N.Y. Real Property Law § 254: Construction of clauses and covenants in mortgages and bonds or notes

§ 254. Construction of clauses and covenants in mortgages and bonds or

notes. In mortgages of real property, and in bonds and notes secured

thereby or in assignments of mortgages and bonds and mortgages and

notes, or in agreements to extend or to modify the terms of mortgages

and bonds and mortgages and notes, the following or similar clauses and

covenants must be construed as follows:

1. Clauses of mortgage. The words "This mortgage, made the ..........

(A) ........ day of ........ (B) ........, nineteen hundred and ........

(C) ........, between ........ (D) ........, the mortgagor, and ........

(E) ........., residing at ......... (F) ........., the mortgagee,

Witnesseth, that to secure the payment of an indebtedness in the sum of

......... (G) ........ dollars, lawful money of the United States, to be

paid on the ........ (H) ........ day of ........ (I) ........, nineteen

hundred and ........ (J) ........, with interest thereon to be computed

from ......... (K) ........ at the rate of ........ (L) ........ per

centum per annum, and to be paid ........ (M) ........, according to a

certain bond, note or obligation bearing even date herewith, the

mortgagor hereby mortgages to the mortgagee (description)," must be

construed as equivalent in meaning to the words "This indenture, made

the ........ (A1) ...... day of ....... (B1) ........, in the year

nineteen hundred and ........ (C1) ........ between ....... (D1)

........., party of the first part, and ....... (E1) ........, of .......

(F1) ........, party of the second part.

"Whereas, the said ........ (D1) ........ is justly indebted to the

said party of the second part in the sum of ........ (G1) ........

dollars, lawful money of the United States, secured to be paid by his

certain bond, note or obligation, bearing even date herewith,

conditioned for the payment of the said sum of ......... (G1) ........

dollars, on the ........ (H1) ....... day of ....... (I1) .......

nineteen hundred and ........ (J1) ........ and the interest thereon, to

be computed from ........ (K1) ........, at the rate of ....... (L1)

........ per centum per annum, and to be paid ....... (M1) .........

"It being thereby expressly agreed that the whole of the said

principal sum shall become due after default in the payment of any

installment of principal, interest, taxes or assessments, as hereinafter

provided.

"Now this indenture witnesseth, that the said party of the first part,

for the better securing the payment of the said sum of money mentioned

in the condition of the said bond, note or obligation, with interest

thereon, and also for and in consideration of one dollar, paid by the

said party of the second part, the receipt whereof is hereby

acknowledged, doth hereby grant and release unto the said party of the

second part, and to his heirs (or successors) and assigns for ever

(description), together with the appurtenances, and all the estate and

rights of the party of the first part in and to said premises, together

with all fixtures and articles of personal property attached to, or used

in connection with, the premises. To have and to hold the above granted

premises unto the said party of the second part, his heirs and assigns

forever. Provided, always, that if the said party of the first part, his

heirs, executors or administrators, shall pay unto the said party of the

second part, his executors, administrators or assigns, the said sum of

money mentioned in the condition of the said bond, note or obligation,

and the interest thereon, at the time and in the manner mentioned in the

said condition, that then these presents, and the estate hereby granted,

shall cease, determine and be void."

(Explanation: Whatever words are inserted in the blank spaces above

marked (A), (B), (C), (D), (E), (F), (G), (H), (I), (J), (K), (L), and

(M) respectively, shall be construed as being inserted in the

corresponding blank spaces above marked (A1), (B1), (C1), (D1), (E1),

(F1), (G1), (H1), (I1), (J1), (K1), (L1) and (M1) respectively.)

