Guleserian v. Fields

Spiegel, J.

(concurring) I concur in the result reached by the opinion of the court but not on the basis of its reasoning.

In relation to the existing first mortgage note, the proposed postponement of principal payments for a two year period would cause the unpaid principal balance at any time thereafter to be larger than it would have been had the *246payments been made as scheduled and commensurately decreases the value of the security to Operating as the junior mortgagee. Thus, in the event of a default by the plaintiffs in their principal payments, Operating would be required to pay more than the amount it would otherwise pay in order to be subrogated to the rights of the bank as first mortgagee.

I agree that the mortgagors and the first mortgagee may make a binding agreement between themselves to alter the terms of the first mortgage. However, it is my belief that the requirement that the mortgagors “perform the condition of any prior mortgage ’ ’ protects the second mortgagee from such an agreement. Hence, the second mortgagee is able to determine the full effect of the prior mortgage on its security by consulting the terms of the prior mortgage. If the previous mortgage expressly provides for a possible extension of time, the second mortgagee has notice of this and can adjust the terms of its agreement correspondingly.

I observe with special interest the following statement in the brief submitted on behalf of the Massachusetts Convey-ancers Association and The Abstract Club as amici curiae: “These amici are satisfied that a sizeable segment of the conveyancing bar have heretofore proceeded upon the assumption that where a mortgagor failed to make payments as and when required by the first mortgage note as it stood at the date of the second mortgage, even with the concurrence of the first mortgagee, the second mortgagee could foreclose. Indulgences granted a mortgagor by the first mortgagee frequently work to the detriment of a second mortgagee, — depreciation on the building continues and may not be matched by reduced amortization payments, balloons sometimes are not paid and invariably affect refinancing. In view of such considerations it is arguable that as a matter of policy protection should be given to the second mortgagee, and the governing board of the Massachusetts Conveyancers Association has subscribed to that policy. ’ ’

The case of 100 Eighth Ave. Corp. v. Morgenstern, 3 Misc. 2d (N. Y.) 410, cited by the majority, is distinguishable on *247its facts. In that case, the second mortgage expressly provided that it was subordinate to the first mortgage “and subordinate to any extensions thereof and to any mortgage or consolidated mortgage which may be placed on the premises in lieu thereof or to any extensions thereof provided in all such events (a) that the interest rate thereof shall not be greater than 4%% per annum and provided (b) the amortization shall be no different as presently is payable under the said mortgage.”

I note that the Massachusetts Conveyancers Association and The Abstract Club in their brief concluded that “the proposed agreement with the Bank would constitute an extension contemplated by the language of the statutory condition.” I do not agree. The statutory condition was enacted in its present form by St. 1913, c. 369, at a time when self-amortizing mortgages were rare.1 I think it is a fair assumption that in 1913 the Legislature did not contemplate that some years in the future the self-amortizing mortgage would become commonplace. I believe that the extension contemplated by the statute was an extension of the date of maturity of the traditional mortgage in which the entire principal amount became due at maturity and not a fundamental change in the form of the mortgage from self-amortizing to traditional.

In the instant case, however, we are confronted with a somewhat unique situation. The mortgage contains a provision that the mortgagors agree “to remain liable upon the covenants herein and upon the note secured hereby notwithstanding any forbearance, extension or other indulgence given by the Holder to any future owner of the mortgaged premises or other person” (emphasis supplied). The mortgage also states that payment is to be made “as provided in our certain note of even date.” The note provides that “All parties now or hereafter personally liable for the payment of any of the indebtedness hereby evi*248denced agree, by executing or endorsing this note or by entering into or executing any agreement to pay any indebtedness hereby evidenced, that the owner or holder hereof shall have the right, without notice, ... to grant to any party any extensions of time for payment of any of said indebtedness or any other indulgences or forbearances whatsoever without in any way affecting the personal liability of any party hereunder” (emphasis supplied).

Because it is a condition of the prior mortgage that the time for “payment of any of said indebtedness” (emphasis supplied) may be extended, there can be no failure to “perform the condition of any prior mortgage” when payment is made according to the terms of the extension.

See Meislin, Extension Agreements and the Bights of Junior Mortgagees, 42 Va. L. Bey. 939, which refers to [t]he post-depression popularity of the fully self-amortizing mortgage.”