80P2L LLC v. U.S. Bank Trust, N.A.

• Decision Date: 25 May 2021
• Docket Number: Index No. 153849/15,Case No. 2020-01351,13174
• Parties: 80P2L LLC, Plaintiff-Respondent, v. U.S. BANK TRUST, N.A., AS TRUSTEE FOR LSF9 MASTER PARTICIPATION TRUST, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

194 A.D.3d 593

150 N.Y.S.3d 23

80P2L LLC, Plaintiff-Respondent,

v.U.S. BANK TRUST, N.A., AS TRUSTEE FOR LSF9 MASTER PARTICIPATION TRUST, Defendant-Appellant.

13174

Index No. 153849/15

Case No. 2020-01351

Supreme Court, Appellate Division, First Department, New York.

ENTERED May 25, 2021

Law Office of Rajan Patel, Nanuet (Rajan Patel of counsel), for appellant.

Rosenberg Fortuna & Laitman LLP, Garden City (Anthony R. Filosa of counsel), for respondent.

Renwick, J.P., Kern, Singh, Shulman, JJ.

Order, Supreme Court, New York County (Kathryn E. Freed, J.), entered on or about September 4, 2019, which granted plaintiff's motion for reargument, and upon reargument, granted plaintiff's motion for summary judgment, declared that plaintiff had priority over defendant in the chain of title for certain real property, and struck the mortgage from the record, reversed, on the law, with costs, summary judgment denied, and the declaration and directive vacated. Defendant's request that we search the record and, upon review, award it summary judgment, is granted, plaintiff's amended complaint is dismissed, the notice of pendency is vacated, and the interest claimed in the real property known as 80 Park Avenue, Unit 2L, New York, N.Y. 10016 is declared subject and subordinate to defendant's mortgage recorded in the Office of the New York City Register on April 18, 2005 as City Register File Number 2005000221020. The Clerk is directed to enter judgment accordingly.

The parties do not dispute that the mortgage, as reflected in the records of the Office of the New York City Register, did not bear a notary stamp or any indication that the mortgage was properly acknowledged as required by Real Property Law §§ 291, 298, 309–a(1), and 333(2). However, the bank proffered evidence establishing that the mortgage was properly acknowledged when submitted for recording. This evidence included the original inked mortgage containing the notary public's information; an affidavit from the notary who affixed her notary stamp at the time; an affidavit from the title company that submitted the mortgage for recording, and an expert affidavit and report by a forensic document examiner in which he concluded that the Register's scanner could have caused the notary stamp to disappear from the imaged mortgage. Plaintiff has failed to show by clear and convincing evidence that the acknowledgment was defective (see Genger v. Arie Genger 1995 Life Ins. Trust, 84 A.D.3d 471, 472, 922 N.Y.S.2d 347 [1st Dept. 2011] ). Thus, the bank demonstrated that the mortgage was "entitled to be recorded ... and is considered recorded from the time of [ ] delivery [to the Office of the New York City Register]" ( Real Property Law § 317 ).

Given that the mortgage was duly acknowledged, delivered and actually recorded, plaintiff is deemed to have constructive notice of it (see Bank of New York v. Resles, 78 A.D.3d 469, 471, 912 N.Y.S.2d 35 [1st Dept. 2010] ). Thus, plaintiff's interest in the premises is subject and subordinate to defendant's mortgage.

All concur except Renwick, J. who concurs in a separate memorandum as follows:

RENWICK, J.P. (Concurring)

I write separately because although I reach the same result as the majority, I do so on a different ground that, I believe, more appropriately resolves the essence of plaintiff's complaint seeking to invalidate a first-mortgage lien. Plaintiff acquired the subject condominium unit as the highest bidder at a judicial auction to foreclose on a common charge lien. In the ordinary case, a successful bidder's interest in a condominium unit is presumably subordinate to a first-mortgage lien from a loan used to finance the purchase of the property. ¹