2. Covenant that whole sum shall become due. A covenant "that the

whole of the said principal sum and interest shall become due at the

option of the mortgagee: after default in the payment of any installment

of principal or of interest for ....... days; or after default in the

payment of any tax, water rate or assessment for ....... days after

notice and demand; or after default after notice and demand either in

assigning and delivering the policies insuring the buildings against

loss by fire or in reimbursing the mortgagee for premiums paid on such

insurance, as hereinbefore provided; or after default upon request in

furnishing a statement of the amount due on the mortgage and whether any

offsets or defenses exist against the mortgage debt, as hereinafter

provided," must be construed as meaning that should any default be made

in the payment of any installment of principal or of any part thereof,

or in the payment of the said interest, or any part thereof, on any day

whereon the same is made payable, or should any tax, water rate or

assessment, and/or any installment of any assessment which has been

divided into annual installments pursuant to provision of law in such

cases made and provided which now is or may be hereafter imposed upon

the premises hereinafter described, become due or payable, and should

the said installment of principal or interest remain unpaid and in

arrear for the space of ....... days, or such tax, water rate or

assessment or annual installment remain unpaid and in arrear

for ....... days after written notice by the mortgagee or obligee, his

executors, administrators, successors or assigns, that such tax or

assessment and/or annual installment is unpaid, and demand for the

payment thereof, or should any default be made after notice and demand

either in assigning and delivering the policies insuring the buildings

against loss by fire or in reimbursing the mortgagee for premiums paid

on such insurance, as hereinafter provided, or upon failure to furnish

such statement of the amount due on the mortgage and whether any offsets

or defenses exist against the mortgage debt, as hereinafter provided,

after the expiration of ....... days in case the request is made

personally, or after the expiration of ....... days after the mailing of

such request in case the request is made by mail, then and from

thenceforth, that is to say, after the lapse of either one of said

periods, as the case may be, the aforesaid principal sum, with all

arrearage of interest thereon, shall, at the option of the said

mortgagee or obligee, his executors, administrators, successors or

assigns, become and be due and payable immediately thereafter, although

the period above limited for the payment thereof may not then have

expired, anything thereinbefore contained to the contrary thereof in any

wise notwithstanding.

3. Covenant to pay indebtedness. In default of payment, mortgagee to

have power to sell. A covenant "that the mortgagor will pay the

indebtedness, as hereinbefore provided," must be construed as meaning

that the mortgagor for himself, his heirs, executors and administrators

or successors, doth covenant and agree to pay to the mortgagee, his

executors, administrators, successors and assigns, the principal sum of

money secured by said mortgage, and also the interest thereon as

provided by said mortgage. And if default shall be made in the payment

of the principal sum or the interest that may grow due thereon, or of

any part thereof, or in case of any other default, that then and from

thenceforth it shall be lawful for the mortgagee, his executors,

administrators or successors to enter into and upon all and singular the

premises granted, or intended so to be, and to sell and dispose of the

same, and all benefit and equity of redemption of the said mortgagor,

his heirs, executors, administrators, successors or assigns therein, at

public auction, according to the act in such case made and provided, and

as the attorney of the mortgagor for that purpose duly authorized,

constituted and appointed, to make and deliver to the purchaser or

purchasers thereof a good and sufficient deed or deeds of conveyance for

the same in fee simple (or otherwise; as the case may be) and out of the

money arising from such sale, to retain the principal and interest which

shall then be due, together with the costs and charges of advertisement

and sale of the said premises, rendering the overplus of the

purchase-money, if any there shall be, unto the mortgagor, his heirs,

executors, administrators, successors or assigns, which sale so to be

made shall forever be a perpetual bar both in law and equity against the

mortgagor, his heirs, successors and assigns, and against all other

persons claiming or to claim the premises, or any part thereof by, from

or under him, them or any of them.

