Negrin v. Norwest Mortg., Inc.

• Decision Date: 15 November 1999
• Citation: 700 N.Y.S.2d 184,263 A.D.2d 39
• Parties: 1999 N.Y. Slip Op. 9621 Elsie M. NEGRIN, etc., appellant, v. NORWEST MORTGAGE, INC., respondent.
• Court: New York Supreme Court — Appellate Division

Page 184

700 N.Y.S.2d 184

1999 N.Y. Slip Op. 9621

Elsie M. NEGRIN, etc., appellant, v. NORWEST MORTGAGE, INC., respondent.

Supreme Court, Appellate Division, Second Department, New York.

Nov. 15, 1999.

Fruchter & Twersky, New York, N.Y. (Mitchell M.Z. Twersky of counsel), and Jeffrey S. Abraham, New York, N.Y., for appellant (one brief filed).

Reed Smith Shaw & McClay, LLP, New York, N.Y. (Anthony J. Laura of counsel), for respondent.

SONDRA MILLER, J.P., DANIEL W. JOY, HOWARD MILLER and SANDRA J. FEUERSTEIN, JJ.

S. MILLER, J.P.

The issues raised on this appeal involve mortgage industry practices which the plaintiff alleges are illegal. Specifically, the plaintiff argues that the defendant's imposition of certain charges in connection with the payoff of her mortgage violates Real Property Law § 274-a and General Business Law § 349. For the reasons that follow, we agree that the plaintiff has stated cognizable causes of action, and thus we reverse the order appealed from granting the defendant's motion to dismiss the complaint.

I. BACKGROUND

In preparation for the sale of her Staten Island condominium, on or about August 5, 1997, the plaintiff telephoned the defendant, Norwest Mortgage, Inc. (hereinafter Norwest), and asked for a payoff letter, also known as an estoppel certificate, to ascertain the exact amount necessary to satisfy the mortgage on the premises held by Norwest. Norwest complied with the request and on or about August 6, 1997, it faxed a payoff letter to the plaintiff's attorney. In addition to the amount of outstanding principal and per diem interest due to satisfy the loan, the payoff statement also included a "recording fee" of $13.50 and a "Fax Fee" of $10. The transaction closed on September 10, 1997, and the plaintiff paid the now-disputed $23.50.

Approximately two weeks later, the plaintiff commenced this purported class action, alleging that Norwest had improperly imposed thousands of such fees on mortgagors. Specifically, the first cause of action alleged that the $10 fax fee constituted an unlawful charge in violation of Real Property Law § 274-a. The second cause of action alleged that the recording and fax fees constituted deceptive consumer practices in violation of General Business Law § 349.

The defendant responded with a motion pursuant to CPLR 3211(a)(7) to dismiss the complaint. The two-paragraph supporting affirmation of counsel stated that the plaintiff had no cognizable claims inasmuch as her mortgage obligated her to pay all costs of discharge.

The plaintiff argued in her opposition papers, inter alia, that Norwest improperly charged a $13.50 recording fee since it did not record the mortgage satisfaction. Rather, the plaintiff paid the closing agent $55 for the recording of the satisfaction. Thus, the plaintiff's counsel argued, Norwest charged for a service it did not perform. The plaintiff's counsel further argued that the $10 fax fee was exorbitant and violative of the express language of Real Property Law § 274-a.

Norwest submitted a reply affirmation and supporting documentation which raised legal issues, inter alia, disputing the applicability of Real Property Law § 274-a and contending that its provisions were not triggered by other than a written request for payoff documents. Furthermore, Norwest contended that the plaintiff had no private right of action for a violation of Real Property Law § 274-a.

The Supreme Court granted the defendant's motion, concluding that nothing in Real Property Law § 274-a or General Business Law § 349, "expressly or by implication prohibit[ed] the imposition of the challenged fees". Furthermore, the court found that "there was nothing deceptive about their imposition". Accordingly, the court granted the defendant's motion to dismiss the complaint. We now reverse.

II. REAL PROPERTY LAW § 274-a

There is not a wealth of case law construing the provisions of Real Property Law § 274-a. In pertinent part, the statute provides:

"1. The holder of a mortgage upon real property shall execute and deliver to the owner of the real property upon which such mortgage is a lien a written instrument setting forth the amount of the principal of said mortgage remaining unpaid, the date to which interest has been paid, and the amounts, if any, claimed to be unpaid upon said mortgage for principal and interest, itemizing the same, provided, however, that prior written demand by registered or certified mail has been made upon the holder of such mortgage by such owner of the real property and that such owner of the real property shall have executed and delivered to another a written contract to convey, or shall have received a written commitment to make a mortgage loan upon, the real property or an interest therein.

