Bulletin: NY000039

Dear Associates:

Credit Line mortgages are defined in Real Property Law §281. This statute was revised by Chapter 613 of the Laws of 1993, and, effective December 2, 1993, includes reverse mortgages (defined in new §§280 and 280-a) as a type of credit line mortgage.

Other types of credit line mortgage are popularly called Home Equity Loans, Equity Source Accounts or Home Equity Lines of Credit. The typical credit line involves a line of credit, secured by a mortgage on real property , which can be drawn upon, paid back and redrawn. The usual means of access to the credit line is via a special checkbook, but other methods, including credit cards and electronic funds transfers, have been used.

These loans are extraordinarily difficult to pay off, because of the possibility that the borrower could access the account after the closing and before the lender receives the payoff funds.

As a result of the problems in handling credit line payoffs, we have established certain guidelines to be followed in establishing a credit line payoff involving an institutional lender:

1. The Payoff Letter must expressly state no further advances will be made, or that the right to future advances has been terminated as of the date of the letter;

2. The payoff figures must be verified at closing with the lender. The closer must note the name and title of the person confirming;

3. The mortgagor must execute an affidavit stating that no advances have been requested which are not reflected on the payoff letter.

You should be aware of Barclays Bank of New York v. Market Street Mortgage Corporation, 187 A.D.2d 141, 592 N.Y.S.2d 874 (3d Dept. 1993). In this case, the lower court held that advances made after the payoff had priority over the new mortgage. It was only because the new lender was able to establish that the payoff was intended to be payment in full, and a satisfaction was requested with the transmittal, that the Appellate Division reversed. Even though the new lender prevailed (presumably at the cost of their title insurer), the cost of the litigation must have been substantially in excess of any title premium paid. It would have been much more expensive, however, if the credit line lender had prevailed, and the title insurer had to cover a potential loss.

For information on this topic in other states, please see bulletin MU000014 Payoffs: Residential Open End or Revolving Credit Loans .