4. Mortgagor to keep buildings insured. (a) A covenant "that the

mortgagor will keep the buildings on the premises insured against loss

by fire for the benefit of the mortgagee; that he will assign and

deliver the policies to the mortgagee; and that he will reimburse the

mortgagee for any premiums paid for insurance made by the mortgagee on

the mortgagor's default in so insuring the buildings or in so assigning

and delivering the policies," shall be construed as meaning that the

mortgagor, his heirs, successors and assigns will, during all the time

until the money secured by the mortgage shall be fully paid and

satisfied, keep the buildings erected on the premises insured against

loss or damage by fire, to an amount to be approved by the mortgagee not

exceeding in the aggregate one hundred per centum of their full

insurable value and in a company or companies to be approved by the

mortgagee, and will assign and deliver the policy or policies of such

insurance to the mortgagee, his executors, administrators, successors or

assigns, which policy or policies shall have endorsed thereon the

standard New York mortgagee clause in the name of the mortgagee, so and

in such manner and form that he and they shall at all time and times,

until the full payment of said moneys, have and hold the said policy or

policies as a collateral and further security for the payment of said

moneys, and in default of so doing, that the mortgagee or his executors,

administrators, successors or assigns, may make such insurance from year

to year, in an amount in the aggregate not exceeding one hundred per

centum of the full insurable value of said buildings erected on the

mortgaged premises for the purposes aforesaid, and pay the premium or

premiums therefor, and that the mortgagor will pay to the mortgagee, his

executors, administrators, successors or assigns, such premium or

premiums so paid, with interest from the time of payment, on demand, and

that the same shall be deemed to be secured by the mortgage, and shall

be collectible thereupon and thereby in like manner as the principal

moneys, and that should the mortgagee by reason of such insurance

against loss by fire receive any sum or sums of money for damage by

fire, and should the mortgagee retain such insurance money instead of

paying it over to the mortgagor, the mortgagee's right to retain the

same and his duty to apply it in payment of or on account of the sum

secured by the mortgage and in satisfaction or reduction of the lien

thereof shall be limited and qualified as hereafter in this paragraph

provided. Said insurance money so received by the mortgagee shall be

held by him as trust funds until paid over or applied as hereinafter

provided. If the mortgagor shall notify the mortgagee in writing within

thirty days after the fire that the mortgaged premises have been damaged

thereby, and shall thereafter make good the damage by means of such

repairs, restoration or rebuilding as may be necessary to restore the

buildings to their condition prior to the damage, then upon presentation

to the mortgagee within three years after the fire of proof that the

damage has been fully made good (and if he so demands in writing within

thirty days after such presentation of proof, then upon presentation to

the mortgagee within thirty days after such demand of proof also of the

actual cost of such repairs, restoration and rebuilding and of the

reasonable value of any part of the work so performed by the mortgagor)

the mortgagee, unless he rejects the proof submitted to him as

insufficient, shall pay over to the mortgagor so much of said insurance

money theretofore received by the mortgagee as does not exceed the

lesser of (1) the reasonable cost of such repairs, restoration and

rebuilding or (2) the total amount actually paid therefor by the

mortgagor, together with the reasonable value of any part of the work

done by him. Such proof shall be deemed sufficient unless, within sixty

days after presentation of all such proof to the mortgagee as aforesaid,

he shall notify the mortgagor in writing that the proof is rejected. Any

excess of said insurance money over the amount so payable to the

mortgagor shall be applied in reduction of the principal of the

mortgage. Provided, however, that if and so long as there exists any

default by the mortgagor in the performance of any of the terms or

provisions of the mortgage on his part to be performed the mortgagee

shall not be obligated to pay over any of said insurance money received

by him. If the mortgagor shall fail to comply with any of the foregoing

provisions within the time or times hereinabove limited, or shall fail

within sixty days after rejection of the proof so submitted to commence

an action against the mortgagee to recover so much of said insurance

money as is payable to the mortgagor as hereinabove provided, or if the

entire principal of the mortgage shall have become payable by reason of

default or maturity, the mortgagee shall apply said insurance money in

satisfaction or reduction of the principal of the mortgage; and any

excess of said insurance money over the amount required to satisfy the

mortgage shall be paid to the mortgagor. Unless the court, in any such

action, shall determine that the mortgagee's rejection of the proof

submitted by the mortgagor prior to the commencement of the action was

unreasonable, the mortgagee may offset the reasonable amount, as

determined by the court, of his expense incident to the litigation, and

may reimburse himself out of the insurance money for the amount so

determined. The term "mortgage," as hereinabove used, shall be deemed to

include agreements extending or otherwise in any way modifying the terms

or provisions of an existing mortgage. The term "mortgagor," as

hereinabove used, shall mean the owner for the time being of the

mortgaged fee or the junior mortgagee actually in possession of the

mortgaged property, or the tenant for the time being in possession of

the property under a lease which has been mortgaged. The term

"mortgagee," as hereinabove used, shall be deemed to include the

successors in interest of the mortgagee. In the event that there be more

than one mortgage covering the same premises, such covenant must be

construed as hereinbefore prescribed in this paragraph, except that the

mortgagor, his heirs, successors and assigns, notwithstanding such

foregoing provisions, may not be required to provide such insurance, as

to all the mortgagees combined, in the preferential order of their

priority, for a total amount of more than one hundred per cent of the

insurable value of the buildings on the premises, and a second or

subordinate mortgagee shall be entitled to exercise the rights of a

mortgagee with respect to the procurement of such insurance and the

holding of the policy or policies thereof as hereinbefore prescribed in

this paragraph only when and to the extent that the mortgagor, his

heirs, successors or assigns, as the case may be, does or do not furnish

satisfactory proof of such maximum insurance for the benefit of such

second or subordinate mortgagee and one or more other mortgagees in the

preferential order of their priority in a company or companies duly

authorized to do business in this state.

The limitations and qualifications hereinabove imposed on the

mortgagee's right to retain proceeds of a fire insurance policy shall

apply only to mortgages or extensions or other modifications thereof

made after the effective date of this act.

