New York Court of Appeals Rules on Lien Priority in Consolidated Mortgages Case

Foreclosure

On May 10, the New York Court of Appeals affirmed the lower court's decision that consolidated mortgages qualify as the first mortgage of record under Real Property Law article 9-B (the Condominium Act) when the mortgages were consolidated years prior to unpaid common charges (or charges lien) being filed. Plotch v. Citibank, N.A., No. 57, slip op. at 3 (N.Y. May 10, 2016). In this case, the plaintiff purchased a condominium unit subject to “‘[t]he first Mortgage of record against the premises’” in a foreclosure action in 2010. Prior to the plaintiff’s purchase, the defendant had entered into a consolidation agreement with the unit’s previous owner, whereby the former owner’s two separate mortgages of $54,000 and $38,000 “were consolidated ‘into a single mortgage lien’ for $92,000, which the owner and [defendant] intended to be treated as a single mortgage.” Citing Societe General v. Charles & Co. Acquisition (157 Misc 2d 643 [Sup. Ct., NY County 1993]), the plaintiff contended that the initial mortgage of $54,000 is, pursuant to Real Property Law § 339-z, the first mortgage of record and, therefore, the defendant’s common charges lien against the unit for unpaid charges are unlawful. Specifically, the plaintiff declared that “the second mortgage for $38,000 held by [the defendant] was subordinate to the subsequently recorded common charges lien under Real Property Law § 339-z and was therefore extinguished by the condominium board’s successful foreclosure action.” The defendant, however, cited various cases since Societe General in which lower courts have held that a consolidation agreement recorded prior to common charges lien being filed qualify as the first mortgage under Real Property Law § 339-z. The court held for the defendant bank because (i) there was no intervening lien at the time of consolidation; and (ii) the charges lien were filed years after the defendant filed common charges lien.