Opinion ID: 497278
Heading Depth: 2
Heading Rank: 1

Heading: Sec. 254(4) of the Real Property Law

Text: 9 Section 254 construes several clauses often contained--but not necessarily required--in mortgage instruments. See N.Y. Real Prop. Law Sec. 254 (McKinney 1968 & Supp.1987). In other words, when the parties to a mortgage incorporate the relevant language, that language must then be construed according to the statute. Section 254(4), entitled Mortgagor to keep buildings insured, construes a covenant 2 by the mortgagor that it will insure the mortgaged property against fire. 3 Section 254(4) is implicated here because the relevant language was included in the bond and mortgage given by Iaia to Col-Mur. 10 In instances where a damaged property has not been repaired, Sec. 254(4) requires that the mortgagee apply insurance proceeds to offset the mortgage principal and to pay to the mortgagor any proceeds exceeding that amount. Thus, Sec. 254(4) is designed to prevent the mortgagee from receiving a windfall: the mortgagee only has an interest in the outstanding mortgage debt. Section 254(4) insures that the mortgagee, upon the mortgagor's default, will not recover this debt twice: once from the insurance company and again from the proceeds of the sale of the property. The statute does not explicitly address the rights of the mortgagee's insurance company as against the mortgagor or junior mortgagees. 11 With this background, we now turn to the issues raised by Iaia. 12