Wells Fargo Bank, N.A. v. Rottner

• Decision Date: 14 May 2015
• Parties: WELLS FARGO BANK, N.A., as Trustee for Option One Mortgage Loan Trust 2006–2 Asset–Backed Certificates, Series 2006–2, Respondent, v. Henry C. ROTTNER et al., Defendants, and Kevin P. Conroy, Appellant.
• Court: New York Supreme Court — Appellate Division

128 A.D.3d 1199

10 N.Y.S.3d 645

2015 N.Y. Slip Op. 04180

WELLS FARGO BANK, N.A., as Trustee for Option One Mortgage Loan Trust 2006–2 Asset–Backed Certificates, Series 2006–2, Respondent

v. Henry C. ROTTNER et al., DefendantsandKevin P. Conroy, Appellant.

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

May 14, 2015.

Bartlett, Pontiff, Stewart & Rhodes, P.C., Glens Falls (Karla Williams Buettner of counsel), for appellant.

Delbello Donnellan Weingarten & Wiederkehr, LLP, White Plains (Frank J. Haupel of counsel), for respondent.

Before: PETERS, P.J., LAHTINEN, ROSE and DEVINE, JJ.

Opinion

ROSE, J.

Appeal from an order of the Supreme Court (Muller, J.), entered April 7, 2014 in Essex County, which denied defendant Kevin P. Conroy's motion for partial summary judgment on his counterclaim.

Defendants Henry C. Rottner and Leslie Rottner (hereinafter collectively referred to as defendants) entered into a loan agreement with Option One Mortgage Corporation in 2006. Defendants' loan was secured with a purchase money mortgage on their second home in the Town of North Elba, Essex County, and the mortgage was later assigned to plaintiff. It was not, however, recorded until December 6, 2007. In the meantime, defendants obtained additional loans from their brother-in-law, defendant Kevin P. Conroy. Conroy delegated the handling of these loans to his chief financial officer, and this employee later arranged with defendants to secure the loans that Conroy had made with a mortgage on the Town of North Elba property. Pursuant to the terms of this mortgage, Conroy also agreed to advance additional loans in the future, although the agreement provided that he was not obligated to do so. Conroy's mortgage was recorded in August 2007, more than four months before the December 2007 recording of plaintiff's mortgage.

In March 2008, plaintiff commenced this action seeking a judgment of foreclosure on its mortgage, and Conroy asserted a counterclaim alleging that his mortgage had priority. When Conroy moved for partial summary judgment on his counterclaim, Supreme Court denied the motion, finding that plaintiff's mortgage had priority by virtue of being a purchase-money mortgage. The court also concluded that, in any event, issues of fact existed as to whether Conroy's mortgage was given for valuable consideration and whether Conroy was aware of plaintiff's mortgage because of his relationship with defendants and his knowledge of their financial difficulties. Conroy appeals.

We agree with Conroy that Supreme Court erred by finding that plaintiff's mortgage is entitled to priority based on its status as a purchase-money mortgage. In reaching that conclusion, Supreme Court relied on Giragosian v. Clement, 199 A.D.2d 656, 604 N.Y.S.2d 983 (1993), lv. denied 83 N.Y.2d 756, 613 N.Y.S.2d 128, 635 N.E.2d 297 (1994). The facts of Giragosian, however, are distinguishable, inasmuch as it involved two contemporaneously executed purchase-money mortgages, one given to the vendors and the other given to a third party (id. at 656, 604 N.Y.S.2d 983 ). Even though the vendors recorded their mortgage second, they were entitled to priority under the theory that their mortgage was a substitute for their equitable lien on the property (id. at 657, 604 N.Y.S.2d 983 ; see Boies v. Benham, 127 N.Y. 620, 624, 28 N.E. 657 [1891] ). Giragosian thus determined the priority of the vendors' purchase-money mortgage with respect to a contemporaneously executed purchase-money mortgage given to a third party, and it should not be interpreted to stand for a general proposition that purchase-money mortgages always have priority, regardless of the recording act (see Real Property Law § 291 ). Rather, “ ‘a mortgage loses its priority to a subsequent mortgage where the subsequent mortgagee is a good-faith lender for value, and records its mortgage first without actual or constructive knowledge of the prior mortgage’ ” (Carrion v. 162 Pulaski, LLC, 117 A.D.3d 767, 768–769, 986 N.Y.S.2d 164 [2014], quoting Washington Mut. Bank, FA v. Peak Health Club, Inc., 48 A.D.3d 793, 797, 853 N.Y.S.2d 112 [2008], lv. dismissed 10 N.Y.3d 911, 861 N.Y.S.2d 271, 891 N.E.2d 306 [2008] ; see Merritt v. Dansmith Corp., 240 App.Div. 338, 339–340, 270 N.Y.S. 675 [1934] ). Accordingly, “plaintiff's purchase money mortgage ‘is as much subject to the Recording Act as any other’ ” (Carrion v. 162 Pulaski, LLC, 117 A.D.3d at 769, 986 N.Y.S.2d 164, quoting Ebling Brewing Co. v. Gennaro, 189 App.Div. 782, 786, 179 N.Y.S. 384 [1919] ).

Nor can we agree with Supreme Court that issues of fact exist as to whether Conroy had notice of plaintiff's mortgage. Conroy established that neither he nor his employee had actual knowledge of plaintiff's mortgage at the time when defendants granted a mortgage to him. Although Conroy had a relationship with defendants in that he was married to Leslie Rottner's sister, he unequivocally testified that he had no knowledge of a prior mortgage, and—significantly—Henry Rottner testified that he never told Conroy or his employee, with whom he primarily dealt, about the prior mortgage. In response, plaintiff offered no evidence of any fact that would support a conclusion that Conroy should have known of its mortgage. Accordingly, no issues of fact exist as to whether Conroy had actual or constructive notice of the prior mortgage (see Rite Capital Group, LLC v. LMAG, LLC, 91 A.D.3d 741, 743, 936 N.Y.S.2d 280 [2012], lvs. dismissed 19 N.Y.3d 834, 945 N.Y.S.2d 644, 968 N.E.2d 1000 [2012], 19 N.Y.3d 992, 951 N.Y.S.2d 107, 975 N.E.2d 489 [2012] ; ...