Second Circuit Narrows Borrower's Ability to Pursue Class Damages In Federal Court for Failure to Timely Record Mortgage Satisfactions

This appeal originated from an order of the United States District Court for the Western District of New York, holding Plaintiffs maintained Article III standing to seek statutory damages for Defendant's purported untimely violation of recordation requirements imposed by New York State's mortgage-satisfaction-recording statues in New York Real Property Law (RPL) §275 and New York Real Property Actions and Procedures Law (RPAPL) §1921. Initially, the Second Circuit held that, despite not having actual damages to title, reputation, or otherwise, Plaintiffs still maintained Article III standing based on alleging a violation of the mortgage-satisfaction-recording statutes because a mortgagee's delay in recording a discharge of mortgage: 1) creates a cloud on title to real estate; and 2) creates the false appearance that the mortgagor has not paid his/her debt, which can harm the mortgagor's reputation and make it difficult for him/her to obtain additional financing. Maddox v. Bank of N.Y. Mellon Trust Co., N.A., 997 F.3d 436, 446-447 (2d Cir. 2021). As a result, the Second Circuit held that Plaintiffs suffered material harm and an injury-in-fact. Id. at 448-449. Thus, the Second Circuit held that the violations of New York statutory law by itself constituted a particularized harm giving rise to Article III standing because the invasion of interests protected by state law support Article III standing and that the plausible inference that Defendant harmed Plaintiffs financial reputation created a material risk of particularized harm by impairing their credit and liming their borrowing capacity. Id. at 439-440.

But following the original Maddox decision, the Supreme Court issued TransUnion. In TransUnion, the Supreme Court held that "concrete harm" requires more than the existence of a risk of harm that never materializes. The Supreme Court distinguished risk that ultimately materialized and the risk of future harm and held that, to have Article III standing, the harm must materialize: "In sum, the 6,332 class members whose internal TransUnion credit files were not disseminated to third-party businesses did not suffer a concrete harm. By contrast, the 1,853 class members (including Ramirez) whose credit reports were disseminated to third-party businesses during the class period suffered a concrete harm." TransUnion LLC, 141 S. Ct. at 2212-2213.