Green Tree Credit LLC v Hopkins
Annotate this CaseDecided on October 17, 2005
Supreme Court, Madison County
Green Tree Credit LLC, Plaintiff,
against
Clarence H. Hopkins, JR., AMY L. CLARK, PRINCIPAL RESIDENTIAL MORTGAGE, INC., GPO FEDERAL CREDIT UNION, UNITED STATES OF AMERICA, PEOPLE OF THE STATE OF NEW YORK BY STATE TAX COMMISSION, THE CADLE CO., AT&T UNIVERSAL CARD SERVICES CORP. (LBAT), COLONIAL NATIONAL BANK USA, and JOHN DOE and MARY DOE (said names being fictitious, it being the intention of plaintiff to designate any and all occupants of the premises being foreclosed herein), Defendants.
04-1722
William F. O'Brien, J.
Plaintiff brought the present motion seeking an order striking and dismissing the Answers of defendants Clarence H. Hopkins, Jr. and Amy L. Clark (hereinafter "Hopkins and Clark") and CitiMortgage Inc. (hereinafter CitiMortgage), successor in interest to Principal Residential Mortgage, in this mortgage foreclosure action. Defendant CitiMortgage cross-moves for summary judgment determining that it has a priority in lien over the interest of plaintiff in the amount of $44,718.97. Defendants Hopkins and Clark submitted an affidavit in opposition to both motions.
.
STATEMENT OF FACTS
The present action was commenced by plaintiff to foreclose on a mortgage executed by Larry A. Baker on May 25, 1998, and filed with the Madison County Clerk on November 3, 1998 (hereinafter "the 1998 mortgage"). This mortgage secured a loan of $40,000.00 to Baker made by First Allegiance Financial. Baker was, at the time the record owner of the premises located at 229 Middle Road in Oneida, New York, which was the property subject to the mortgage. Baker had also given a mortgage on this property to Oneida Valley National Bank dated September 4, [*2]1996, securing a loan of $48,000 (hereinafter "the 1996 mortgage").
Baker sold the subject premises to defendants Hopkins and Clark on June 24, 1999. As part of the purchase transaction, defendants Hopkins and Clark took a loan of $52,500.00 from Homestead Financial Services Inc. (Hereinafter "Homestead") and gave a mortgage on the subject premises. Prior to the purchase, Homestead conducted a title search on its own behalf. Based upon the results of its title search, Homestead believed that the 1996 mortgage was the only outstanding encumbrance on the property. Defendants Hopkins and Clark, who did not employ their own title agent or purchase a fee title insurance policy, used $44,718.97 of the proceeds of the Homestead loan to pay the balance of amount due to Alliance Bank, Oneida Valley National Bank's successor in interest. This payment satisfied Baker's mortgage obligation on the 1996 mortgage, and at the time, Homestead believed it held a first lien on the subject property.
Defendants Hopkins and Clark took title to the subject property without extinguishing the 1998 mortgage obligation and resided there without incident until plaintiff commenced this action on October 21, 2004. The Complaint stated that Baker had defaulted on his obligation to make monthly payments of $497.12 beginning with the payment due in March of 2004.
RELEVANT LAW/ANALYSIS
Plaintiff contends that it is entitled to summary judgment because none of the defendants has asserted a defense that would impair plaintiff's right of foreclosure on the subject property. With respect to defendants Hopkins and Clark, plaintiff notes that their Answer contains only general denials of the claims in the Complaint and asserts no viable affirmative defenses.
Defendants Hopkins and Clark offer no contest to plaintiff's assertion that the note is currently in default for non-payment. They contend that defendant CitiMortgage, as successor in interest to Homestead, the lender which procured title insurance for their purchase of the property from Baker, "has an affirmative duty to clear the title . . . both as a matter of law and of public policy". This argument must be rejected as defendants Hopkins and Clark offer no authority to support this claim. In fact, this assertion is directly contravened by well-settled law that a title insurer is liable for errors in its work only to those parties in direct contractual privity. Calamari v. Grace, 98 AD2d 74 (2nd Dept. 1983). Since defendants Hopkins and Clark chose not to purchase their own title insurance policy and defendant CitiMortgage is now the only party in contractual privity with the insurer who did write a title policy for the subject property, defendants Hopkins and Clark cannot now seek to recover under defendant CitiMortgage's policy. Furthermore, in the absence of proof that the note on the 1998 mortgage is not in default for non-payment, defendants Hopkins and Clark have no recourse to stop plaintiff from foreclosing on the subject property.
