MUTUAL LIFE INSURANCE COMPANY OF N. Y. v. TRUCHTNICHT

MUTUAL LIFE INSURANCE COMPANY OF N. Y. v. TRUCHTNICHT. N. Y. Supreme Court, First Department; Chambers, December, 1877. Foreclosure. —Mortgage.—Surplus. Under the surplus money rule, it is the common practice for the plaintiff to apply for the surplus money under a subsequent incumbrance held by him, but not referred to in his complaint, if the land was sold free from it, as it stands for the land in respect to those having liens or vested rights therein. The rule that a subsequent incumbrancer without notice of the foreclosure suit has no claim on the surplus, is not technical, but is founded upon the equitable principle that he cannot have a lien upon both land and surplus. If plaintiff, by selling free from his junior incumbrances not mentioned in the complaint, practically releases to the purchaser on the foreclosure sale, all claim to the equity of redemption, he may ask to have the surplus on the sale applied to the payment of such incumbrances. Motion, to confirm a referee’s report. This action was brought by The Mutual Life Insurance Company, against John Truchtnicht and others, to foreclose three certain mortgages, dated respectively January 20, 1865, January 31, 1868, and May 31, 1871, on certain real estate in Mott Haven. ' A judgment of foreclosure and sale was obtained, and the property sold. Upon the sale there was a surplus amounting to $2,561.17. The plaintiff held other mortgages upon the same, and other premises, made intermediate the first and last mortgages, upon which this suit was brought. These mortgages were not mentioned in the complaint in this action, but other actions were brought to foreclose them, and judgments of foreclosure and sale were obtained, and they were advertised to be sold, and the sales adjourned from time to time until after the sale in this action, when they were abandoned. The sale in this action was not subject to plaintiff’s claims in the other action. As there were several judgment creditors who claimed this surplus it was referred to a referee to ascertain the amount due each, and the priorities of the several liens. The referee found that the premises sold under the judgment in this action were incumbered by six mortgages, which mortgages were duly assigned to and were held by the plaintiff herein. All of which mortgages were prior to the judgments recovered by any of the claimants. That this action (No. 2) was brought to foreclose the first, third and fifth mortgages on a portion of the said mortgaged premises, and the first and third mortgages on the other portion of said mortgaged premises : that in actions number one and three, above referred to, the remaining mortgages on said premises were foreclosed; that the amount due .the plaintiff under the judgment inaction number one was $5,832.40, for principal and interest of the mortgages foreclosed therein with interest and $463.81 costs. That the amount due plaintiff under the judgment in action No. 3, in which action the second mortgage on said premises was foreclosed, was $1,645.54 with interest and $269.04 costs. That from the facts found he reported “that the said, The Mutual Life Insurance Company of New York, under and by virtue of said judgments of foreclosure and sale, are entitled to the whole of the surplus moneys in this action, and there is no lien or claim thereon prior to their lien.” One of the judgment creditors, who was a party to this action, and whose lien upon the premises was barred and foreclosed, objected to the confirmation of the referee’s report, on the grounds that his claim was a lien upon the surplus money ; that the plaintiff had no lien upon the surplus because the mortgages upon which they claim, were still a lien upon the mortgaged premises; that the plaintiff, having instituted other suits to foreclose those mortgages, must stand or fall-by the result of those suits; that a prior mortgagee, although having a claim upon the mortgaged premises could not claim the surplus, because his mortgage would not be affected—a subsequent mortgagee not a party to the suit could not claim it because he was not barred or foreclosed. Julien T. Davies (Davies & Work, attorneys), for the motion. Henry Hagner, opposed. Cited, Root v. Wheeler, 12 Abb. Pr. 294 ; Winslow v. McCall, 32 Barb. 241. [MAJORITY — Barrett, J.] Barrett, J. The object of the surplus money rule was to save the plaintiff from the necessity of establishing beforehand all the claims he might have upon the mortgaged premises (Field v. Hawxhurst, 9 How. Pr. 77). Under this rule it has been a common practice for the plaintiff to apply for the surplus money under a subsequent incumbrance not referred to in his complaint. The surplus money stands in the place of the land in respect to those having liens or vested rights therein (Matthews v. Duryee, 45 Barb. 70). The rule as to a subsequent mortgagee without notice of snit is not technical. It is founded upon the equitable principle that he cannot have his lien upon both land and surplus. The cases 12 Abb. Pr. 294, and 32 Barb. 241, were statutory foreclosures ; and the latter went upon the authority of 7 Paige, 167, which only held that the surplus could not be claimed by the subsequent incumbrancer unless he released to the purchaser all future claim to the equity of redemption. This the plaintiff here has practically done. Its action in moving the sale free from all liens was equivalent to the barring and foreclosing of all its subsequent liens. Nor would it be just or equitable, that the judgment creditors, who are otherwise hopelessly behind, should profit by the mere form of the procedure. Upon the whole, I think the.referee was right, and that the surplus must go to the plaintiff.