Manufacturers and Traders Trust Co. v. David A. Dann, 85 N.Y.2d 760 (1995)

RPAPL 1301(3) is debt-specific and mortgagee-specific; a junior mortgagee who applies for surplus funds from a senior mortgagee’s foreclosure sale is not barred from bringing a separate action to recover the remaining debt without court permission.

Summary

This case addresses whether a junior mortgagee, after applying for surplus funds from a senior mortgagee’s foreclosure sale, must obtain court permission under RPAPL 1301(3) before suing the mortgagor for the remaining debt. The Court of Appeals held that applying for surplus funds is not a foreclosure action under the statute, and the statute is mortgagee and debt specific. Therefore, the junior mortgagee was not required to seek court permission before suing the mortgagor for the deficiency. The statute aims to prevent duplicative litigation concerning the same debt by the same party.

Facts

Defendant Dann borrowed money from Plaintiff Central Trust Co. (now Manufacturers and Traders Trust Co., MTT), securing the loan with a second mortgage on his property. Monroe Savings Bank held the first mortgage. Dann defaulted on both mortgages. Monroe initiated foreclosure proceedings, naming Central Trust as a defendant due to its subordinate lien. The property was sold, and a surplus remained after Monroe was paid. MTT claimed the surplus. Supreme Court ordered the balance paid to MTT. MTT then sued Dann for the remaining balance of the second mortgage loan.

Procedural History

MTT sued Dann in Supreme Court for the balance of the mortgage. Dann raised RPAPL 1301 as an affirmative defense. Supreme Court granted MTT’s summary judgment motion, holding that MTT did not commence a foreclosure action and that RPAPL 1301 did not apply. The Appellate Division affirmed. The Court of Appeals granted Dann leave to appeal.

Issue(s)

1. Whether a junior mortgagee’s application for surplus funds from a senior mortgagee’s foreclosure sale constitutes a foreclosure “action” under RPAPL 1301(3)?

2. Whether RPAPL 1301(3) applies to all mortgagees after a senior mortgagee’s foreclosure action, requiring them to obtain court permission before commencing any legal action?

Holding

1. No, because an application for surplus funds is not an independent foreclosure action under RPAPL 1301(3).

2. No, because RPAPL 1301(3) is debt-specific and mortgagee-specific.

Court’s Reasoning

The court reasoned that RPAPL 1301(3) is mortgagee and debt-specific, stating that “[w]hile the action is pending or after final judgment for the plaintiff therein, no other action shall be commenced…to recover any part of the mortgage debt” (emphasis in original). The use of “the” signifies a specific action and debt, not just any mortgage debt. The court cited Reichert v. Stilwell, stating that the statute aims to shield the mortgagor from multiple simultaneous actions concerning the same debt. The court also relied on Wyckoff v. Devlin, which held that the predecessor statute of RPAPL 1301(3) did not prohibit a junior mortgagee involved in surplus proceedings from commencing its own action to recover the debt without court permission because a deficiency judgment could not be obtained in the surplus proceeding. The Court emphasized that because MTT could not have obtained a deficiency judgment in the surplus money proceeding, it was not barred from suing on the note. The court explicitly declined to address whether the plaintiff could have sought a deficiency judgment in the senior mortgagee’s foreclosure proceeding, as that was not the proceeding in which the plaintiff participated. This case clarifies that RPAPL 1301(3) is narrowly construed and that junior mortgagees retain their right to sue for the deficiency under their own mortgage without court approval after participating in a surplus money proceeding initiated by a senior mortgagee.