## Facts

- Teresa Basile owned property at 244 Morris Avenue in Peekskill, New York, and in 1982 mortgaged it to Erhal Holding Corporation in exchange for a loan she later alleged was usurious.
- Basile sued seeking a declaration that the mortgage was void for usury.
- While that action was pending, the parties entered an in-court settlement in June 1986 under which Basile agreed to:
  - execute a new mortgage in the amount of $101,303.59,
  - pay interest at 12% per year for one year, with the full balance due at the end of the year, and
  - deliver a deed in lieu of foreclosure that Erhal would not record unless Basile defaulted.
- In open court, Basile acknowledged she understood that, upon default, Erhal could record the deed and become owner of the premises.
- Basile later defaulted on mortgage payments and failed to pay real estate taxes and fire insurance; Erhal recorded the deed in December 1986.
- Erhal sought an order declaring Basile had waived any right of redemption; Basile sought to redeem by tendering the mortgage amount plus interest and to obtain reconveyance.

## Issues

1. Whether a deed in lieu of foreclosure delivered in connection with a mortgage as security for a debt is treated as a mortgage rather than an absolute conveyance.
2. Whether a mortgagor may waive the equity of redemption through a settlement stipulation and contemporaneous deed conditioned on default.
3. Whether the mortgagee may rely on recording the deed to cut off redemption, or must instead proceed by foreclosure.

## Decision

- The Appellate Division modified the order by deleting the declaration that Basile no longer had any right of redemption and denied that branch of Erhal’s motion.
- As modified, the order was affirmed.
- The court held the deed in lieu, executed as part of the debt-security arrangement, must be treated as a mortgage.
- The court held Basile’s equity of redemption was not waived and remained available until a foreclosure sale.
- The court indicated Erhal’s remedy was foreclosure, not acquisition of unencumbered title through the recorded deed.

## Legal Principles

- An instrument that is formally a deed but is executed as security for a debt is treated in equity as a mortgage.
- The mortgagor’s equity of redemption is an incident of the mortgage relationship and cannot be waived in advance by contract, stipulation, or contemporaneous security documents.
- Provisions that make a security conveyance become absolute upon default are ineffective to extinguish redemption; the mortgagee must foreclose to terminate the mortgagor’s rights.
- A mortgagor may redeem prior to a foreclosure sale by tendering the principal and interest due.

## Conclusion

Because the deed in lieu was given as security in connection with the mortgage, it was treated as a mortgage, and Basile’s equity of redemption could not be eliminated by the parties’ settlement terms; Erhal was required to pursue foreclosure, and Basile retained the right to redeem until a foreclosure sale.


Basile v. Erhal Holding Corp., 148 A.D.2d 484, 538 N.Y.S.2d 831 (N.Y. App. Div. 2d Dep’t 1989)