Longfellow v. Fisher

COLLINS, J.

When respondents Byers foreclosed their first mortgage by action, and when the sale took place under the decree, they were in possession of the mortgaged premises, and had been for some time prior thereto. This possession had been surrendered up to them by the mortgagors on account of the default, and they (the respondents) leased the premises to the mortgagors’ son. The premises were sold for a sum considerably less than was due upon the first mortgage, with taxes in arrears and money paid out for insurance, all of which became a part of the debt secured in accordance with the conditions contained in the mortgage.

We thus have a case where at the time of the sale under foreclosure of the first mortgage, for less thau is due upon such mortgage, the first mortgagee is in possession of the premises, through a tenant, possession having been surrendered up by the mortgagors, and insists upon his right, as against a second mortgagee, to collect and receive the rents and profits during the year of redemption. The appellant — plaintiff and second mortgagee — having, in proceedings to foreclose his mortgage alleging the insolvency of the mortgage debtors and the inadequacy of his security, — obtained the appointment of a receiver to collect the rents and profits; the moneys collected by him to be held subject to the further order of the court. The appeal is from an order denying appellant’s motion for an order directing that the receiver turn the money over to him, and, upon findings of fact, ordering that such money be paid to respondents, first mortgagees; and the question is, who was or is entitled to the rents and profits pending the year of redemption?

The universal rule is that a mortgagee lawfully in possession after default in the conditions of his mortgage cannot be ousted at the instance of the mortgagor or of any subsequent incumbrancer excepting upon payment of the amount secured by the mortgage. When the sale occurred the first mortgagees were rightfully in possession, and the inquiry is, were the conditions changed by the fact of sale? Had the premises sold for the full amount of the debt, the claim of the first mortgagees would have been satisfied in full. It is now difficult to see why, under such circumstances, the second mortgagee could not, as against the first mortgagees, insist upon the rents and profits during the year of redemption being applied to the keeping up, or for the benefit of, his security. As between these mortgagees, the debt being paid in full by sale, equity might possibly compel the first mortgagees to apply the sums received from their tenants during the year of redemption in reduction of their debt. But we are not treating with such a condition of things. The sale was for $900 less than the amount due on the debt secured by the first mortgage. The amount collected by the receiver is less than half that sum, and no redemption was made from the sale by plaintiff or any other person.

When a mortgagor surrenders possession of mortgaged premises to his mortgagee on account of a default in the conditions of the mortgage, the latter is given distinctly different and additional security for his debt. It is this additional security or right which enables the mortgagee to retain possession as against the mortgagor and all subsequent incumbrancers until he is paid in full. Yvhen his debt is partly paid, whether by foreclosure sale or otherwise, in what manner and upon what principle are the conditions changed, or his rights extinguished? If a mortgagee should hold collateral security in addition to his real-estate mortgage, a foreclosure of the latter, with a sale of the premises for less than the amount due, would not operate to release the collateral; nor would the mortgagor, or one claiming under him, think of asserting a right to possession of such collateral. The cases are analogous. The mortgagee in possession, when less than the amount due is realized at a sale upon foreclosure, is, as against a second mortgagee, entitled to hold possession during the year of redemption, if possession for that period be necessary to satisfy his claim. If redemption is made, the relations of the parties must necessarily change.

The views herein expressed in no way conflict with what has been said in a number of cases cited by counsel from our reports to the effect that a sale of the mortgaged premises exhausts the lien of the mortgage, for the reason — heretofore suggested — that possession is distinct and additional security for the entire debt. It originates in the new contract, and forms no part of the old.

There is nothing in appellant’s claim that the findings and order appointing a receiver were an adjudication of the rights of the first mortgagees to the rents during the year of redemption, and, further, amounted to an adjudication that plaintiff, as a second mortgagee, was entitled to such rents. The application was to have a receiver appointed to collect the rents and apply them on plaintiff’s debt. The court compelled the latter to cite in the respondents, whose interests were at stake, and, upon a hearing, made the order from which we have quoted. Obviously, what disposition was to be made of the moneys collected by the receiver was for future consideration. This was the construction placed upon the order by both parties when they entered into the stipulation of date January 14, 1896.

Order affirmed.