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MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, over a partial dissent, determined plaintiff mortgage company should have been allowed to amend its complaint to seek equitable subrogation in this foreclosure action. Defendants husband (Feller) and wife had a mortgage on the subject property. Plaintiff’s predecessor in interest subsequently provided a mortgage loan to defendant husband alone and the proceeds were used to pay off the first mortgage. Plaintiff’s predecessor then procured a judgment in foreclosure, but only with respect to defendant husband’s interest in the property. Plaintiff  sought to amend its complaint alleging it was entitled to the wife’s interest in the property (equitable subrogation). The court further found that defendant wife did not ratify the execution of the husband’s mortgage and explained the criteria for ratification:

As we recently clarified, the party seeking leave to amend a pleading “need not establish the merits of the proposed amendment” … . Rather, the appropriate standard to be applied on a motion for leave to amend a pleading is that, “‘in the absence of prejudice or surprise resulting directly from the delay in seeking leave, such applications are to be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit'” … . …

Ratification … is the express or implied “adoption of the acts of another by one for whom the other assumes to be acting, but without authority” … . …[P]laintiff has not alleged any unauthorized act on the part of Feller. It is undisputed that Feller and defendant held the property at issue as tenants by the entirety, and “there is nothing in New York law that prevents one of the co-owners from mortgaging or making an effective conveyance of his or her own interest in the tenancy. To the contrary, each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” … .

Here, plaintiff’s predecessor in interest, Countrywide, provided funds through a second mortgage on the subject property to pay off a first mortgage securing a loan that both defendant and Feller were obligated to pay. Defendant would therefore be unjustly enriched if the doctrine of equitable subrogation were not applied, as denial of this equitable remedy “would provide a windfall to [defendant] by allowing [her] to have [her] original mortgage debt extinguished while at the same time maintain a right to the subject property that is superior to the mortgagee that furnished the funds that extinguished the first mortgage” … . Green Tree Servicing, LLC v Feller, 2018 NY Slip Op 01973, Third Dept 3-22-18

CIVIL PROCEDURE (FORECLOSURE, MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT))/FORECLOSURE (MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT))/RATIFICATION (FORECLOSURE, MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT))/EQUITABLE SUBROGATION (FORECLOSURE,  MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT))/MORTGAGES (FORECLOSURE, MORTGAGE COMPANY SHOULD HAVE BEEN ALLOWED TO AMEND ITS COMPLAINT IN THIS FORECLOSURE ACTION TO SEEK EQUITABLE SUBROGATION TO THE WIFE’S INTEREST IN THE SUBJECT PROPERTY, CRITERIA FOR AMENDING A COMPLAINT, RATIFICATION OF THE EXECUTION OF A MORTGAGE, AND EQUITABLE SUBROGATION EXPLAINED (THIRD DEPT))

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