On May 10, 2016, the New York Court of Appeals held that two mortgages consolidated into a single mortgage lien qualify as the first mortgage of record under the Condominium Act (Real Property Law Article 9-B), and take priority over a subsequently recorded common charges lien (Plotch v. Citibank, N.A., 2016 NY Slip Op 03648).

In July 2000, Citibank extended a mortgage for $54,000 to the unit owner of a condominium, which was recorded. In 2001, Citibank extended a second mortgage to the owner for $38,000, and entered into a consolidation agreement with the owner. Under the consolidation agreement, the two mortgages were consolidated into a single mortgage lien for $92,000, which the owner and Citibank intended to be treated as a single mortgage. Both the second mortgage and the consolidation agreement were recorded on the same day.

Approximately seven years later, the condominium board filed a common charges lien against the unit.

In 2010, Adam Plotch purchased the condominium in a foreclosure action subject to the first mortgage of record against the premises. Plotch commenced an action seeking a judgment declaring that the second mortgage was subordinate to the subsequently recorded common charges lien under Real Property Law Section 339-z, and was therefore extinguished by the condominium board's successful foreclosure action.

The supreme court denied Plotch's motion for summary judgment and found that Plotch had purchased the unit subject to the consolidated $92,000 mortgage, not the initial $54,000 mortgage. The appellate division affirmed.

The court affirmed the appellate division, holding that the two consolidated mortgages took priority over the common charges lien. First, the court explained that a condominium board’s lien for unpaid common charges has priority over other liens, except for certain statutory exceptions including the first mortgage of record. Next, the court found that the consolidated mortgages together constituted the first mortgage of record. The court’s holding resolved conflicting holdings on this issue in the lower courts.

This holding is important because by clarifying the priority of a consolidated mortgage over a common charges lien, condominium owners have greater flexibility to refinance and obtain larger mortgage loans from lenders. If the court had held otherwise, it might have a chilling effect on lenders’ willingness to make consolidated loans to condominium borrowers. The court did note, however, that banks and condominium owners would simply take additional steps to satisfy the original mortgage, take out a new mortgage, and pay the additional fees required to achieve the first mortgage of record priority.

Counsel should note that this decision is limited to circumstances where the common charges lien was recorded after the consolidation agreement. A lien that is filed during the time between the two consolidated mortgages will still be given priority over the second mortgage.