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Mortgages/HELOC Payoff

In 2001, Plaintiff HSBC Bank USA ("HSBC") made a home equity loan to the Defendants-borrowers secured by a mortgage. In 2005, Fremont Investment & Loan ("Fremont") made a mortgage loan to the Defendants-borrowers. A portion of the proceeds of the Fremont loan was used to pay off the balance of the HSBC loan. However, there was no compliance with the requirement of HSBC's payoff letter that HSBC receive with payment written instructions to close the account and, while the outstanding balance of the HSBC loan was reduced to zero, the line of credit was left open. The borrowers thereafter drew on the HSBC credit line and defaulted in their payments, and HSBC brought an Action to foreclose its mortgage. The Supreme Court, Suffolk County, held that the HSBC mortgage had priority over the Fremont mortgage and it ordered the mortgage satisfaction erroneously executed by HSBC in 2010 expunged from the real estate records. The Court found that HSBC was not instructed to close the account, and Fremont did not rely on the erroneous Satisfaction of Mortgage, executed and recorded in 2010, when it made its mortgage loan in 2005. HSBC Bank USA v. Holohan, decided October 3, 2012, is reported at 2012 NY Slip Op 32553 and posted at: http://www.courts.state.ny.us/reporter/pdfs/2012/2012_32553.pdf.

See also HSBC Mortgage Corporation (USA) v Puccini (Sup. Ct. Suffolk County), decided October 9, 2012 and reported at 2012 NY Slip Op 32592, posted at: http://www.courts.state.ny.us/reporter/pdfs/2012/2012_32592.pdf,, and HSBC Bank, USA v. Pugkhem, 931 N.Y.S. 2d 635 (2nd Dept. 2011), in which it was held that payment of the outstanding balance of the credit line mortgages in question had to be accompanied by written instructions to close the accounts.

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