26 N.Y.3d 480 (2015)
A consolidation agreement that merges two mortgages into a single lien recorded before a condominium board’s common charges lien qualifies as the “first mortgage of record” under Real Property Law § 339-z, taking priority over the common charges lien.
Summary
In Plotch v. Citibank, N.A., the New York Court of Appeals addressed whether a consolidated mortgage, recorded before a condominium board’s lien for unpaid common charges, qualified as the “first mortgage of record” under Real Property Law § 339-z. The court held that the consolidation agreement did qualify, thereby giving the consolidated mortgage priority over the condominium’s lien. The court emphasized that the consolidation created a single mortgage lien, recorded before the condominium’s lien, and that to rule otherwise would undermine the practical realities of refinancing and contradict the intent of the statute.
Facts
Citibank extended a mortgage to a condominium unit owner, which was recorded. A year later, a second mortgage was extended, and the two were consolidated into a single mortgage lien. The consolidation agreement was recorded. Seven years later, the condominium board filed a lien for unpaid common charges. The plaintiff purchased the unit in a foreclosure action, subject to the “first Mortgage of record against the premises.” The plaintiff sought a declaration that the second mortgage was subordinate to the condominium board’s lien. Citibank argued the consolidation agreement was the first mortgage of record.
Procedural History
The Supreme Court granted Citibank’s motion, declaring the consolidation agreement the first mortgage of record. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
1. Whether a consolidation agreement that merges two mortgages recorded before a condominium board’s common charges lien qualifies as the “first mortgage of record” under Real Property Law § 339-z.
Holding
1. Yes, because the consolidation agreement created a single mortgage lien, recorded before the common charges lien, which takes priority.
Court’s Reasoning
The court relied on Real Property Law § 339-z, which grants a condominium board a lien for unpaid common charges that has priority over all other liens except for, among other things, the “first mortgage of record.” The court observed the chronological order of recording generally determines lien priority. The court examined consolidation agreements and determined that they are instruments of convenience and can retain their separate lien status when there is an intervening lien. However, where there is no intervening lien, the consolidation agreement is considered the “first mortgage of record.”
The court rejected the argument that only the original first mortgage should have priority. The court reasoned that the consolidation created a single mortgage lien, recorded before the condominium’s lien, and therefore took priority. The court also considered the practical implications, noting that a contrary ruling would adversely affect homeowners’ ability to refinance and would lead to unnecessary steps to achieve the same result through satisfying and replacing the original mortgage. The court emphasized that their ruling aligns with the statutory purpose of the Condominium Act, which seeks to stimulate building activity and allow for flexibility in obtaining mortgages.
Practical Implications
This case clarifies that a consolidation agreement, recorded before a condominium board’s common charges lien and absent an intervening lien, will be considered the “first mortgage of record,” taking priority over the common charges lien. This has significant implications for lenders, property owners, and condominium boards. Lenders can rely on the priority of their consolidated mortgages, while unit owners can more easily refinance. Condominium boards must recognize this priority when assessing the collectability of their liens. Attorneys handling foreclosure actions or disputes over lien priority must carefully review the recording dates of all relevant instruments, including any consolidation agreements, to determine lien priority.
Meta Description
The case establishes that a mortgage consolidation agreement, recorded before a condo association’s lien, maintains priority as the “first mortgage of record” under NY’s Condominium Act, impacting lien priority in foreclosure actions.
Tags
Plotch v. Citibank, Court of Appeals, 2015, Real Property, Condominium, Mortgage Consolidation, Lien Priority