When The Court Wisely Watches Out For Precedent: An Issue Moot But Not Unimportant

The plethora of what we refer to in these alerts as minefields to the foreclosure process lead to many decisions dismaying to lenders.  Procedural miscues or stumbles can become disproportionately expensive – even fatal to pursuit of the foreclosure.  We have observed lately, however, some growing articulated awareness on the part of courts that understandable adherence to rules can sometimes work an injustice.  So, if there is room for discretion, where refraining from exercising discretion could lead, for example, to a statute of limitations calamity, that discretion should be employed.

Although the circumstances were different, the concept may be inherently the same as seen in a recent case, Nautilus Capital, LLC v. Rama Realty Associates, __ A.D.3d __, 49 N.Y.S.3d 486 (2d Dept. 2017).

This relates to the mootness doctrine and before lender personnel groan or roll their eyes about this being too obscure, note that it may be more frequently encountered  in foreclosure actions where there is a clash between payoffs and a case going forward.  The mentioned action is an example.

First, the underlying subject was RPL §275.  This is a statute that provides that when a borrower (or another) pays off a mortgage, the lender must issue a satisfaction – but it need not give an assignment of mortgage.  There are many reasons why a borrower or another would prefer an assignment of a mortgage, such as when the mortgage is being refinanced, but it will be the first lender’s choice as to whether to give that or not.  They may wish to reserve the right to charge a fee for the privilege.  There is more to this subject and there are some rare exceptions where an assignment must be given and for details on that if needed, readers are directed to 1 Bergman on New York Foreclosures §4.07(1) LexisNexis Matthew Bender (rev. 2017).  But the essential concept is that upon payment only a satisfaction be delivered.

In the case under consideration, the borrower, apparently intending to pay off, moved in the foreclosure for an order directing the lender to assign the underlying mortgage to a new lender upon full payment of the mortgage indebtedness.  The court below granted that motion (clearly incorrectly).  The lender understandably appealed.  Meanwhile, however, the borrower did indeed satisfy the mortgage so that the appeals court was faced with deciding an appeal which was purely academic; the mortgage was paid and there was no need to spend time litigating the legitimacy of the order appealed from.  Indeed the case below had subsequently been dismissed.  Under such circumstances the court ruled that any determination of the appeal would not affect the rights of the parties. [1]

This was the mootness doctrine and the court further held that because the case did not otherwise warrant invoking an exception to the mootness doctrine, [2] the appeal had to be dismissed. [3]

We now come to the more compelling part.  The Second Department observed that while the general policy of New York courts is to dismiss an appeal which has been rendered academic, vacatur of the underlying order or judgment on appeal might be an appropriate exercise of discretion where it was necessary to prevent a judgment, otherwise unreviewable because of mootness, from spawning any untoward legal consequences or precedent. [4]

So here is the conclusion.  In this case, the appeal was of course moot.  Nonetheless, the order of the court below directing the assignment of the mortgage would establish unfortunate precedence.  Moot or not, that order should be vacated and that is precisely what the appellate court did. [5]

[1] See Vigo v. 501 Second St. Holding Corp., 121 A.D.3d 778, 779, 994 N.Y.S.2d 354; Mannino v. Wells Fargo Home Mtge., Inc.,  120 A.D.3d 638, 639, 990 N.Y.S.2d 854; Cendant Mtge. Corp. v. Packes, 19 A.D.3d 356, 356, 795 N.Y.S.2d 908.

[2] Cases which discuss exceptions to the Mootness Doctrine as cited by the court include: Matter of Hearst Corp. v. Clyne, 50 N.Y.2d 707, 714-715, 431 N.Y.S.2d 400, 409 N.E.2d 876; cf. Matter of In Defense of Animals v. Vassar Coll., 121 A.D.3d 991, 993, 994 N.Y.S.2d 412.

[3] Vigo v. 501 Second St. Holding Corp., 121 A.D.3d at 779, 994 N.Y.S.2d 354; Mannino v. Wells Fargo Home Mtge., Inc., 120 A.D.3d at 639, 990 N.Y.S.2d 854; Cendant Mtge. Corp. v. Packes, 19 A.D.3d at 356, 795 N.Y.S.2d 908; see also Tomasino v. Tomasino, 127 A.D.3d 1069, 1070-1071, 7 N.Y.S.3d 483; Gerulaitis v. Recreational Concepts, 295 A.d.2d 562 563, 744 N.Y.S.2d 710).

[4] Matter of Hearst Corp. v. Clyne, 50 N.Y.2d at 718, 431 N.Y.S.2d 400, 409 N.E.2d 876; see Matter of Adirondack Moose Riv. Comm. V. Board of Black Riv. Regulating Dist., 301 N.Y. 219 223, 93 N.E.2d 647; E-Z Eating 41 Corp. v. H.E. Newport L.L.C., 84 A.D.3d 401, 401-402, 922 N.Y.S.2d 329; Funderburke v. New York State Dept. of Civ. Serv., 49 A.D.3d 809, 811, 854 N.Y.S.2de 466; see also United States v. Munsingwear, Inc., 340 U.S. 36, 40-41, 71 S.Ct. 104, 95 L.Ed. 36.

[5] Citing Mannino v. Wells Fargo Home Mtge., Inc., 120 A.D.3d at 639, 990 N.Y.S.2d 854.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.