In re Mortgage Corp. , 34 N.Y.S.2d 71 ( 1942 )

Callahan, J.

Section 1077-c of the Civil Practice Act, which is one of the mortgage moratorium statutes, provides, in substance, that where the principal sum of a mortgage is past due, the mortgagee may apply to a court in which a foreclosure action might be brought, for an order directing the payment on account of such principal, of any surplus of income derived from the mortgaged property over taxes, interest and carrying charges due thereon. The section requires the court to ascertain the amount of the surplus, and to order “ such surplus or such part thereof as the court may determine ” paid to the mortgagee.

Here $161,800 principal was due and unpaid on petitioner’s mortgage. The ascertained surplus of income over expenses was $3,073.77. Special Term directed the payment of only $2,000 of said surplus to the mortgagee, and permitted the mortgagors to retain the balance of $1,073.77. There was no claim made by the mortgagors that they required any part of the surplus to meet prospective taxes, expenses or carrying charges, or otherwise to maintain the property or to fulfill the requirements of the mortgage. The mortgagors asked to be permitted to retain part of the surplus for the sole reason that they felt they were entitled to compensation for their efforts in preserving and economically managing the property.

Upon the facts thus presented we find that Special Term was not warranted in exercising its discretion so as to allow the mortgagors to retain a part of the ascertained surplus.

We construe section 1077-c of the Civil Practice Act to require the court to direct payment of all the ascertained surplus in reduction of the mortgage debt, unless it shall appear upon the application that the mortgagor should be allowed to retain a portion of the surplus to meet prospective expenses, taxes, interest or carrying charges, or to maintain or preserve the mortgaged property.

Considering the objects of the moratorium laws as a whole, it appears that these statutes were not intended to relieve the mortgagor of the obligation to pay the mortgage debt. They merely suspended certain remedies, but did not attempt to impair contractual rights. (Royal Court Realty Co., Inc., v. Thomas, 259 App. Div. 313.) The public emergency declared by the Legislature (See Laws of 1933, chap. 793) as a reason for passing the moratorium statutes, was the abnormal disruption of economic and financial conditions, and the abnormal deflation of real property values. The provisions of section 1077-c, which were complementary to the sections providing for a moratorium, were aimed to permit the mortgagee to obtain the surplus produced by the property above the charges specified in the section. The provision in the section that the court might determine.the amount of the surplus to be applied was not intended to permit the mortgagor a return on bis equity before discharging bis contractual obligation to pay the mortgage debt.

The order so far as appealed from should be modified by increasing the amount payable to petitioner from $2,000 to $3,073.77, and, as so modified, affirmed, with twenty dollars costs and disbursements to the appellant.

Martin, P. J., and Townley, J., concur; Dore and Cohn, JJ., dissent and vote to affirm.