In this case, however, plaintiff argues, its rights as a successful bidder are superior to the first-mortgage lien, pursuant to Real Property Law (RPL) 291, the recording statute that protects a good faith purchaser for value from an unrecorded interest in property, provided that the purchaser's interest is first to be duly recorded (see RPL 290 et seq. ).² Supreme Court granted plaintiff summary judgment declaring that plaintiff had priority over the first mortgage in the chain of title and vacated and expunged defendant's mortgage from the public record. In so doing, the court reasoned that RPL 291 requires an instrument conveying real property be properly acknowledged in order to be recorded.³ This was not done here, since the scanned image of the recorded mortgage at the New York County registry lacked a notary stamp. On appeal, the majority reverses and searches the record to grant defendant summary judgment. The majority thus declares that plaintiff's interest in the subject condominium unit is subordinate to defendant's first-mortgage lien, but finds that defendant submitted conclusive proof establishing that the subject mortgage was properly acknowledged before a notary public and thus properly recorded. In my view, however the evidence on the record raises triable issues of fact as to whether the first mortgage was properly recorded. Nevertheless, irrespective of whether or not the mortgage was duly recorded, plaintiff was still not entitled to the protections of RPL 291 because the circumstances surrounding plaintiff's acquisition of the condominium unit at the judicial auction all tend to negate any possibility that plaintiff was an innocent purchaser, a prerequisite to obtaining RPL 291 protection. Therefore, I concur in result only.

Factual and Procedural Background

A recitation of the facts and circumstances of the condominium unit's acquisition is helpful to fully understand plaintiff's action. Michelle Hipshman Zar, the original owner of the subject condominium unit, of a building in Manhattan's Murray Hill neighborhood, took title to the property by deed dated March 8, 2005 and recorded in the office of the New York County Registry on April 18, 2005. Zar financed her purchase of the condominium unit by borrowing $361,000.00 from Washington Mutual Bank, F.A. (Wamu). The Wamu loan was secured by a mortgage between Zar, as borrower, and Wamu, as lender, encumbering the condominium unit. Zar closed on her purchase on March 8, 2005, at which time she also executed the promissory note and mortgage. Five weeks later, on April 18, 2005, the mortgage was recorded in the New York County Registry.

The signature page of the scanned image of the recorded mortgage at the New York County Registry (ACRIS System) showed the purported signature of the purchaser, below this was the attestation, on which the county, date, and name of the purchaser were handwritten. There was also a signature line for the person acknowledging the buyer's signature. On the signature line for the acknowledger was a handwritten scrawl, but there was no evidence whatsoever of a notary stamp, which would include the name of the notary, where he/she was commissioned, the expiration date, and his/her commission number; nor was there any indication on the signature page that the person acknowledging the signature was a notary.

In 2008, JP Morgan Chase (Chase) acquired most of Wamu's assets and liabilities, including the subject mortgage, from the Federal Deposit Insurance Corporation, as Wamu's receiver, pursuant to a Purchase and Assumption Agreement. In late 2010 or early 2011, Zar began defaulting on her common charge with the Condominium Association of 80 Park Avenue, as well as her mortgage obligations with Chase. In September 2011, the Condominium Association filed a common charges lien against Zar's condominium unit. In February 2012, Chase commenced a foreclosure action on its mortgage lien, attaching to the complaint a copy of the mortgage that, like the scanned copy of the mortgage at the City Registry, lacked a notary stamp. That is, on the signature line for the acknowledger was a handwritten scrawl, but there was no evidence whatsoever of a notary stamp. Chase added the Condominium Association as a defendant in the mortgage foreclosure action. The Condominium Association answered by asserting the defense, among others, that its common charges lien had priority over Chase's mortgage lien. However, on August 8, 2014, pursuant to a motion granted on default, Supreme Court ordered that the Condominium Association's answer be stricken.

Meanwhile, on January 24, 2014, the Condominium Association

commenced its own action seeking to foreclose on its common charge lien against the condominium unit. Neither Chase nor Wamu was named as a defendant in the action. On September 5, 2014, the Condominium Association obtained an Amended Judgment of Foreclosure and Sale, which ordered that the condominium unit be sold at a public auction under the direction of an appointed referee. The public auction took place on December 10, 2014, at which time the referee offered the subject condominium unit for sale to the highest bidder, plaintiff, for the sum of $53,000. (Ten years earlier, the property had been purchased by Zar for $461,000).

Both the terms of the sale and the Amended Judgment of Foreclosure and Sale state that the property would be sold subject to "any prior liens of record." Prior to bidding on Zar's condominium unit, plaintiff had hired Atlantis National Services (Atlantis) to issue a title report on the property, which was completed on December 5, 2014. The title report revealed the Chase Mortgage in Schedule B, Item 2 and in an attached mortgage schedule. It also revealed a lis pendens associated with the Chase Mortgage foreclosure action, in Schedule B, Item 25. The title report indicated in Schedule B that the Chase Mortgage and the lis pendens would be excepted from coverage in any title insurance policy unless it was disposed to Atlantis’ satisfaction prior to closing. Consistent with the title report, a title policy issued by Atlantis referred to a Schedule B, which identified items which would not be covered under the policy, and it included the Chase Mortgage and the lis pendens.

On or about April 17,...