Defendant CitiMortgage contends that, under the doctrine of equitable subrogation, it should be granted a first priority lien on the property and plaintiff should move to second priority for purposes of foreclosure on the property. Plaintiff argues that equitable subrogation is not appropriate in this case because the 1998 mortgage was filed with the County Clerk more than six months prior to the closing of the Baker-to-Hopkins and Clark sale.
The doctrine of equitable subrogation applies in the context of a mortgage foreclosure when "the funds of a mortgagee are used to satisfy the lien of an existing, known incumbrance on the property when, unbeknownst to the mortgagee, another lien on the property exists which is [*3]senior to his but junior to the one satisfied with his funds. In order to avoid the unjust enrichment of the intervening, unknown lienor, the mortgagee is entitled to be subrogated to the rights of the senior incumbrance." King v. Pelkofski, 20 NY2d 326, 333-34 (1967).
New York courts have applied the doctrine of equitable subrogation in the context of a mortgage foreclosure to prevent unknown, intervening mortgage holders from obtaining a windfall at the expense of a subsequent mortgagor that did not have notice of the earlier mortgage. See Wagner v. Maenza, 223 AD2d 640 (2nd Dept. 1997) (applying equitable subrogation where a mortgage was recorded after the closing of a subsequent mortgage but before subsequent mortgage was recorded); Zeidel v. Dunne, 215 AD2d 472 (2nd Dept. 1995); Boston Trade Bank v. Kuzon, 154 Misc 2d 217 (Sup. Ct. NY Cty. 1992). Defendant CitiMortgage argues that the present case requires application of the doctrine because plaintiff's mortgage was unknown to it at the time of the closing of its loan to defendants Hopkins and Clark, and that if equitable subrogation is not applied here, plaintiff would obtain a windfall by obtaining a first lien on the property that it would not have but for the satisfaction of the 1996 mortgage by the proceeds of the loan to defendants Hopkins and Clark.
The key element to application of the equitable subrogation doctrine in this case is whether the 1998 mortgage was actually unknown to defendant CitiMortgage's predecessor in interest Homestead at the time defendants Hopkins and Clark executed the mortgage to Homestead. There is no dispute among the parties that the 1998 mortgage was recorded on November 3, 1998, more than six months before defendants Hopkins and Clark purchased the subject property from Baker. Under Real Property Law §291, plaintiff is clearly entitled to a senior position as a lienor on the subject property. Defendant CitiMortgage's protestation that Homestead had no actual notice of the 1998 mortgage at the time it loaned the purchase proceeds to defendants Hopkins and Clark, Homestead undoubtedly had constructive notice of this existing lien. "The recording acts reflect a legislative presumption that a recorded deed constitutes notice to a subsequent purchaser. It matters not whether he checks the records but does not find the deed or neglects to check the records - he is unprotected in either case". Doyle v. Lazzaro, 33 AD2d 142 (3d Dept. 1970).
While the error of Homestead's title agent has created unfortunate circumstances for both defendants Hopkins and Clark and defendant CitiMortgage, defendant CitiMortgage cannot now rely upon equitable subrogation to mitigate the mistake of its predecessor in interest. Because equitable subrogation is not appropriate under these facts, plaintiff holds first lien status on the subject property for the purposes of the instant foreclosure.
Accordingly, plaintiff's motion for summary judgment is granted. Defendant CitiMortgage's cross-motion for summary judgment establishing a priority lien on the subject property is denied.
This decision shall also constitute the Order of this Court.
Hon. William F. O'Brien, III
Justice, Supreme Court
Wampsville, NY
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