Opinion
0061260/2007.
March 27, 2008.
Finucane Hartzell, LLP, Leo G. Finucane, Esq., of Counsel, Attorneys for Petitioners.
Grow Grow, John L. Grow, Esq., of Counsel, Attorney for Respondent.
DECISION
The Petitioners Edward L. Priest and Paula Priest (hereinafter "Priest") have brought the instant Order to Show Cause, pursuant to RPAPL § 1921. seeking an order cancelling and discharging the mortgage given by Priest in the sum of Forty-Three Thousand Three Hundred and Fifty Dollars ($43,350.00), dated May 10, 2007 to the Respondent Frank P. Pitts (hereinafter "Pitts"), in connection with the purchase and sale of
vacant land, consisting of approximately 38 acres, subdivided into seven separately surveyed lots along Maxwell Road and Lake Road in the Town of Sodus, New York. Priest maintains that they have paid the mortgage in full, and that they are entitled to a satisfaction of mortgage. Pitts maintains that the sum of $19,468.00 is still due and owing on the mortgage.
The Purchase and Sale Contract, which was signed by the parties on October 26, 2000, contained language providing for the execution of partial releases by Pitts of portions of the property covered by the mortgage upon payment to Pitts by Priest of "an amount equal to the land released". This language was not included in the mortgage. However, the mortgage does provide that "the Mortgagor (Priest) shall have the privilege of paying any greater amount or all of the principal indebtedness during the term hereof without penalty."
Subsequently, Priest entered into an agreement to sell a portion of the Maxwell Road property to Jason and Claudia Karasinski. As part of the purchase price, the Karasinskis gave a mortgage, dated April 11, 2002, to Priest, in the amount of Sixteen Thousand Three Hundred Dollars ($16,300.00). Pitts then signed a partial release of the original mortgage, in return for which Priest paid the sum of Five Thousand Dollars ($5,000.00) to Pitts. Priest then transferred the Karasinski mortgage to Pitts by Assignment of Mortgage dated April 2, 2002. The document contained the following language:
"To have and to hold the same unto the assignee, and to the successors, legal representatives and assigns of the assignee forever, without recourse. This is for security, all payments to be made to the Assignors, when the mortgage indebtedness is paid off, the sum of $9,468.00 shall be paid to the Assignee herein."
Karasinski continued to make the mortgage payments to Priest as required by the Assignment, and ultimately paid off the mortgage by making a lump sum payment in the amount of Nine Thousand Six Hundred Forty-Eight Dollars ($9,648.00) to Priest. Priest in turn, paid this sum to Pitts, who signed a Satisfaction of Mortgage on February 23, 2005.
In late 2002, Priest sold a second lot to Peter and Eileen Barber, who signed a mortgage in favor of Priest on November 7, 2002. In February 2003. Priest paid the sum of Five Thousand Sixty-Five Dollars ($5,065.00) to Pitts, who signed a partial Release of Mortgage. Priest also assigned the Barber mortgage to Pitts, by Assignment of Mortgage dated January 31, 2003.
In November 2006. Priest decided to satisfy the original mortgage in full by paying the remaining amount due on the principal. In order to calculate the balance due, Priest credited the following payments against the remaining principal: $5,000.00 paid in April 2002 (Karasinski — partial release); $5,065.00 paid in February 2003 (Barber — partial release); $9,468.00 paid in February 2005 (Karasinski mortgage). Priest determined that the balance due totaled $12,71361, and they paid that amount to Pitts on November 17, 2006.
Pitts does not contest any of the above payments. However, he has refused to tender a Satisfaction of Mortgage, maintaining that the original mortgage does not specifically provide that payments made in connection with any partial releases of the mortgage shall be applied to the principal. He also maintains that the $9,468.00 payment which satisfied the Karasinski mortgage should not be applied to the principal due under the original mortgage, as the partial release removed the encumbrance of the original mortgage from the Karasinski property, and no provision was made in any of the documents for the application of payments made under the Assignment of Mortgage to the original mortgage debt.
A hearing was held on December 3, 2007. The Petitioner Paula Priest testified, as did Patricia M. Crippen, Esq., who represented the Petitioners at the time of the relevant transactions. The Respondent did not appear at the hearing, and no witnesses were called on his behalf.