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An owner of real property who shall have complied with the foregoing requirements and who shall not have received the written instrument from the holder of the mortgage thereon within twenty days after such compliance shall be entitled to petition a court of competent jurisdiction for an order requiring such holder of the mortgage to comply with this section.

2. (a) The mortgagee of an owner-occupied, one to six family residential structure or residential condominium unit, shall deliver within thirty days, any mortgage related documents to an authorized individual making a bona fide written demand for such documents. The mortgagee shall not charge for providing the mortgage-related documents, provided, however, the mortgagee may charge not more than twenty dollars, or such amount as may be fixed by the banking board, for each subsequent payoff statement provided under this subdivision. If the mortgagee fails to deliver the mortgage-related documents, the mortgagee shall be liable for the actual damages to the mortgagor by reason of such failure.

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(iii) "Bona fide written demand" means a written demand made by an authorized individual in connection with a sale or refinancing of the mortgaged property or some other event where the mortgage is reasonably expected to be paid off or assigned. Such demand shall either be delivered personally, or by registered or certified mail, postage prepaid, return receipt requested.

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(iv) "Mortgage-related documents" means

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(2) a payoff statement setting forth the balance of the mortgage, including principal, interest and other charges assessed pursuant to the loan documents, together with a per diem rate for interest accruing after the date to which the balance has been calculated".

(Real Property Law § 274-a, ) (emphasis added).

In support of its motion to dismiss, Norwest provided the court with a copy of the Governor's bill jacket accompanying the enactment of chapter 132 of the Laws of 1993 which amended Real Property Law § 274-a by adding section two, which obligates mortgagees to provide payoff statements at no charge to residential homeowners. The legislative materials in the bill jacket clearly demonstrate that the amendment was passed to "encourage" mortgagees to provide timely satisfactions of mortgages so as to establish "a procedure which could help avoid the near 100,000 mortgages, open of record but long ago paid off, which needlessly clogged the system" (memorandum of State Senator Owen Johnson).

The evil to be corrected by the statute was that, especially in rural areas, mortgagees were lax in recording satisfactions. Additionally, as expressed in the memo of the State Banking Department, the bill was intended to help homeowners selling or refinancing their homes by setting reasonable time frames in which the lender must comply with requests for necessary documents. Not one of the supporting statements, nor the joint memorandum in support by Assemblyman Robach and Senator Johnson, mentions the reason behind the provision requiring payoff documents to be provided at no charge. Nevertheless, it is reasonably inferable that the Legislature intended to compel mortgagees to provide satisfactions in an expeditious manner, and determined that mortgagees were not entitled to additional compensation for this ministerial act. Simply stated, recalcitrant mortgagees were not to be rewarded for doing that which was legally required of them anyway.

Contrary to the argument advanced by Norwest and adopted by the dissent, however, the fact that Real Property Law § 274-a expressly prohibits the imposition of fees for payoff letters demanded in writing does not grant a mortgagee license to impose unwarranted and unauthorized fees merely because a mortgagor happens to request the payoff documents by telephone. It is clear that the amendment to Real Property Law § 274-a was intended to affect recalcitrant mortgagees; i.e., those who failed to provide timely mortgage satisfactions. Thus, the statute was designed to create a formal demand procedure, evidenced by a writing which, if ignored, would be actionable via a petition to compel compliance (see, Real Property Law § 274-a ) plus actual damages (see, Real Property Law § 274-a[a] ). However, there is absolutely no indication in the statute, and no justification in reason, to hold, as does the dissent, that while a mortgagee must provide a free payoff statement in response to a written demand, it is permitted to impose charges in response to oral demands. This makes no sense and clearly was not intended by the Legislature.

The dissent relies upon the authority of Matter of Horseheads Commercial Dev. Partners v. Horseheads Indus. Realty Assocs., 227 A.D.2d 764, 642 N.Y.S.2d 365, in support of the proposition that a written demand for payoff documents is a condition precedent to a mortgagee's duty to provide free payoff documents, absent which it may impose charges. We disagree, as this case is wholly inapposite.

In Horseheads (supra), the petitioner owned certain property encumbered by mortgages held by the respondent. In an apparent refinancing attempt, the petitioner obtained a mortgage commitment from a new...