**EDITOR’S NOTE: This post was guest-authored by Goodwin Procter partner Joe Yenouskas and associate Alyssa Sussman. Both are members of Goodwin Procter’s Consumer Financial Services Litigation Group.**
A series of putative class actions have been filed recently in New York federal courts by borrowers alleging that their mortgage satisfactions were not timely filed. These actions bear close watching.
Under New York property law, mortgagees have 30 days after a mortgage is fully paid off to file a mortgage satisfaction with the county clerk—signifying that the mortgage lien has been extinguished. The purpose of these statutes is to ensure that once a borrower pays off a mortgage, there is notice that title to the borrower’s property is clear of the mortgage lien. If the lien appears to remain even though the borrower has paid off the mortgage, the borrower may encounter problems when trying to sell the property.
Ten class action lawsuits have been filed in New York federal courts recently alleging that lenders failed to comply with the mandates of these statutes. The plaintiffs have filed the cases as putative class actions on behalf of all similarly-situated New York residents. The relief sought has been significant: $500 to $1,500 for each violation, depending on the length of the delay in filing, plus statutory damages, pre-judgment and post-judgment interest, costs of suit, and attorneys’ fees.
Goodwin Procter recently represented a mortgage lender in one such case filed in the Eastern District of New York. The case settled shortly after our client threatened to file a motion to dismiss on statute of limitations grounds.
Other lenders have met with mixed results, however. Motions to dismiss have been denied in several cases, leading the defendants into time-consuming discovery. Numerous theories have been tried and rejected: (1) plaintiff’s failure to allege the date the satisfaction was presented to the county recorder requires dismissal; (2) New York law is preempted by the National Bank Act; (3) the relevant property laws apply only if a satisfaction is never recorded at all; (4) the 30-day period to file a satisfaction begins when the lender signs the satisfaction, not when the mortgage is paid off; and (5) the New York statutes’ escalating penalties based on the length of delay only apply if the borrower brings a special proceeding with the county clerk to obtain a mortgage satisfaction.
Lenders who are servicing New York portfolios should remain mindful of New York’s statutory requirement to file mortgage satisfactions with the county clerk within 30 days of borrower payoff and review their policies and procedures to ensure compliance with this important deadline.