Second Judicial Circuit confirms lawsuit for violation of law on satisfaction of mortgage loans in Federal Court – Finance and banking



United States: Second District Confirms Lawsuit for Violating Mortgage Satisfaction Law in Federal Court

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In the case of a first impression with constitutional implications, the Second Tribunal found that the mortgagee had the right to sue under Article III of the Constitution in Federal Court for the lender’s violation of the state mortgage repayment law. Maddox v. Bank of New York Mellon Tr. Co., NA, 2021 WL 1846308 (2nd date, May 10, 2021). In October 2000, the Maddox sisters took out a mortgage on their property in Buffalo, which was later transferred to BNY Mellon. In September 2014, the property was sold, and in connection with this sale, the loan was paid and the debt was repaid on October 5, 2014. However, BNY Mellon was unable to apply for mortgage satisfaction with the Erie County clerk’s office almost until a year later, on September 22, 2015. This violated the New York State Mortgage Satisfaction Act, RPL § 275 (1), which requires the mortgage lender to file a statement of payment within 30 days of full repayment of the debt. Although Section 275 RPL is state statute, the Maddoxs filed a purported class action lawsuit against BNY Mellon in the US District Court for the Western District of New York, seeking damages under Section 275 RPL. pleadings, arguing, among other things, that the Maddoxes did not fall within the scope of Article III of the US Constitution because the Maddoxs “suffered no actual damage due to the alleged lack of a record of satisfaction” and thus “did not claim specific damage. “The Maddoxs, in turn, argued that the Bank’s non-compliance period limited access to accurate financial information about them and created a false impression of their credit status during that period, and that this created“ a fairly real risk of other specific and specific losses, ” For example, the potential inability to obtain financing for other property or damage to a personal loan. They also argued that because the New York Legislature had recognized the right to be free from this harm by creating a state statute, and because this harm was similar to that which can be claimed in common law, the legal capacity of Article III could be found. The District Court agreed with the Maddoxs and rejected BNY Mellon’s sentencing motion, but also upheld the issue for interlocutory appeal to the Second Circuit Court of Appeals.

On appeal, the Second Circuit, in a separate decision, upheld the rejection of the pleadings motion and agreed that the Maddoxs were eligible to file a Section III claim in federal court. The court ruled that the New York statute in question creates a “legally protected interest” in the mortgagor’s right to timely repayment, as well as a “substantive right” to protection from failure to provide timely payment, “authorization[ting] persons demanding judicial protection ”. The court further found that the Maddox’s allegations of potential “reputational damage” arising from the false impression that their debt was still payable and the potential “credit degradation” resulting from this were indicative of “specific and specific” damage sufficient to establish legal capacity. … District Judge Dennis Jacobs expressed a dissenting opinion on the matter, stating that “[b]By law, New York creates a private right to charge an increasing monetary fine. … … up to $ 1,500. … … that’s all, ”and that the fine could easily be recovered in small claims court in New York. Judge Jacobs also noted that the statute in question is not enforceable through class action and that by allowing Maddox to act in federal court, the Court has contributed to “a spinning wheel that has no interest other than that of a lawyer.” Most have tried to refute this disagreement in their opinion, stating that despite the relatively low amount of the fine, the law still “sought to partially protect pledgers when it required timely registration” and that, with regard to class action concerns, “questions about potential Consolidation of claims should generally not be relevant to a standing request under Article III[.]Thus, the court found that the Maddoxes were legally capable and upheld the district court’s decision to reject B.N.Y.’s petition. Mellon’s pleadings for pleadings.

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