Significant Decision: Foreclosure Action Dismissed Over Incorrect Wire Transfer

This week we wanted to direct your attention to an interesting decision out of the Second Department where the Appellate Court upheld a lower court’s Order granting Summary Judgment and dismissed a foreclosure action against a Defendant-Purchaser where the underlying mortgage was presumably paid in full at closing, but the Wired payoff funds never reached the Lender’s actual account.  The decision, in part, turned on the fact that the error in providing and/or crediting the correct Payoff Bank’s account rested with the Payoff Bank and/or its own representative(s) and not with the Purchaser or its Wiring bank.
The relevant facts of, as well as a link to, the case are set forth below.

Payoff funds to satisfy a mortgage were electronically transferred for closing pursuant to the instructions of Ocwen Loan Servicing, LLC, the loan’s servicer. However, the funds were transferred to an incorrect account number at Wells Fargo Bank, N.A., the bank designated by the loan servicer to receive the payoff. The lender proceeded to foreclose on its mortgage.
 
The Supreme Court, Suffolk County, granted the Defendant-purchaser’s motion for summary judgment dismissing the complaint as to him. The Court found that “the error was either the fault of Wells Fargo’s attorney who initiated the wire transfer, or Wells Fargo which processed the wire transfer and credited the wrong account.” The Appellate Division, Second Department, affirmed the lower court’s ruling. According to the Appellate Division, wire transfers are subject to Uniform Commercial Code Article 4-A (“Funds transfer”). 
 
Under UCC Section 4A-406 (“Payment by originator to beneficiary; discharge of underlying obligation”),  “(a)…the originator of a funds transfer pays the beneficiary of the originator’s payment order (i) at the time a payment order for the benefit of the beneficiary is accepted by the beneficiary’s bank in the funds transfer and (ii) in an amount equal to the amount equal to the amount of the order accepted by the beneficiary’s bank…(b) If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would result from payment to the beneficiary of the same amount in money…[with exceptions not relevant to this case].”
 
According to the Appellate Division, “[h]ere, Faria [the attorney for the purchaser] was the originator, TD Bank [the purchaser’s lender] was the receiving (also known as the originator’s) bank, Ocwen [the servicer of the loan being paid off] was the beneficiary, and Wells Fargo was the beneficiary’s bank…
 
“It is undisputed that the payoff funds were transferred to a bank account at Ocwen’s bank, Wells Fargo, even though the funds ended up in the wrong account, and the parties dispute who is at fault for the error. Faria initiated the transfer of the payoff funds via a payment order originating at TD Bank. The fact that Faria may have been acting at the behest of TD Bank, and not Wells Fargo, did not create a triable issue of fact relevant to [the purchaser’s] defense of payment…”  U.S. Bank, N.A. v. Zaccagnino, 2023 NY Slip Op 01208, decided March 8, 2023, is posted at 
https://www.nycourts.gov/reporter/3dseries/2023/2023_01208.htm

This case is yet another reminder of the importance of verbally verifying all Wiring Instructions before initiating outgoing Wires to satisfy mortgage payoffs.