Four RH Corp. v R&N Realty Holding, Inc., et al.
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Attorneys and Parties
Brief Summary
Mortgage foreclosure and lien-priority dispute over whether a junior mortgage holder orally agreed to subordinate its lien during a refinance closing, and whether the refinancing lender could obtain priority through Real Property Actions and Proceedings Law (RPAPL) article 15 [authorizing actions to determine claims to real property and declare interests] or, alternatively, equitable subrogation.
The Supreme Court confirmed the referee's report, dismissed the foreclosure complaint as against Bank of America, granted summary judgment on its first counterclaim under RPAPL article 15, declared its mortgage superior to the plaintiff's mortgage, and treated the alternative equitable subrogation counterclaim as academic.
The Appellate Division reversed the order and judgment insofar as appealed from, denied confirmation of the referee's report, denied summary judgment on the first counterclaim, reinstated the complaint against Bank of America, vacated the dismissal of the second counterclaim as academic, reinstated that counterclaim, and remitted for further proceedings.
The alleged oral subordination agreement was unenforceable under General Obligations Law § 5-703 [Statute of Frauds requiring a writing for conveyances or interests in real property], and the defendant failed to show part performance that was unequivocally referable to such an agreement. The $22,000 payment at closing could be explained in multiple ways, including a short payoff or interest payment, so it did not conclusively prove a subordination agreement.
Background
R&N Realty Holding, Inc. acquired the property in 2005. It first mortgaged the property to Greenpoint Mortgage Funding, Inc. for $412,500. In 2007, R&N gave Four RH Corp. a second mortgage for $100,000. In February 2009, R&N conveyed the property to Lise Afoy, who executed a new mortgage for $492,470 in favor of Professional Mortgage Bankers Corp.; that mortgage was later assigned to BAC Home Loans Servicing, LP, whose interest later became held by Bank of America, N.A. Part of the refinance proceeds paid off the Greenpoint mortgage, which would have elevated Four RH Corp.'s second mortgage into first position unless Four RH Corp. had agreed to subordinate. The dispute centered on a $22,000 payment made at the 2009 closing and whether it represented consideration for an oral subordination agreement.
Lower Court Decision
After a nonjury trial before a court attorney referee, the referee found that Four RH Corp. had agreed to subordinate its mortgage in exchange for $22,000 and recommended dismissal of the complaint as against the defendant, entry of judgment declaring the defendant's mortgage superior, and a finding that the plaintiff breached the subordination agreement. The Supreme Court adopted those recommendations, granted the defendant summary judgment on its first counterclaim under RPAPL article 15, and effectively dismissed the alternative equitable subrogation counterclaim as academic.
Appellate Division Reversal
The Appellate Division dismissed the direct appeal from the intermediate order because entry of the order and judgment terminated that appeal. On the appeal from the order and judgment, the court reversed insofar as appealed from. It held that the alleged oral subordination agreement was not established through part performance because the $22,000 payment was not unequivocally referable to a subordination agreement. The record supported several possible explanations for the payment, including a short payoff, back interest, or consideration for a new agreement, and thus there may not have been a meeting of the minds. The court denied confirmation of the referee's report and summary judgment on the first counterclaim, reinstated the foreclosure complaint as against the defendant, reinstated the defendant's second counterclaim for equitable subrogation, and remitted for further proceedings.
Legal Significance
This decision reinforces that a mortgage subordination agreement affecting an interest in real property must satisfy General Obligations Law § 5-703 [Statute of Frauds requiring a writing for conveyances or interests in real property] unless the party invoking equity can show part performance that is unequivocally referable to the oral agreement. Ambiguous closing payments, even if consistent with the alleged agreement, are insufficient when they can also be explained as interest payments or payoff adjustments. The case also shows that when a trial court dismisses an alternative equitable remedy as academic after granting declaratory priority relief, that alternative claim must be revived if the priority ruling is reversed.
A refinancing lender cannot obtain mortgage priority based on an alleged oral subordination agreement where the only claimed part performance is a payment that can be explained in more than one way; without conduct unequivocally referable to the oral agreement, the Statute of Frauds bars enforcement, and alternative equitable subrogation claims remain available for further litigation.