At the close of proof, the attorney for the Respondent conceded, with the consent of his client, that the $5,000.00 payment (Karasinski) and the $5,065.00 payment (Barber), which were made to Pitts at the time of the execution of the respective partial releases, were properly applied to the principal due under the original mortgage (see Transcript, pp 60, 63). The Court concurs that this result is appropriate. It is well-recognized that the general rule of construction that all prior agreements are deemed merged into the ultimate instrument also applies in the construction of mortgages. Therefore, the instant Purchase and Sale Agreement merged into the Note and Mortgage, without the express inclusion of the language dealing with the issue of payments made by the Purchaser in return for partial releases. However, the mortgage does grant the Mortgagors the privilege of paying any greater amount of the principal indebtedness at any time. This language, when considered in the context of the customary practice in this state of applying payments made for the partial release of a mortgage to reduce the principal debt, supports the conclusion ultimately reached by the Respondent. However, counsel for the Respondent continues to assert that the $9,468.00 payment that was made to satisfy the Karasinski mortgage should not be applied to the principal due under the original mortgage. The Respondent maintains that the Karasinski mortgage is part of a transaction which is separate from the original purchase and sale, and that there is no language in the Assignment of Mortgage which expressly ties the assignment to the original mortgage.
The Petitioners maintain that the assignment of the mortgage to Pitts was made solely as additional security for the underlying debt, and that it did not constitute an independent and separate transaction. Priest further argues that, if the Court were to adopt the rationale of Pitts, the result would be a windfall to the Respondent. which was never within the contemplation of the parties.
§ 268 of the NY Jur 2d, Volume 78, reads as follows:
"A mortgagee may assign the mortgage as collateral security for an obligation owed by the mortgagee or by a third person to the assignee, and this is true even where the obligation owed to the assignee is larger than the mortgage debt. If the assignment is absolute in form, the fact that was made as collateral security may be shown by parol or other evidence outside the instrument. (emphasis added).
The transaction results in a pledge, not a sale, of the bond and mortgage. The assignee acquires a defeasible title to the bond and mortgage, subject to termination upon payment of the debt for which the mortgage is assigned as security, at any time before the rights of the assignor are foreclosed or extinguished, and the assignor has an equity of redemption, that is, a right to redeem the pledge. It has been said that, in equity, the assignor and assignee are joint owners of the bond and mortgage, or that the mortgagee-assignor is still the owner subject to the lien or pledge." (emphasis added).
The Petitioners maintain that the Karasinski mortgage was assigned to Pitts for the sole purpose of providing collateral security for the original debt. Karasinski continued to make payments to the Petitioners, not to Pitts. pursuant to the terms of the assignment. The Assignment also provides in part that "(t)his is for security . . .", and states that "when the mortgage indebtedness is paid off, the sum of $9,468.00 shall be paid to the Assignee herein." The document is silent as to the nature of the "security" and as to how the payment is to be applied. The Assignment of Mortgage appears to have been prepared by then counsel for Pitts.
77 NY Jur 2d § 89 states in part as follows:
"An ambiguity in a mortgage is resolved against the person who drafted it. However, for the purpose of clearing up such an ambiguity, resort may be had to extrinsic evidence.
In the absence of any ambiguity in the language used by the parties, construction of the mortgage is a question of law . . . Thus parol evidence is not admissible for the purpose of interpretation or construction where the language of a mortgage is clear and unambiguous, and permits but one conclusion as to the intent of the parties." (emphasis added).
Having considered the language in the Assignment of Mortgage, the Court concludes that its meaning is ambiguous, and that the intent of the parties is subject to interpretation. Therefore, the Court considers it appropriate to consider extrinsic evidence in determining how the mortgage payment was to be applied. The testimony of the Petitioners' witnesses indicates that the assignment was intended as collateral security for the Petitioners' underlying indebtedness. No testimony was offered on behalf of the Respondent. The Respondent's argument that the Assignment entitles him to an additional $9,468.00 over and above the original purchase price is unconvincing.
Therefore, it is the holding of this Court that the Petitioners are entitled to a total credit of $27,246.62, to be applied to the principal due under the original mortgage. As there is no proof before the Court that the Respondent is entitled to any payments over and above the amount previously paid by the Petitioners, the Court finds that the Petitioners are entitled to an order pursuant to RPAPL § 1921(2) canceling and discharging the mortgage between the Priests and Pitts, and directing the Clerk of Wayne County to mark the same upon his records as cancelled and discharged, and directing that the debt secured by the mortgage be cancelled.
Both parties have requested an award of counsel fees in this matter. However, given the complexities of the situation, the Court finds it inappropriate to make such an award, and both applications are denied.
Counsel for the Petitioners is directed to submit an Order for signature in accordance with this Decision.
Dear Counselors:
It has been brought to my attention that the Decision in the above action, dated April 1, 2008, contains a typographical error. The dollar amount which is set forth on page 3, commencing at Line 14 should read: "Nine Thousand Four Hundred Sixty-Eight Dollars ($9,468.00)".
This letter shall constitute an Amendment of the Decision and shall be deemed incorporated therein. All other terms and conditions of the Decision shall remain the same.