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Option One Mortgage Corp. v. JPMorgan Chase & Co. et al.

93 A.D.2d 480, 940 N.Y.S.2d 225 (1st Dep’t 2012).

The Appellate Division First Department decided a question of law, in which New York courts had been split, in favor of ZEKs’ bank client, and in so doing, reversed a decision of the Commercial Division that had denied ZEK’s motion to dismiss the complaint. Plaintiff sued to recover the proceeds of an insurance check, drawn to the order of multiple parties, including the plaintiff mortgagee and the mortgagors, who had an account with ZEK’s bank client. The check had been deposited to the credit of the account maintained by ZEK’s client without the indorsement of the plaintiff-payee. ZEK successfully convinced the Appellate Division that, notwithstanding the language of the mortgage concerning the assignment of insurance proceeds, the plaintiff-mortgagee’s ownership interest in the proceeds of the insurance check had been extinguished by its failure to obtain a deficiency judgment against the borrowers pursuant to New York Real Property Actions and Proceedings § 1371(3) when it foreclosed on the mortgaged property.