HSBC Bank USA v Holohan, MERS | NYSC – Battle of the Satisfaction of HSBC HELOC Mortgage

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HSBC Bank USA v Holohan, MERS | NYSC – Battle of the Satisfaction of HSBC HELOC Mortgage

HSBC Bank USA v Holohan, MERS | NYSC – Battle of the Satisfaction of HSBC HELOC Mortgage

How many times have we seen where MERS was fighting for the opposite where it has mistakenly satisfied a mortgage? Why does MERS satisfy a mortgage when it never is a lender? What about the satisfaction of the note?

 

SUPREME COURT – STATE OF NEW YORK
IAS. PART 37 – SUFFOLK COUNTY

HSBC BANK USA, N.A. F/K/A HSBC BANK
USA,
Plaintiff,

– against –

RAYMOND HOLOHAN, JR. A/K/A
RAYMOND T. HOLOHAN, JR., CAROL
HOLOHAN, BOARD OF DIRECTORS OF THE
HAMLET AT WIND WATCH SECTION I,
MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC. AS NOMINEE FOR
FREMONT INVESTMENT & LOAN, PEOPLE
OF THE STATE OF NEW YORK, JOHN DOE
(Said name being fictitious, it being the intention
of Plaintiff to designate any and all occupants of
premises being foreclosed herein, and any parties,
corporations or entities, i [any, having or
claiming an interest or lien upon the mortgage
premises.),
Defendant.

EXCERPT:

Plaintiff HSBC Bank USA, N.A., [Ikla HSBC Bank USA (“HSBC”) commenced this action to
foreclose on a mortgage securing a home equity line of credit (“HELOC”). HSBC claims to have a first
lien position on the premises owned by the defendants Carol and Raymond Holohan (the “Holohans”) by
virtue of a home equity line mortgage securing the .HELOC (the “HSBC HELOC Mortgage”). Defendant
Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for Fremont Investment & Loan
(“Fremont”) counterclaimed for, inter alia, a judgment declaring that Fremont’s subsequent mortgage has
priority as the HELOC was paid off and a satisfaction recorded discharging the HSBC HELOC Mortgage.

[…]

On October 24, 2008, the Holohans defaulted on payments under the HELOC. in June 2009,
plaintiff commenced the instant foreclosure action seeking to recover the sums due and owmg under the
HELOC in the principal amount 01’$93,047.94. In its answer, as amended, MERS asserls several
al”lirll1atiyc defenses and counterclaims. As is pertinent here, MERS alleges in its eleventh affirmative
defense, that there IS no money owed under the HSBC HELOC Mortgage, and In its first counterclaIm
seeks a declaratory judgment declaring that the HSBC HELOC Mortgage has been paid in full, and that the
Fremont Mortgage is a first lien on the Premises. In its second counterclaim MERS seeks a declaratory
judgment declaring that the HSBC HELOC Mortgage is discharged as of record.

[…]

MERS now moves for summary judgment on its eleventh affirmative defense, and on its first and
second counterclaims. HSBC opposes the motion and cross-moves for summary Judgment declanng
cancelled and expunged the satisfaction of mortgage discharging the HSBC HELOC M0l1gage, and
declaring that the HSBC Mortgage is superior to the Fremont Mortgage. In opposition, the Holohans also
maintain that no money is due under the HELOC, but also argue that HSBC merely possesses an unsecured
claim aga111stthe Ho10hans as it lost all nghts In the HSBC HELOC Mortgage upon recording the
satisf1ctlon. The Holohans also argue that MERS lacks the capacity to prosecute any defense to the instant
foreclosure action because it was never the owner and holder of the Fremont Mortgage and thus not the real
party in interest.

[…]

Turning to the motion, in support thereof, MERS has provided the payoff letter from HSBC to the
Holohans dated January 10, 2005 (the “Payoff Letter”). The Payoff Letter indicates that the amount due
and owing was $95,881.44, which by the time of closing, had increased to $96,092.58. Additionally MERS
has provided the HUD-l Settlement Statement from the Fremont refinance which indicates that $96,09258
had been paid 10 HSBC, and a certified copy of the corresponding cancelled check Indicating that HSBC
deposited the check MERS has also provided cCliified copies of the satisfaction of mortgage and the
correction, as executed by HSBC and recorded with the Suffolk County Clerk’s Office. MERS argues this
evidence demonstrates that the HELOC was paid in full and the HSBC HELOC Mortgage satisfied and
discharged as of record. Thus, MERS’ continues, the ullderlymg debt no longer exists, the HSBC HELOC
Mortgage is a nullity and cannot be a first lien against the Premises with priority over the Fremont
Mortgage. Therefore, MERS mamtains, its motion for summary judgment should be granted in its entirety.

