Discharging Mortgages When Satisfactions Cannot Be Obtained

By Stephen Hammel, Esq., Clearance Counsel

Over the past few years, the problem of paid off mortgages still appearing of record has grown and presented issues, delay and hardship to the parties involved in the closing of real estate transactions. As we know, the problem has been amplified by the number of leading institutions entering, exiting and merging in our market each year. These factors combined with the sheer number of transactions occurring now, makes it easy to understand how errors can be made which ultimately result in the non-recordation of the original satisfaction document. Although there are numerous fact patterns, types of mortgages and individual cases, the purpose in writing this article is to briefly outline the most relevant sections of New York State’s code used in obtaining a discharge order for an unrecorded satisfaction.

Prior to discussing the discharge orders, it is important to note that mortgage lenders are required to provide a satisfaction and mortgage related documents pursuant to Section 274 and 275 of the New York State Real Property Law (RPL) and under Section 1921 of the New York State Real Property Actions and Proceedings Law (RPAPL).

Under Section 275(1) of the RPL, a lending institution upon payoff of a loan is required to provide a satisfaction to the mortgagor or his designee within 30 days from the date of payoff, except if the mortgagee is the State of New York or one of its agencies. Furthermore, section 274-a (2) of the RPL provides that upon the payoff of a mortgage covering an owner occupied one to six family residential structure or condominium unit that the mortgagee “shall deliver within 30 days, any mortgage related documents to an authorized individual making a bona fide written demand for such documents.” Examples of the above referred mortgage related documents are outlined in section 274-a (2)(b)(iv)(1-3) which include the abstract of title, a payoff statement and the title insurance policy.

Additional requirements are placed on lenders by Section 1921 of the RPAPL, which are similar to RPL Section 274-a and RPL Section 275; however, RPAPL Section 1921 has a conflict in the number of days in which to provide a satisfaction in that it allows an additional 15 days for lender compliance. RPAPL Section 1921 (1) provides that upon payoff of a mortgage loan, the lender must within forty-five days either (a) present a satisfaction for recording or (b) deliver the satisfaction to the mortgagor’s designee together with the original note and mortgage, except in the case of a credit line mortgage as defined in Section 281 of the RPL, which requires a written request in order to have the credit line satisfied. The rationale for requiring the written statement is due to the very nature of a credit line mortgage in that the line may have a zero balance and still have an open status with the lender. Merrill Lynch Equity Management, Inc. etal V. Stephanie S. Kleinman etal, 246 A.D.2d 884, 668 N.Y.S. 2d 726, (N.Y. App. Div. 1993).

Of course, the above requirements of RPAPL Section 1921 would not apply to any types of mortgages which by its terms would preclude its discharge, due to some other factors relating to performance of other obligations besides payment of money. Weiss V. Weiss (1994 3d Dept) 206 A.D. 2d 741, 615 NYS 2d 468, North-East Hospitals, L.L.C. V Batavia Innkeeper’s Inc (1999, 4th Dept) 262 AD2d 1049, 692 NYS2d 261.

When the best efforts of the parties to a real estate transaction have failed to reveal the whereabouts of a satisfaction document and when a lender has not provided a satisfaction within the guidelines as set forth above, then Section 1921 of the RPAPL provides us with remedies to pursue lenders if they fail or refuse to provide the satisfaction upon payoff, and in the case of a credit line mortgage upon payment with a written request to close the line. Under RPAPL Section 1921(2) and (3), upon the lending institution’s failure or refusal to provide the satisfaction within the forty-five day period an order to show cause may be brought to direct the county clerk or register to cancel and discharge the mortgage of record and to further order and direct that the debt or other obligation secured by the mortgage be cancelled, upon the condition that sums not be paid will be deposited with the court.

RPAPL Section 1921 also requires the delivery of the note and mortgage within 90 days, and if the mortgage covered a property that is improved by a one to six family owner occupied residential structure or residential condominium unit, then RPAPL Section 1921 (4) provides for penalties for non-compliance of $500.00 or the economic loss to the moving party, whichever is greater. If the original note and mortgage are lost, the lender can so certify and agree to indemnify the moving party, subject to an exception to these rules by the State of New York Mortgage Agency as contained and outlined at the end of Section 1921(4).

Of interest, RPAPL Section 1921 actually provides for a more innovative and immediate relief than having to bring an order to show cause under this section. Section 1921(5) of RPAPL provides that so long as the mortgage covers a one to six family, owner occupied residential structure or residential condominium unit, then if after 90 days from the date of payoff, the lender fails to deliver the satisfaction than any attorney at law may execute, acknowledge and file an affidavit to discharge the mortgage, after service on lender and with an additional $50 filing fee, with the county where the mortgage appears of record. If no verified objection is filed, then after 35 days from the time of the filing of the attorney’s affidavit, it shall be recorded and the mortgage satisfied. The attorney’s affidavit pursuant to Section 1921 (5) (b) (i) through (vi) shall state the following:

1. The affiant is an attorney-at-law and that the affidavit is made on behalf of and at the request of the mortgagor or any person who has acquired title to the mortgaged premises;
    
2. The mortgagor made a proper request of the mortgagee for the execution of the satisfaction of mortgage pursuant to subdivision one of this section;
    
3. The mortgagor has received a payoff statement for the loan secured by the mortgage, and shall annex as evidence a copy of the payoff statement;
    
4. The affiant has ascertained that the mortgagee received payment of the loan in accordance with the payoff statement, and shall annex as evidence, copies of the check negotiated by the mortgagee or documentary evidence of such payment;
    
5. The affiant, at least thirty days after the mortgagee received payment, has given the mortgagee written notice together with a copy of the proposed affidavit, delivered by certified or registered mail, return receipt requested, to the attention of the person or department set forth in the payoff statement, of the affiant’s intention to execute and record an affidavit in accordance with this section; and
    
6. The mortgagee has not responded in writing to such notification or all requests by the mortgagee for payment have been complied with at least fifteen days prior to the date of the affidavit.