(b) A covenant "that the mortgagor will keep the buildings on the

premises insured against loss by flood if the premises are located in an

area identified by the Secretary of Housing and Urban Development as an

area having special flood hazards and in which flood insurance has been

made available under the National Flood Insurance Act of nineteen

hundred sixty-eight; that he will assign and deliver the policies to the

mortgagee; and that he will reimburse the mortgagee for any premiums

paid for insurance made by the mortgagee on the mortgagor's default in

so insuring the buildings or in so assigning and delivering the

policies," shall be construed as meaning that the mortgagor, his heirs,

successors and assigns will, during all the time until the money secured

by the mortgage shall be fully paid and satisfied, keep the buildings

erected on the premises insured against loss or damage by flood provided

the premises are located in an area identified by the Secretary of

Housing and Urban Development of the United States as an area having

special flood hazards and in which flood insurance is available under

the National Flood Insurance Act of nineteen hundred sixty-eight, to an

amount at least equal to the outstanding principal balance of the money

secured by the mortgage or the maximum limit of coverage available with

respect to the buildings under said Act, whichever is less, and in a

company or companies to be approved by the mortgagee and will assign and

deliver the policy or policies of such insurance to the mortgagee, his

executors, administrators, successors or assigns, which policy or

policies shall have endorsed thereon the standard New York mortgagee

clause in the name of the mortgagee, so and in such manner and form that

he and they shall at all time and times, until the full payment of said

money, have and hold the said policy or policies as a collateral and

further security for the payment of said money, and in default of so

doing, that the mortgagee or his executors, administrators, successors

or assigns may make such insurance from year to year, in the amount as

aforesaid, and pay the premium or premiums therefor, and that the

mortgagor will pay to the mortgagee, his executors, administrators,

successors or assigns, such premium or premiums so paid, with interest

from the time of payment, on demand, and that the same shall be deemed

to be secured by the mortgage, and shall be collectible thereupon and

thereby in like manner as the principal moneys, and that should the

mortgagee by reason of such insurance receive any sum or sums of money

for damage by flood, the provisions for retention, holding application

and payment of said insurance money shall be as set forth in paragraph

(a) above with respect to loss by fire. The term "mortgage," as

hereinabove used, shall be deemed to include agreements extending or

otherwise in any way modifying the terms or provisions of an existing

mortgage. The term "mortgagor," as hereinabove used, shall mean the

owner for the time being of the mortgaged fee or the junior mortgagee

actually in possession of the mortgaged property, or the tenant for the

time being in possession of the property under a lease which has been

mortgaged. The term "mortgagee," as hereinabove used, shall be deemed to

include the successors in interest of the mortgagee. In the event that

there be more than one mortgage covering the same premises, such

covenant must be construed as hereinbefore prescribed in this paragraph

except that the mortgagor, his heirs, successors and assigns,

notwithstanding such foregoing provisions, may not be required to

provide such insurance, as to all the mortgagees combined, in the

preferential order of their priority, for a total amount greater than

the outstanding principal balance of the money secured by the mortgage

or the maximum limit of coverage available with respect to the premises,

whichever is less, and a second or subordinate mortgagee shall be

entitled to exercise the rights of a mortgagee with respect to the

procurement of such insurance and the holding of the policy or policies

thereof as hereinbefore prescribed in this paragraph only when and to

the extent that the mortgagor, his heirs, successors or assigns, as the

case may be, does or do not furnish satisfactory proof of such maximum

insurance for the benefit of such second or subordinate mortgagee and

one or more other mortgagees in the preferential order of their priority

in a company or companies duly authorized to do business in this state.

The limitations and qualifications hereinabove imposed on the

mortgagee's right to retain proceeds of a flood insurance policy shall

apply only to mortgages or extensions or other modifications thereof

made after the effective date of this act.

4-a. Mortgagor to maintain premises and all improvements thereon in

good condition or repair. (a) A covenant contained in a mortgage on real

property improved by a residence for four families or more that the

mortgagor will maintain the premises and all improvements thereon in

"good condition or repair" shall be construed as meaning that the

mortgagor, his heirs, successors and assigns will, during all the time

until the money secured by the mortgage shall be fully paid and

satisfied, keep the premises and the building or buildings erected

thereon in good condition and repair and free from violations of

applicable municipal or state laws, codes or regulations concerning the

state of such condition and/or repair. Upon a finding and certification

by any such government or its agency of a violation of any such law,

code or regulation involving a serious danger to the health and safety

of the occupants of such mortgaged premises and upon the service of one

copy thereof on the owner of record, or upon the appointment of an

administrator pursuant to article seven-A of the real property actions

and proceedings law, such mortgagee may declare the entire balance of

the principal sum secured by such mortgage, together with all accrued

interest, immediately due and payable upon the following conditions: the

mortgagee shall allow the mortgagor a reasonable opportunity to correct

the violation or, in the case of an administrator appointed pursuant to

article seven-A of the real property actions and proceedings law, to

have such administrator removed; the mortgagee may commence foreclosure

proceedings upon failure of the mortgagor to make such corrections

within the time period mandated by local law, rule or code enforcement

agency, provided, however, no such action shall be commenced within

thirty days of the expiration of the period, if any, specified by local

law, rule or code enforcement regulation, or, in the case of an

administrator appointed pursuant to article seven-A of the real property

actions and proceedings law, the mortgagee may commence foreclosure

proceedings no earlier than sixty days after the appointment of such

administrator.