HSBC argues that the motion should be denied as the 2005 tender of the payoff balance then owed
on the HELOC (the “‘2005 Payment”) was not m satisfaction of the HSBC HELOC Mortgage as there was
no request to close the HELOC or discharge the HSBC HELOC Mortgage. Additionally, HSBC argues that
its cross-motion should be granted as the Holohans continued to take advances from the HELOC and
defaulted in making payments. HSBC maintains that the satisfaction of mortgage discharging the HSBC
HELOC Mortgage was filed in error, as there was and is still an outstanding balancing due and owing. 11is
also argued that the HSBC HELOC Mortgage holds a first priority lien position as it was recorded In 2001,
before the Fremont Mortgage recorded in 2005. HSBC further argues that it IS uncontroverted that the 2005
Fremont MOligage was not made in reliance on the HELOC being closed, and not in reliance of the
erroneous fihngs of the mortgage satisfaction in 2010. ESBC also asserts that the branch oftlle motion by
MERS for the discharge of the HSBC HELOC Mortgage should be denied as it 1S procedurally improper
and must be brought 111a proceeding under section 1921 of the Real Property and Proceedings Law
(“”RPAPL”).

RPAPL 1921, with respect to a credit line mortgage, provides that “[a]fter payment of authorized
principal, interest and any other amounts due thereunder or otherwise owed by law has actually been made,
and … on written request, a mortgagee of real property situate in this state … must execute … a satisfaction
of mortgage” (RPAPL 1921 [1]). However, it has been held that” ‘the mere reduction to zero of the
outstanding balance of a credit line mortgage during the term of the mortgage does not constitute payment
of the mortgage for the purposes of determining whether the mortgagee must execute a satisfaction upon
request’ Matter oj”Reitman v Wachovia Natl. Bank, N.A., 49 AD3d 759, 760, 854 NYS2d 179″ (HSBC
Baak, USA v PlIgkhem, 88 AD3d 649, 650, 931 NYS2d 635 [2d Dept 2011 J; Barelay’s Bank oj N. Y. v
Market St. Mtge. Corp., 187 AD2d 141, 144,592 NYS2d 874 [3d Dept 1993]). Moreover, the mere
transmission of a check paying off the entire outstanding balance of a line of credit, “does not require the
mortgagee to close the line of credit or issue a satisfaction of mortgage pursuant to RPAPL 1921 (1)”
(IlSBC Bank, USA lJ Pugkhem, supra at 651; see Matter of Reitman v Wachovia Natl Bank, Nil.. supra).
Rather, wntten notice is required (see Matter of Reitman, supra). However, under the common law, a
mortgagee may also become obligated to prov](le a satisfaction of mortgage where a mortgagor or party
tendenng the balance owed on a credit line mortgage, makes lt clear that a satisfaction is a condition of
accepting the payoff balance (see Merrill Lynch Equity Mgmt., Inc. l’ Kleinman, 246 ADZe!884, 668
NYS2d 726 [3d Dept 1998]).

[…]

Based upon the plain language of the Payoff Letter, it is apparent that the intent thereof is to inform
the customer that the account will not be closed and the mortgage will not be discharged once the payoff is
received, but that the customer has the right to close the account once HSBC receives a letter signed by the
customer instructing it to do so. The facts show that there was no compliance with the Payoff Letter, since
the Holohans, after its receipt, continued to obtain funds from the HELOC until August 24, 2007, and made
payments thereon, albeit sporadically and late, until September 15, 2008. Significantly, MERS has not
submitted any documentation to establish that Fremont instructed HSBC to close the account and execute a
satisfaction discharging the lD0l1gage (see Matter of Reitman v Wachoiva Nat. Bank, N.A., supra; ef
Merrill Lynch Equity Mgt. v Kleinman, supra [check sent to payoff line of credit balance accompanied by
cover letter requesting mortgagee send mortgage satisfaction, and the next day a second request sent to
1ll0I1gagec to forward a discharge of mortgage]; Barclay’s Bank of N. Y. v Market St. Mtge Corp., supra
(enclosed with check tendered to payoff line of credit was a satisfaction of mortgage requesting mortgagee
execute and return to the title company for recording); E*Trade Bank v Perez, 22 Misc 3d 1127[A], 2009
WL 50081,2009 NY Slip Op. 50314[U] [Sup Ct Queens County] [check for balance of line of credit sent
with a cover letter indicating funds were to payoff the mortgage and requesting mortgagee to close account
and forward mortgage satisfaction]). MERS consequently has failed to set forth a meritorious defense to
the foreclosure action, or to establish entitlement to its motion for summary judgment.

[…]

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