Several additional requirements of the affidavit’s contents are of course, that it must state all parties to the mortgage, the date of mortgage, the recording information together with the recording information for any assignments pursuant to Section 1921 (5) (c), and furthermore, pursuant to subpart (5) (d) photo copies of the proofs of amount due and of the payment must be attached.

Upon the attorneys filing, a separate notice will be mailed to the lender pursuant to subpart (5) (e) instructing the lender to object to this filing or have mortgage discharged of record. Lastly, if there have not been any procedural problems or objections, then pursuant to sub-part (5) (f) the county clerk or register will record the documents, upon payment of recording fees and satisfy the mortgage.

Unfortunately however, the statute provides the following penalties for attorneys who file the affidavit improperly under subpart (5)(g) (i) - (ii) that states:

“Any attorney who prepares an affidavit and negligently causes the affidavit to contain false information shall be liable to the mortgagee for any monetary damages and subject to other applicable sanctions under law.

Any person who supplies false information for the affidavit shall be liable to the mortgagee for any monetary damages and subject to other applicable sanctions under law.”

In addition to these procedural requirements for clearing a mortgage from the record under RPAPL Section 1921, the courts have determined that the moving party under a RPAPL Section 1921 motion is bound by the CPLR Section 213 six year statute of limitations, which begins to run from the time that the mortgage is paid off and a written demand for a satisfaction is presented in the case of a credit line mortgage. Key Bank V. Del Norte, Inc. (1998, 3d Dept) 251 AD2d 740, 673 NYS2d 788. The court in the Key Bank case stated that an action under Section 1921 must be commenced within six years from the date the claim accrued, which in that case was when the loan was paid off and that since the Section 1921 motion was brought after six years from the date of the payoff, it was time barred.

Section 1501 of the RPAPL is another available code section that enables us to move for discharge of a mortgage. Section 1501(4) states: 

“Where the period allowed by the applicable statute of limitation for the commencement of an action to foreclose a mortgage, or to enforce a vendor’s lien, has expired, any person having an estate or interest in the real property subject to such encumbrance may maintain an action against any other person or persons, known or unknown, including one under disability as hereinafter specified, to secure the cancellation and discharge of record of such encumbrance, and to adjudge the estate or interest of the plaintiff in such real property to be free therefrom; provided, however, that no such action shall be maintainable in any case where the mortgagee, holder of the vendor’s lien, or the successor of either of them shall be in possession of the affected real property at the time of the commencement of the action. In any action brought under this section it shall be immaterial whether the debt upon which the mortgage or lien was based has, or has not, been paid; and also whether the mortgage in question was, or was not, given to secure a part of the purchase price.”

Section 1501 applies to cases in which the applicable statute of limitations under a mortgage have expired. In the case of Albert Notarnicola etal, V. Lafayette Farms, Inc. and Joseph Tuturro, etal, 288 A.D. 2d 198; 733 N.Y.S. 2d 91, (2001 N.Y. App. Div), the court looked at the questions of determining when the statute of limitations began to run in relation to an action brought under Section 1501(4) to discharge a mortgage lien. The court in that case reasoned that since no payments were ever made under the mortgage and that the mortgagee never exercised an option to accelerate payment upon default or transfer of title, that the statute did not start to run at a specific point. The court applied the following well settled law “with respect to a mortgage payable in installments, there are separate causes of action for each installment accrued, and the Statute of Limitations [begins] to run on the date each installment [becomes] due unless the mortgage debt is accelerated… once the mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire mortgage debt”. In the case at bar the court applied the six-year statute of limitations under CPLR 213(4), as it applied to each installment payment. Thereby, they determined that since the debt was never accelerated the mortgage statute of limitations expired six years after the last date of the scheduled payment, and that in this case any claim now raised by the mortgagee was barred by the statute of limitations and that the motion to discharge the mortgage should be granted.

Lastly Sections 1931 and 1932 of the RPAPL provide guidance in clearing ancient mortgages presumed paid. Section 1931(2) RPAPL provides for numerous elements to be pleaded and alleged in order for a movant to be successful in discharging an ancient mortgage. There are several elements outlined in the statute which must be included in the motion; however, in short, they include specific information about the particular mortgage in question, that the mortgage is paid, that the holders of the mortgage are dead at least five years or that the corporation has been out of business for over five years and that no further executors, administrators heirs or receivers have been appointed, and lastly that the mortgage was recorded more than 50 years before commencement of the action. RPAPL Section 1932 has a very specific application relating to the occurrence of a contingent event, involving premises used for religious purposes; and therefore, is only noted herein.

As can be ascertained, the process needed to clear an open mortgage, which has been paid, but not actually satisfied of record, can be long and most likely costly in time and money. It is not easy to determine which closings or refinance transactions will be problematic however it is good practice to instruct your clients to hunt around in their old records, at the time of your initial consultation, for any information relating to paid off mortgages, or old satisfactions in an attempt to save time and cut off a potential problem which may only be revealed when the title search arrives at your office, some weeks later.

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