(b) Should any such mortgagee commence a foreclosure proceeding based

upon such violation and not complete the same because such violation had

been cured, the mortgagee shall be entitled to recover all reasonable

attorney's fees and disbursements incurred in the bringing of such

proceeding.

(c) Notwithstanding the provisions of this section, the mortgagee and

the mortgagor shall retain all existing interest and rights.

5. Mortgagor to warrant title. A covenant "that the mortgagor warrants

the title to the premises," must be construed as meaning that the

mortgagor warrants that he has good title to said premises and has a

right to mortgage the same and that the mortgagor shall and will make,

execute, acknowledge and deliver in due form of law, all such further or

other deeds or assurances as may at any time hereafter be reasonably

desired or required for the more fully and effectually conveying the

premises by the mortgage described, and thereby granted or intended so

to be, unto the said mortgagee, his executors, administrators,

successors or assigns, for the purpose aforesaid, and unto all and every

person or persons, corporation or corporations, deriving any estate,

right, title or interest therein, under the said indenture of mortgage,

or the power of sale therein contained, and the said granted premises

against the said mortgagor, and all persons claiming through him will

warrant and defend.

6. Mortgagor to pay all taxes, assessments or water rates. A covenant

"that the mortgagor will pay all taxes, assessments or water rates and

in default thereof, the mortgagee may pay the same" must be construed as

meaning that until the amount hereby secured is paid, the mortgagor will

pay all taxes, assessments and water rates which may be assessed or

become liens on said premises, and in default thereof the holder of this

mortgage may pay the same, and the mortgagor will repay the same with

interest, and the same shall be liens on said premises and secured by

the mortgage.

7. Statement of amount due. A covenant "that the mortgagor

within ...... days upon request in person or within ...... days upon

request by mail will furnish a written statement duly acknowledged of

the amount due on this mortgage and whether any offsets or defenses

exist against the mortgage debt" must be construed as meaning that the

mortgagor, and any subsequent owner of the premises described herein

upon request, made either personally or by mail, shall certify, by a

writing duly acknowledged, to the mortgagee or to any proposed assignee

of this mortgage, the amount of principal and interest then owing on

this mortgage and whether any offsets or defenses exist against the

mortgage debt within ..... days in case the request is made personally,

or within ...... days after the mailing of such request in case the

request is made by mail.

8. Notice and demand. A covenant "that notice and demand or request

may be made in writing and may be served in person or by mail" must be

construed as meaning that every provision for notice and demand or

request shall be deemed fulfilled by written notice and demand or

request personally served on one or more of the persons who shall at the

time hold the record title to the premises, or on their heirs or

successors, or mailed by depositing it in any post-office station or

letter-box, enclosed in a post-paid envelope addressed to such person or

persons, or their heirs or successors, at his, their or its address to

the mortgagee last known.

9. Power of attorney to assignee. The word "assign" or other words of

assignment, when contained in an assignment of a mortgage and bond or

mortgage and note, must be construed as having included in their meaning

that the assignor does thereby make, constitute and appoint the assignee

the true and lawful attorney, irrevocable, of the assignor, in the name

of the assignor, or otherwise, but at the proper costs and charges of

the assignee, to have, use and take all lawful ways and means for the

recovery of the money and interest secured by the said mortgage and bond

or mortgage and note, and in case of payment to discharge the same as

fully as the assignor might or could do if the assignment were not made.

10. Mortgagee entitled to appointment of receiver. A covenant "that

the holder of this mortgage, in any action to foreclose it, shall be

entitled to the appointment of a receiver," must be construed as meaning

that the mortgagee, his heirs, successors or assigns, in any action to

foreclose the mortgage, shall be entitled, without notice and without

regard to adequacy of any security of the debt, to the appointment of a

receiver of the rents and profits of the premises covered by the

mortgage; and the rents and profits in the event of any default or

defaults in paying the principal, interest, taxes, water rents,

assessments or premiums of insurance, are assigned to the holder of the

mortgage as further security for the payment of the indebtedness.