Holder of wraparound mortgage must abide by terms or lose it

Real Estate Weekly, Dec 7, 1994 by Edward L. Schiff

Justice Cohen again. She held that directors on the cooperative board owe a duty of loyalty to the cooperative and not to the sponsor. When the default of the underlying mortgage took place, those directors had a duty to vote to invalidate the wraparound mortgage, which they did not do.

The lesson was again emphasized by this Court, namely that in order for the holder of a wraparound mortgage to maintain its equity in the mortgage, it must faithfully comply to its obligations to make the required payments to the underlying mortgagee so that the underlying mortgage is not placed in default.

Similar conclusions were reached by the Appellate Division, First Department in the companion cases of 405 West 57th Street owners Corp. v Coronet Properties Company et al (616 N.Y.S. 2d 585) and Gregory House Owners Corp. v Coronet Properties Company et al (616 N.Y.S. 2d 587).

(Edward L. Schiff is the senior partner of the New York City law firm Schiff, Turek, Kirschenbaum.)