Scapegoat

Hewlett Bay Park, NY – This stately home on Long Island had to be sold. The owners business had failed, and lenders threatened to foreclose.

There were five mortgages against the property, three of which were held by one major bank.

The bank referred two of its mortgages to outside counsel, Michael, for foreclosure. Michael was a sole practitioner in Brooklyn.

Meanwhile, Boris and Dora contracted to buy the property and a New York City law firm was asked to handle the closing.

In response to a closing attorney’s inquiry, Michael provided two letters containing payoff demands for the bank’s loans. Both letters referenced loan account numbers and the address of the property. One demand was for $289,301 and the other was for $149,721.

The deal closed and the closing attorney issued payoff checks to the bank in the amounts provided by Michael. Title policies were issued to the new owners and to the new lender.

Within months the new owners were notified that the old first mortgage had not been released, and the bank intended to foreclose.

It seems the payoff figure of $149,721 had been given in error, since that figure related to yet another loan to the same borrowers secured by a different property in Brooklyn. With the borrowers consent, the bank had gone ahead and credited the $149,721 payment to this other mortgage, and now wanted another $309,000 to satisfy its first mortgage against the insured property.

The new owners made a claim, and the title insurance underwriter contacted the bank. The bank was adamant. The bank’s attorney, Michael, blamed the closing attorney for the mistake since the loan number referenced on his erroneous letter did not match the loan number on the first mortgage. It was “obviously” wrong.

To make matters worse, the borrowers had moved to Florida and would be of no help in settling this disagreement.

A lawsuit ensued with the Title Insurance Policy paying for the defense of its insured owners, to prevent foreclosure of the first mortgage.

After wallowing in litigation for more than two years, the bank gave up and released the old mortgage. Over $67,047 dollars was paid in defense of the insured.

MORAL: Another example of how the interests of innocent homeowners, and their lender, can be jeopardized by the errors and egos of others.