No, You Cannot Enforce A Mortgage That Has Already Been Paid In Full

by: Peter J. Gallagher (@pjsgallagher)

The Appellate Division recently dealt with an unusual situation involving a borrower trying to enforce a mortgage, which had been satisfied years earlier, against a lender that was foreclosing on a different loan. While disputes occasionally arise between lenders regarding which loans have priority over others for the purpose of foreclosure, it is highly unusual for a borrower to attempt to enforce a mortgage, much less one that had been fully satisfied. Nonetheless, this was precisely what the Appellate Division faced in Valley National Bank v. Meier.

The facts of Meier were not disputed. In 1999, the Meiers obtained a loan from Community Bank of Bergen County for $168,000, which was secured by a purchase money mortgage. At the time, Mr. Meier was the president, CEO, and chairman of the board of Community Bank, which later merged with Valley. Six years later, the Meiers obtained a home equity loan from Community Bank that was also secured by a mortgage on the same property. Two years after that, Mr. Meier paid off the original mortgage, allegedly using pre-martial assets to do so. At some point prior to paying off the mortgage, the Meiers divorced. Instead of getting a discharge of the mortgage after paying off the note, Mr. Meier received a written assignment of the mortgage which he subsequently recorded.


In 2013, Valley filed a complaint to foreclose on the home equity line. Valley was eventually awarded final judgment by default, and later purchased the property at sheriff's sale. Approximately three months after the sheriff's sale. the Mr. Meier demanded payment from Valley of $149,838.06, which was the amount he paid Community Bank to satisfy the original mortgage, plus interest. In other words, although he had paid off the loan, Mr. Meier was attempting to enforce the mortgage. Valley demanded that the Meiers agree to a discharge of the mortgage, and when they did not, Valley moved for a divestiture of the assignment of mortgage.

The Chancery Division concluded that the Mr Meier’s receipt of an assignment of mortgage was “troubling” given his position at Community Bank at the time of the assignment, and “might well support a referral of [the] matter to the Department of Banking and Insurance.” Nonetheless, the court concluded that the mortgage had been fully satisfied and was no longer legally viable.  The Meiers' appealed, and the Appellate Division affirmed.

The Appellate Division began its analysis with the "indisputable premise that, in the eyes of the law, a mortgage is extinguished by operation of law when full payment is made by a mortgagee and accepted by the mortgagor." Accordingly, when Mr. Meier paid off their original mortgage, that mortgage was extinguished. In arguing that the mortgage remained viable because of the assignment, Mr. Meier relied on the proposition that "an assignment of a mortgage to one of two tenants in common does not discharge it." The Appellate Division held that this principle only defines whether or to what extent one tenant in common is entitled to reimbursement from the other for having paid off the mortgage, not that the assigned mortgage continued to burden the property. In other words, if Mr. Meier actually paid off the mortgage with pre-marital assets, he might have a claim for contribution against his former wife for her fair share of this payment. But, in all other respects, the mortgage was extinguished when he paid the underlying note in full. Accordingly, the Appellate Division affirmed the trial court’s decision to divest the Meiers of the mortgage and assignment, and declare that they had no further interest in the property.

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