Bulletin: NY000076

Dear Associates:

Before July 1, 1989, it was common, and perfectly legal, for mortgages to be assigned at the request of the borrower, instead of being satisfied. The version of Real Property Law §275 in effect up until that time provided that this was the mortgagor's option. That section was repealed, effective July 1, 1989, and a new §275 was enacted, by Chapter 241 of the Laws of 1989, and significantly amended by Chapter 748 of the Laws of 1990. The 1990 amendment, approved on July 22, 1990, was made retroactively effective to July 1, 1989. (There is some question as to the retroactive effect of the amendment on assignments made during the interim period, and we will not require compliance with the statute which would have required precognition.)

Under the currently effective statute, the mortgagor cannot require the mortgagee to assign the mortgage upon payment, in lieu of a satisfaction. Such assignments are not prohibited, either. In order to avoid situations where the mortgagor is attempting to "warehouse" the mortgage to preserve a mortgage tax exemption to use in the future, the legislature created a requirement as follows:

1. for mortgages which are assigned in the commercial practice of lenders trading or selling mortgages on the secondary market, the mortgage assignment must contain the following statement:

"This assignment is not subject to the requirements of section two hundred seventy-five of the Real Property Law because it is an assignment within the secondary mortgage market."

2. for mortgages which are assigned under any other circumstance, the assignment must contain a statement under oath (i.e., an affidavit), either within the body of the assignment or attached to and recorded with it. Subdivision 3 of §275 contains explicit instruction as to the contents of the affidavit. The affidavit must be made by the mortgagor or a party asserting knowledge, and it must state that the assignee is not acting as a nominee of the mortgagor, and that the mortgage continues to secure a bona fide obligation.

Examiners and readers should be aware of these requirements, particularly with regard to any assignments made since July 22, 1990. Please see affidavit available through the referenced form at the end of this bulletin. The Company is not willing to insure any assignment where the assignment to be insured does not contain one of the required items, or where any assignments since July 22, 1990 do not contain either of the required items, unless mortgage tax is paid again.