Generally, folks borrow money to purchase real property.  Such loans are typically secured by a mortgage on the property being purchased.  The mortgage, when filed with the clerk of the county in which the property is located, creates a lien on the property.  Upon full payment of the underlying loan, the borrower expects that a mortgage satisfaction will be filed with the Clerk to release the lien of the mortgage from the property.  Indeed, RPAPL 1921(1) requires that, once a mortgage is paid in full, a lender must “execute and acknowledge before a proper officer, in like manner as to entitle a conveyance to be recorded, a satisfaction of mortgage, and thereupon within thirty days arrange to have the satisfaction of mortgage:  (a) presented for recording to the recording officer of the county where the mortgage is recorded, or (b) if so requested by the mortgagor or the mortgagor’s designee, to the mortgagor or the mortgagor’s designee.”  Failure of a mortgagee to provide such a satisfaction piece exposes the mortgagee to the financial penalties set forth in the statute.  See RPAPL 1921(1).

The Appellate Division, on August 16, 2023, in Green Tree Servicing, LLC v. Ferando, had occasion to address the circumstance where a lender erroneously files a satisfaction of mortgage notwithstanding a balance due on the underlying loan.  The borrowers in Green Tree borrowed $260,000 from the lender and a mortgage securing the borrower’s repayment obligations under the loan was recorded in the office of the clerk of the county in which the property was located.  A few years later, the borrowers borrowed additional funds and delivered a second mortgage to the lender.  On the same day as the second loan, the borrowers entered into a consolidation, extension, and modification agreement (“CEMA”) pursuant to which the first and second mortgages, and the underlying notes, were consolidated into a single lien on the property.  The CEMA, and the consolidated note and mortgage, were duly recorded.

Thereafter, however, the lender erroneously executed and recorded a full satisfaction of the first mortgage in the amount of $260,000.  In 2015, some nine years after the filing of the satisfaction, the lender commenced an action by which it sought to cancel and vacate the previously recorded satisfaction.  The motion court granted summary judgment to the lender and cancelled the satisfaction.  On the borrower’s initial appeal, the Second Department reversed “on the ground that the plaintiff failed to submit evidence establishing that the satisfaction of mortgage was erroneously or fraudulently issued.”

The lender again moved for summary judgment and submitted evidence that the satisfaction was mistakenly issued and that, at the time the satisfaction was recorded, a significant balance remained due and payable to the lender.  Further, the borrowers continued to make payments on the consolidated loan for several years subsequent to the recording of the recorded mortgage satisfaction.  The motion court again granted the lender’s motion and the borrowers appealed.

In affirming the motion court, the Second Department stated:

Where, as here, balances of first mortgage loans are increased with second mortgage loans and CEMAs are executed to consolidate the mortgages into single liens, the first notes and mortgages still exist and may be assigned to other lenders. Thus, the [first] mortgage was not extinguished by the borrowers’ execution of the CEMA.

A mortgagee may have an erroneous discharge or satisfaction of mortgage set aside where the underlying mortgage debt has not been satisfied and there has not been any detrimental reliance on the erroneous recording.  Here, there are no allegations of detrimental reliance on the satisfaction of mortgage. Further, [the borrowers do] not contest the admissibility of the business records submitted by the [lender] in support of its motion for summary judgment.  Those records established that the [first] mortgage has not been satisfied, that the balance due under the loan remains outstanding, and that the satisfaction of mortgage was erroneously issued. In opposition to the [lender]’s prima facie showing, [borrowers] failed to raise a triable issue of fact as to whether the satisfaction of mortgage was erroneously issued.  [Citations and internal quotation marks omitted.]