An Appellate Division decision secured by Adam Leitman Bailey, P.C. established a landmark statewide precedent for title insurers, lenders and real estate professionals navigating Consolidation, Extension and Modification Agreements, commonly known as CEMAs.
CEMAs are frequently used in New York when a borrower refinances a mortgage. Rather than replacing an existing mortgage with a new one, a CEMA combines the existing mortgage with new financing into a single loan. This can reduce the amount of mortgage tax owed on the new money being borrowed. But when questions later arise about the title insurance covering the original mortgage, the legal effect of that consolidation becomes apparent.
In the underlying matter, New York real estate firm Adam Leitman Bailey, P.C. represented the initial title insurer. Jeffrey R. Metz, partner and Appellate Bureau chief, and Danny Ramrattan, partner in the Foreclosure, Title and Real Estate Litigation Groups, served as lead attorneys, and firm founder Adam Leitman Bailey oversaw the strategy. The team established that their client had issued coverage for an initial $1.995 million mortgage. That mortgage, together with a $1.005 million gap mortgage, was consolidated into a $3 million CEMA. A separate title company then issued a policy insuring the CEMA for the full $3 million.
“This second title company was trying to limit their liability, which would have left our client on the hook for close to $2 million,” said Bailey, who has been recognized in Best Lawyers® since 2015 for Real Estate Law in New York. “This was unreasonable and unjust, which is why we had to present this to a judge for legal clarity.”
- A New York appellate ruling reshaped how CEMA title insurance claims are handled, creating statewide guidance for lenders, title insurers and real estate professionals.
- The court held that once mortgages are consolidated into a $3 million CEMA, the original mortgage policy no longer provides separate coverage.
- The decision may reduce insurer exposure, clarify risk allocation and limit claims tied to earlier mortgage policies.
- For refinancing and foreclosure matters, the ruling delivers long-awaited clarity that could influence underwriting, loan transfers and litigation strategy across New York.
Asking the Right Questions
After the lender, which had acquired the CEMA, began a foreclosure action, another party challenged the CEMA and argued that it was not legally valid.
Although the lender had title insurance covering the CEMA itself, it also sought protection under the original title insurance policy covering the first mortgage.
That position presented two critical questions:
Does the initial title policy survive after the underlying first mortgage is consolidated into a CEMA?
Can the new CEMA holder pursue a claim under the earlier policy?
“A mortgage still exists independently if it gets assigned and then becomes a CEMA,” said Ramrattan, who has been recognized in Best Lawyers since 2021 for Real Estate Litigation in New York. “But our argument in the appellate court was that pursuant to the policy, which is governed by contract law, the first policyholder still has to retain some type of interest in the property for a title policy to be valid.”
Putting the Strategy in Motion
In this case, however, the CEMA was designed to create one new, consolidated lien. As a result, the original mortgage no longer represented a separate interest in the property for purposes of the original title policy.
“This admittedly becomes something of a Gordian Knot, and it’s an issue several law firms have tried to untangle for years,” Ramrattan noted. “We were able to have the court clarify the distinction: A mortgage still exists even though it later becomes consolidated, but also that it doesn’t have an interest anymore in the property to carry this title insurance policy.”
The trial court sided with the insurer represented by Adam Leitman Bailey, P.C., and the Appellate Division affirmed in 2026. The appellate court agreed with the firm’s central argument that the CEMA created a single lien on the property that replaced the earlier mortgage liens. Once the CEMA was completed, the first mortgage became part of the consolidated lien.
“The appellate division found in our favor, and the Court of Appeals said it wouldn’t hear the case,” said Metz, who has been recognized in Best Lawyers since 2025 for Real Estate Law in New York. “That meant it was the law of the land in New York State.”
The Appellate Ruling
The ruling held that the insurer’s responsibility under the original mortgage policy ended because the insured no longer had the required ownership interest in the property to maintain that coverage. The court also found that someone who acquires the CEMA does not automatically acquire the rights under the original mortgage’s title insurance policy.
The decision also addressed who could bring a claim under the original policy. Because the lender was not an assignee under that policy, the Appellate Division found that it could not pursue a claim against the initial insurer.
“And even assuming the lender could be considered an insured under that policy,” Metz said, “the court held that it would first have to exhaust coverage under the later-issued policy ensuring the CEMA as the primary policy.”
The statewide effect extends beyond a single foreclosure dispute. CEMAs are widely used in New York real estate financing, so the decision guides companies that insure mortgages, lenders that acquire loans and attorneys involved in refinancing transactions.
The Broader Impact: A Cause for Celebration in NY
By obtaining an appellate ruling that aligns title coverage with the legal effect of the consolidated lien, Adam Leitman Bailey, P.C.’s advocacy helped provide greater clarity about how risk is allocated among lenders and title insurers in New York’s real estate market.
“For New York title insurers, the decision offers a clearer framework for evaluating exposure after a mortgage is consolidated into a CEMA,” Bailey said. The decision confirmed that policy obligations must be assessed in light of the operative lien structure, the policy’s assignment provisions and the coverage available under a subsequent CEMA policy.
“We received dozens of emails and calls from lenders, insurance companies, CEOs of lenders and insurance companies, who were not related to the case,” Bailey added. “They were celebrating a decision that not only established law but clarified an issue that was uncertain for too long. As a result, title companies and their professionals can do their work and provide services with confidence.”
