ALB, P.C., Uses Creative Interpretation of Note & Mortgage in Defense of Title Insurer in Foreclosure Action
Adam Leitman Bailey, P.C., Uses Creative Interpretation of Note and Mortgage in Successful Defense of Title Insurer in Foreclosure Action
Adam Leitman Bailey, P.C.'s Title Insurance Claims Group was recently retained by a title insurance company to defend title to a residential property threatened by a private-party foreclosure action.
In 2000, the then owner of a residential property in Queens obtained a loan from his sister in the principal sum of $36,000. The loan was secured by a mortgage, which the lender promptly recorded and which encumbered the subject property. The borrower did not make a single scheduled payment, and sold the property in 2003. At the time of sale, he represented that the mortgage was invalid and that he would promptly commence an action against his sister to remove the mortgage of record. The purchasers' title insurer insisted that $72,000—twice the principal loan amount—be placed into escrow in case the lien was found valid.
By the time the title insurer retained Adam Leitman Bailey, P.C., the subject mortgage had been found valid in a related proceeding. Moreover, the borrower's sister had commenced a foreclosure action and the homeowners were collaterally estopped from denying the validity of the mortgage by a prior decision in the foreclosure action itself. The original defaulting borrower disappeared. The lender sought over $150,000—more than four times the original loan amount and twice the escrowed sum—in alleged default interest, late fees, attorneys' fees and other charges. The lender moved for summary judgment and an order of reference. The team at Adam Leitman Bailey, P.C., faced an uphill battle.
Determined to defend against this lender's exorbitant demand, the team at Adam Leitman Bailey, P.C., meticulously scrutinized the underlying loan documents. During the course of the investigation the team discovered a crucial conflict between the terms of the mortgage and note. While the note purported to allow the lender to recover default interest and late fees stemming from a default in scheduled payments, those sums were not secured by the mortgage. Moreover, while generally, the terms of the note govern where there is an inconsistency between the documents, here, the team discovered that the documents expressly held the mortgageto be paramount in case of an inconsistency. As a result, while the note provided for draconian late fees, attorneys fees' and a default rate of interest, the team effectively argued that the lender was not entitled to those sums as against the purchasers. The team also argued that the lender's delays and unreasonable demand letters precluded recovery.
In ruling on the lender's motion, the judge agreed with the team's loan document interpretation, barring the recovery of late payments, default interest and attorneys' fees. Once Adam Leitman Bailey, P.C., succeeded in removing these sums from the plaintiff's demand, our team negotiated a beneficial settlement to the homeowners with no out-of-pocket costs due to the recapture of the escrowed sum.
Vladimir Mironenko, Elliott Joffe and Jackie Halpern Weinstein of Adam Leitman Bailey, P.C. represented the homeowners on behalf of the title insurance company.