Second Lender’s Mortgage Granted Priority Over An Earlier Mortgage That Was Discharged And Later Reinstated
It is ordinarily a basic precept that a first recorded mortgage will have priority over a subsequently recorded one. However, unusual circumstances led the court to make an exception in Bank of New York Terrapin Industries LLC, Index No. 103643/2008 (Sup. Ct. N.Y. Co. May 13, 2019) and a related action.
Bank of New York (the “Bank”) commenced a foreclosure action in 2008. It moved for summary judgment of foreclosure, but withdrew that motion in January 2009 and failed to pursue the action for three years. In March 2012, the Clerk of the Court marked the case as disposed. In March 2014, the borrower brought a new action seeking to discharge the Bank’s mortgage because the statute of limitations had expired. The Bank did not respond, and in July 2014, an order discharging its mortgage was entered and recorded.
In February 2015, another lender known as KBS gave a mortgage on the property, believing it had a first mortgage because the Bank’s prior mortgage had been discharged by the court. Two months later, the Bank moved to vacate its default in the discharge action. In 2016, the Appellate Division vacated the order discharging the Bank’s mortgage, and the Bank moved to restore its foreclosure action. Meanwhile, KBS brought its own foreclosure action and intervened in the Bank’s action, with each lender asserting that its own mortgage had priority.
The court granted summary judgment to KBS, holding that KBS’s mortgage had priority. Its holding was based on the doctrine of laches, which is defined as unreasonable, prejudicial delay in asserting one’s rights. The court characterized the Bank’s prosecution of its foreclosure action as “apathetic and indifferent” and found that the facts showed “unreasonable delays and failures by [the Bank] that led to KBS taking over a note and mortgage with the absolutely reasonable understanding that [the Bank’s] interest had been discharged.” The court concluded that “equity and good conscience compel” granting priority to KBS’s mortgage. Ganfer Shore Leeds & Zauderer represented the successful lender, KBS, in these cases.