Chapter 3A Standard Clauses in Mortgages § 3A:1 The New York Statutory Form Mortgage § 3A:1.1 Payment of Indebtedness § 3A:1.2 Insurance [A] Purchase of Insurance by Mortgagee [B] Restoration of Premises [C] Application of Insurance Proceeds to Debt [D] Claims of Co-Owners and Holders of Other Interests [E] Transfers of Mortgaged Premises or Mortgage Loan [F] Mortgagee Endorsements [G] Mortgagee’s Acquisition of Title Before Insured Loss [H] Mortgagee’s Acquisition of Title After Insured Loss [I] Loss Payable Endorsement [J] Liability of Mortgagee for Insurance Premiums [K] Installment Land Contracts § 3A:1.3 Building Removal § 3A:1.4 Acceleration of Debt [A] Notice of Acceleration [B] Reinstatement After Acceleration § 3A:1.5 Appointment of Receiver § 3A:1.6 Payment of Taxes and Charges § 3A:1.7 Estoppel Certificate § 3A:1.8 Notices § 3A:1.9 Warranty of Title § 3A:1.10 Adding Other Clauses to New York Statutory Form § 3A:2 Dragnet § 3A:3 Due-on-Sale § 3A:3.1 History § 3A:3.2 Garn-St. Germain Depositary Institutions Act [A] Automatic Enforceability [B] Scope [C] Exemption for Nonsubstantive Transfers [D] Case Law (Friedman on Contracts, Rel. #22, 10/16) 3A–1 § 3A:1 FRIEDMAN ON CONTRACTS § 3A:3.3 Express Standards in Due-on-Sale Clause § 3A:3.4 Cure of Violation § 3A:3.5 Fannie Mae/Freddie Mac Uniform Instruments § 3A:3.6 Commercial Property § 3A:4 Purchase Money Mortgage § 3A:5 Description of Mortgaged Property § 3A:5.1 Generally § 3A:5.2 Fixtures and Personal Property § 3A:5.3 After-Acquired Fixtures and Personal Property § 3A:6 Waste § 3A:7 Non-Recourse § 3A:8 Maintenance of Premises in Good Condition § 3A:9 Prepayment § 3A:10 “Brundage” Clause § 3A:11 Sale in One Parcel § 3A:12 Lien Clause § 3A:13 Condemnation § 3A:14 Attorneys’ Fees § 3A:15 Corporate Execution § 3A:16 Lease Modification § 3A:17 Survival of Mortgagor’s Liability § 3A:18 Escrow Deposits § 3A:19 Transferable Development Rights § 3A:1 The New York Statutory Form Mortgage There is no form that may be called customary in New York. There is a statutory short form of mortgage in New York, and comparable forms in other states,1 but the New York statutory form mortgage is not complete. For example, it does not contain the “lien clause,” which is necessary to maintain priority of the mortgage lien over some me- chanics’ liens,2 and the statutory acceleration clause contains blanks for “grace periods” and presupposes an agreement as to how these blanks are to be filled in.3 The New York statutory form is of substantial advantage because its brief clauses are given an expanded statutory construction.4 The statutory construction governs when the mortgage is 1. For statutory forms in other states, see MD.CODE,REAL PROP. § 4-202; MASS.GEN.LAWS ch. 183, app. (5); MINN.STAT. § 507.15; NEV.REV.STAT. § 106.040; N.H. REV.STAT. § 477:29; N.J. STAT. §§ 46:9-1 to 46:9-6; N.M. STAT. 47-1-44; S.D. CODIFIED LAWS § 44-8-3; WYO.STAT. § 34-2-107. 2. The “lien clause” is provided for by N.Y. LIEN LAW § 13(3). See infra section 3A:12. 3. See infra section 3A:1.4. 4. The statutory form in N.Y. REAL PROP.LAW § 258, Schedule M, is construed in N.Y. REAL PROP.LAW § 254. 3A–2 Standard Clauses in Mortgages § 3A:1 in statutory or substantially similar form,5 but is not lost by inclusion of additional provisions.6 The statutory rules also apply to the extension and modification of mortgages and other mortgage agreements.7 The statutory form is not in general use as such in New York. Its use is permissive, and other forms are not thereby invalidated.8 A statute allows the recording office to charge a penalty of $5 for the recordation of a mortgage with long forms of covenants,9 but this is rarely invoked. Perhaps the most frequently used forms are those printed by various title companies for the use of their clients and forms prepared for legal stationers. Lending institutions for the most part have their own forms that are apt to be longer, more detailed, and more favorable to the mortgagee. These are, basically, the statutory form with some clauses added and others modified. The mortgagee is not entitled, per se, to these additional or expanded provisions. For example, if a clause is included that permits the mortgagee to accel- erate maturity of the debt for failure of the owner to maintain the premises in a reasonably good state of repair, after notice, the buyer may properly refuse to execute the mortgage.10 The same is apparently true if the mortgage permits acceleration