Accessing Undischarged Mortgages
The title industry encounters requests to clear undischarged mortgages on a daily basis. Typically, the request is brought about because, although the mortgage has been paid in full, the mortgagee has failed to record a satisfaction. Cooperation and due diligence generally produce clearance in the form of a prior title policy, indemnification or production of the actual satisfaction piece. The thought process involves personal knowledge and proof by the prior insurer that the mortgage was, in fact, paid. Therefore, there is no potential for liability or loss by the insurer, its insured, subsequent owners, or lenders, even though a satisfaction piece is not of record.
However, not all dispositions of undischarged mortgages are so transparent. How many times have we faced undischarged mortgages that were not an item on a settlement statement or where the satisfaction absolutely cannot be obtained? In these instances, we cannot approach a non-litigation resolution in such routine fashion, if at all. How do we prove, without resorting to judicial intervention, that these undischarged mortgages cannot be enforced, hence rebutting a subsequent marketability argument?
First, we should understand that a conveyance does not contemplate a perfect, spotless record. Unless stated otherwise, it is presumed that a seller will convey marketable title (Regan v Lanze, 40 NY2d 475, 482; Laba v Carey, 29 NY2d 302, 311). The Regan Court expounds on marketable:
“A marketable title has been defined as one that may be freely made the subject of resale (Trimboli v Kinkel, 226 NY 147, 152; see 62 NY Jur, Vendor and Purchaser, § 48; 3 Warren’s Weed New York Real Property, Marketability of Title, § 2.01). It is one which can be readily sold or mortgaged to a person of reasonable prudence, the test of the marketability of a title being whether there is an objection thereto such as would interfere with a sale or with the market value of the property (Brokaw v Duffy, 165 NY 391, 399; Heller v Cohen, 154 NY 299, 306; Vought v Williams, 120 NY 253, 257; Schwartz, Real Estate Manual, p 581). The law assures to a buyer a title free from reasonable doubt, but not from every doubt (Norwegian Evangelical Free Church v Milhauser, 252 NY 186, 190; see Hall-Mark Realty Corp. v McGunnigle, 253 NY 395, 398), and the mere possibility or suspicion of a defect, which according to ordinary experience has no probable basis, does not demonstrate an unmarketable title (Cambrelleng v Purton, 125 NY 610, 616; Vought v Williams, 120 NY 253, 257-258, supra; Johnston v Garvey, 139 App Div 659, affd 201 NY 548; Cymerman Bros. v Payne Homes, 5 Misc 2d 792, 794, affd 4 AD2d 701, affd 4 NY2d 937).” Id 481, 482
How do the preceding terms, “objection”, “reasonable doubt”, “every doubt”, “suspicion of a defect”, “ordinary experience” and “no probable basis” relate to clearance of an undischarged mortgage? They provide us with the opportunity to prove that a title with an undischarged mortgage is nonetheless marketable by presenting evidence that the mortgage has in fact been paid or cannot otherwise be enforced. And how do we adduce the evidence? A court order would clear title and place the issue beyond question. Marketability, however, does not require a court order in all instances.
A 1987 case is on point here. The plaintiff/buyer in Lovell v Jimal Holding Corporation, 127 AD2d 747 brought a specific performance action, not a bar claim action. The buyer and seller entered into a contract in 1983. The contract clause gave the seller an option to return the deposit and cancel the contract if the title was unmarketable. The title searched returned a 1967 undischarged mortgage. The seller returned the buyer’s deposit and canceled the contract. The Supreme Court granted summary judgment for the buyer on its claim for specific performance. The court held that a buyer may waive a defect in title that might otherwise make the title unmarketable, as the buyer was willing to do here. The Appellate Court sustained the decision, but for a different reason. The Court stated that waiver was not the issue. Rather, the issue was whether the undischarged mortgage rendered the title unmarketable. The Court applied the Statute of Limitations against the mortgage and declared that title was marketable. “An undischarged mortgage of record does not constitute a defect in title where all action with respect thereto is barred by the six-year Statute of Limitations (62 NY Jur, Vendor and Purchaser, para 67, at 296;
So how can we muster enough proof to dispose of these extraordinary cases without litigation? Is one person’s proof threshold sufficient for another? It seems to me that “ordinary experience”, as noted above, can guide decisions that should prevail throughout subsequent transfers. What do we require to show payment? What do we need to prove that limitations has run? This writing cannot possibly begin to itemize every contingency. The point here is to encourage thought on the issue. In those instances where a satisfaction is unobtainable and we are sure of the unenforceability of the mortgage, whether by payment or otherwise, and we have proof, then the title should be marketable without the necessity of decree.
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