Adam Leitman Bailey, P.C. Secures Landmark Decision for Title Insurer Establishing New Precedent Regarding a Title Insurers’ Obligations Related to Consolidated Mortgages
Adam Leitman Bailey, P.C. was retained to defend a title insurer in an action where the lender sought declaratory judgment that a title insurance policy remained in full force and effect.
The title insurer issued a title insurance policy in connection with a mortgage in the amount of $1,995,000.00. That mortgage was assigned twice. Thereafter, a Gap Mortgage in the amount of $1,005,000.00 was issued, and then consolidated with the original mortgage to form a single lien in the amount of $3,000,000.00 by Consolidation, Extension, and Modification Agreement (“CEMA”). In connection with the CEMA, the lender purchased a new title insurance policy in the insured amount of $3,000,000.00 from a new title insurer. Following the CEMA, the loan was assigned two more times.
The lender commenced an action to foreclose the CEMA. After the defendants answered and alleged that the loans should be deemed null and void, the lender made a claim to the title insurer in connection with the original $1,995,000.00 policy. The title insurer denied the lender’s claim, and the declaratory judgment action ensured.
Adam Leitman Bailey, P.C. quickly moved to dismiss the action. Adam Leitman Bailey, P.C. argued that the title insurer’s liability is based on contract law and is governed by the terms of the policy. The policy provides that the “Insured” includes the owner of the mortgage and “each successor in ownership of the indebtedness”. However, the policy only remains in effect as long as the “Insured retains an estate or interest in the Land”.
Adam Leitman Bailey, P.C. argued that the CEMA made clear that it “will constitute in law a single lien upon the Property”, therefore, any interest in the land had by the original mortgage was terminated by the execution of the CEMA. Thus, the original title insurance policy would have terminated. Adam Leitman Bailey, P.C. argued that it was clear that the lender was aware of this as lender took out a new title insurance policy for the full face value of the CEMA, not just the difference between the CEMA and the prior policy.
In opposition, the lender cited to case law that an original mortgage exists independently from a CEMA. Lender argued that the original mortgage was independent, and therefore, the policy should still remain in effect.
In reply, Adam Leitman Bailey, P.C. argued that the cases cited by the lender did involve title insurance. Adam Leitman Bailey, P.C. argued that it was completely irrelevant as to whether the original mortgage exists independently from the CEMA, because even if the mortgage still does exist, it does not retain any estate or interest in the land since the CEMA became a single lien against the Property. Therefore, the original policy would have terminated upon the execution of the CEMA regardless of whether the original mortgage exists independently.
The Court adopted Adam Leitman Bailey, P.C.’s arguments finding that the lender argued that it “should be considered a successor in ownership under the policy because the first mortgage does not cease to exist once consolidated. However, the cases cited by plaintiff for this provision do not concern the issue of title insurance; specifically, as relevant herein, whether for the purposes of the policy the first mortgage continues to secure a separate interest or estate in the mortgage property”.
This decision is a tremendous win for all title insurers. In New York, many times mortgages are assigned instead of being satisfied in order for parties to save on mortgage recording taxes. By issuing this decision, the Court gives protection to title insurers who have issued a title insurance policy on an old mortgage that has now been consolidated.
Jeffrey R. Metz, Esq., and Danny Ramrattan, Esq. at Adam Leitman Bailey, P.C. secured this result for its client.