upon a sale of the property.11 The advent of short form instruments in England was greeted with a fear of mischief “if an unnatural and secondary meaning is given by” statute to words that are prima facie clear and intelligible, for the effect is to increase the difficulty of legal documents to the unprofessional reader. See W. RAWLE,COVENANTS § 20 (5th ed. 1887). This fear was realized in Albertina Realty Co. v. Rosbro Realty Corp., 180 N.E. 176 (N.Y. 1932) (relying on statutory construction to hold thirty-day grace period did not apply to payment of principal). As a result of Rosbro, the acceleration provision of the statutory form mortgage was changed. N.Y. LEGIS.DOC. No. 65(H)35 (1945). Compare Engel v. Thompson, 146 N.E.2d 657 (Mass. 1957), overruled on other grounds, Silverblatt v. Livadas, 164 N.E.2d 875, 878 (Mass. 1960). 5. Seligman v. Burg, 251 N.Y.S. 689 (App. Div. 2d Dep’t 1931) (but see Leakey v. Schwing, 270 N.Y.S. 69 (Cty. Ct. Jefferson Cty. 1934)). 6. Prudential Ins. Co. v. Sanford Real Estate Corp., 284 N.Y.S. 73 (Cty. Ct. Monroe Cty.), aff’d, 282 N.Y.S. 840 (App. Div. 4th Dep’t 1935). 7. Bankers Tr. Co. v. Fuller, 37 N.Y.S.2d 536 (Sup. Ct. 1942). 8. Goldberg v. Norek, 166 N.Y.S. 1023 (Sup. Ct. Kings Cty. 1917). 9. N.Y. REAL PROP.LAW § 327. 10. Compare Ansorge v. Belfer, 161 N.Y. 450 (N.Y. 1928). But see Goldberg v. Norek, 166 N.Y.S. 1023, 1024 (Sup. Ct. Kings Cty. 1917) (whether a clause is “usual” depends on its general use and not upon its conformance to any statutory provision). Jackson v. Domschot, 239 P.2d 1058 (Wash. 1952), excused the buyer from joining in a mortgage containing provisions not found in the executory contract; accord Johnson v. Goldberg, 279 P.2d 131 (1st Dist. Ct. App. 1955). 11. Merriam v. Leeper, 185 N.W. 134 (Iowa 1921). For due-on-sale clauses, see infra section 3A:3. (Friedman on Contracts, Rel. #22, 10/16) 3A–3 § 3A:1.1 FRIEDMAN ON CONTRACTS Mortgage forms vary from state to state and within each state. There is considerable variation in the material added to basic forms, the most elaborate being those prepared for banks and other lending institutions. The forms used in New York have been developed to a greater degree than those in some other states. Their clauses should illustrate most of the questions that are apt to arise in all states. For this reason, this section uses as a basis for discussion the New York statutory form mortgage clauses. This section also considers mod- ifications to the statutory form clauses that are often added to amplify the coverage, as well some variations outside New York. The remain- der of this chapter then considers additional clauses that are often added to mortgages in New York and other states. Cases cited to support this discussion are not only from New York, but include other states with the thought of giving a general picture of U.S. mortgages. § 3A:1.1 Payment of Indebtedness The New York statutory form mortgage provides: 1. That the mortgagor will pay the indebtedness as hereinbefore provided.12 This clause makes the mortgage serve as a bond as well as a mortgage.13 It overrides a statutory rule that a “mortgage of real property does not imply a covenant for the payment of the sum intended to be secured . .”14 This means that the failure of the mortgagor to sign a bond or promissory note, or the inability of the mortgagee to find and produce a bond or note, does not prevent the mortgagee from suing the mortgagor for the debt or seeking a defi- ciency judgment upon foreclosure.15 When there are multiple owners of the property, normally all owners sign both the promissory note and the mortgage. Liability issues can become complicated when less than all of the owners- mortgagors sign the note. A mortgagor who does not sign the 12. N.Y. REAL PROP.LAW § 258, Sch. M. 13. Neidich v. Petilli, 71 A.D.2d 999 (N.Y. App. Div. 2d Dep’t 1979); Sullivan v. Corn Exch. Bank, 154 A.D. 292 (N.Y. App. Div. 2d Dep’t 1912). Other states follow the same rule. Pioneer Sav. & Loan Co. v. City of Cleveland, 479 F.2d 595 (6th Cir. 1973); Mateyka v. Schroeder, 504 N.E.2d 1289 (Ill. App. Ct. 1987); Warner v. Webber Apartments, Inc., 400 N.E.2d 1180 (Ind. Ct. App. 1980). 14. N.Y. REAL PROP.LAW § 249. 15. The statutory construction states that the clause means “that the mortga- gor . doth covenant and agree to pay to the mortgagee . , the principal sum of money secured by said mortgage, and also the interest thereon as provided by said mortgage.” N.Y.