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Holder of Prior Mortgage Not Entitled to Surplus Funds Board of Managers of the Coronado Condominium v. Silva NYLJ 11/25/16 Supreme Ct., N.Y. Cty. (Bluth, J.)
In a condominium's action to foreclose a lien for common charges, purchaser of a first mortgage moved for an order directing the turnover of surplus funds. The court denied the motion, holding that the holder of a prior mortgage is not entitled to surplus funds.
The condominium board brought an action to foreclose its lien for unpaid common charges associated with the subject unit. At the foreclosure sale, the high bid was $490,000, leaving $59,590.52 in surplus money. The foreclosure sale purchaser bought title insurance from Fidelity in connection with its purchase. Fidelity, however, failed to discover a purchase money mortgage in the amount of $141,500. When it later discovered the lien, it purchased the mortgage to satisfy its contractual obligation to the foreclosure sale purchaser. Fidelity then moved in the foreclosure action to an order directing turnover of the surplus funds.
In denying Fidelity's motion, the court acknowledged Fidelity's dilemma. A prior mortgage survives a foreclosure sale, and ordinarily if the purchaser does not make payments on the mortgage, the mortgagee's remedy is foreclosure. In this case, however, Fidelity acknowledged that it was not entitled to foreclose on the purchaser, because it had insured the purchaser's title against any prior mortgages. Moreover, Fidelity had no claim on the original mortgage note, because the original unit owner had been discharged in bankruptcy. The court observed that if the foreclosure sale purchaser sought to recover the surplus money, Fidelity might then have a claim against the foreclosure sale purchaser based on its title insurance contract, but the court held that whether Fidelity would be entitled to recover on such a contract claim was beyond the scope of the foreclosure proceeding.
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