the referee deposited $29,344.83 with the county treasurer. Second mortgagee made no claim for the money within 4 months of the filing of the referee's report. Then, in December 2003, mortgagor filed a claim for the surplus moneys, noting that no one else had made a claim within four months. Second mortgagee opposed the motion, but Supreme Court awarded the moneys to mortgagor, concluding that second mortgagee's purchase had satisfied the mortgage, and that second mortgagee had waived any right to surplus moneys by not making timely request for the moneys.

In reversing, the Appellate Division held first that second mortgagee's failure to request the surplus within four months after the filing of the referee's report was the result of law office failure, and had not in any way caused prejudice. As a result, the court concluded that an extension was warranted. The court then held that although senior mortgagees who purchase foreclosed property for an amount that encompasses the debt are deemed to have satisfied the mortgage, the same rule does not apply to subordinate mortgagees. Here, the second mortgage was not satisfied when it purchased the premises, and second mortgagee was entitled to the surplus moneys.

Second Mortgagee Entitled to Surplus Moneys Despite Application Delay

Washington Mutual Home Loans Inc. v. Jones

NYLJ 4/10/06, p. 31, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a first mortgage, second mortgagee appealed from a Supreme Court order awarding surplus moneys to mortgagor. The Appellate Division reversed and awarded surplus moneys to second mortgagee, holding that second mortgagee's failure to apply for the money was an irregularity for which an extension was appropriate.

In 1999, mortgagor obtained a first mortgage in the amount of $119,325. In 2000, mortgagor obtained a second mortgage (from a different lender) in the amount of $30,000. When mortgagor defaulted on the first mortgage in 2001, first mortgagee foreclosed and second mortgagee made a claim for any surplus moneys. Second mortgagee was the high bidder at the foreclosure sale, paying $205,000 for the property. After satisfying the first mortgage, taxes, and fees (but not the second mortgage), the referee deposited $29,344.83 with the county treasurer. Second mortgagee made no claim for the money within 4 months of the filing of the referee's report. Then, in December 2003, mortgagor filed a claim for the surplus moneys, noting that no one else had made a claim within four months. Second mortgagee opposed the motion, but Supreme Court awarded the moneys to mortgagor, concluding that second mortgagee's purchase had satisfied the mortgage, and that second mortgagee had waived any right to surplus moneys by not making timely request for the moneys.

In reversing, the Appellate Division held first that second mortgagee's failure to request the surplus within four months after the filing of the referee's report was the result of law office failure, and had not in any way caused prejudice. As a result, the court concluded that an extension was warranted. The court then held that although senior mortgagees who purchase foreclosed property for an amount that encompasses the debt are deemed to have satisfied the mortgage, the same rule does not apply to subordinate mortgagees. Here, the second mortgage was not satisfied when it purchased the premises, and second mortgagee was entitled to the surplus moneys.