New York Mortgage Trust v. Deely

Anthony and Catherine Deely (defendants) executed a $664,000 mortgage to First Interstate Financial Corp. (FIFC), recorded in March 2005. The Deelys also secured an $80,000 home-equity credit-line account with Fleet National Bank (Fleet), recorded in August 2005. Fleet was succeeded by Bank of America, NA (defendant). In September 2005, the Deelys refinanced their primary mortgage (i.e., the FIFC mortgage) by executing a $726,000 mortgage to New York Mortgage Company, LLC, which was later assigned to New York Mortgage Trust (plaintiff). The bulk of the $726,000 was used to pay off the FIFC mortgage, which was discharged. At the time of closing, Bank of America advised a title agency that the Fleet mortgage had a zero balance—in other words, that no further payoff of the Fleet mortgage was required. However, the Fleet mortgage was never formally discharged because a discharge was never recorded. Later, the Deelys defaulted on their mortgage with New York Mortgage Trust, which initiated foreclosure. The court awarded summary judgment to New York Mortgage Trust and subrogated the New York Mortgage Trust mortgage to the position of first lien—that is, the lien with highest priority. Bank of America appealed, arguing that the principle of equitable subrogation did not apply because New York Mortgage Trust had actual knowledge of the Fleet mortgage as an intervening lien.