Real-estate title claims come in many forms that can threaten the rights of landowners and mortgagees. They can involve undisclosed property issues, including fraud and forgery claims, easements, adverse possession, unknown liens, heirship disputes, and public-record errors.
In a case recently decided by the Appellate Division, Second Department, Weiss Zarett Brofman Sonnenklar & Levy, P.C. successfully defended the validity of a lender’s mortgage after it had been determined that the mortgagors’ title to the mortgaged property had been void when they gave their mortgage to secure a $650,500.00 loan.
In simple terms, a mortgage secures a borrower’s promise to pay back a loan by creating a lien against real estate. This, of course, presupposes that the borrowers will own the property pledged as security. Among the many promises made in a mortgage is the borrowers’ warranty that they have good title to the real estate, and will do whatever is necessary to defend their title.
The Second Department in Reinhardt v. Freedom Mortgage Corporation (click here for decision) recently addressed an unusual set of circumstances that called for enforcement of mortgagor’s warranty of title.
In 2013, a husband and wife, in an all-cash sale, purchased real estate – a house – ostensibly from an estate representative. The deed from the estate representative was delivered and recorded.
About a year later, the husband borrowed $650,500.00 from a bank, and signed a note promising to repay the loan. To secure the husband’s promise, both husband and wife gave the lender a mortgage against the real estate.
After some time passed, the Office of the Public Administrator sued the buyers in the Surrogate’s Court, Queens County, to void the sale. The Public Administrator asserted that the estate representative was not competent to represent the estate or to sell the estate’s property. After lengthy litigation, the Surrogate’s Court determined that the purported estate representative had no authority to sell the property, and that the deed delivered to the buyers was void.
Thereafter, the buyers came to terms with the Public Administrator, and legitimately purchased the property from the estate, thereby acquiring good title.
What About the Mortgage?
The buyers sued the lender to void the mortgage. They reasoned that if their deed was never valid to begin with, they did not own the property when they mortgaged it. And because they did not own the property when they gave their mortgage, the mortgage must be declared void.
The Second Department disagreed, and validated the mortgage. The Court observed that while a mortgage based on a void deed is likewise void, here good title was acquired from the Public Administrator, and the mortgage contained an express warranty of title to the property. The mortgagors’ warranty of title and their subsequent purchase from the Public Administrator estopped them from claiming that the mortgage was void. The lien against the property to secure the loan was preserved.
Floyd G. Grossman and Michael J. Spithogiannis, who have each litigated title claims for title-insurance companies and private land owners for over 40 years, are pleased with the Second Department’s analysis and outcome of the case.
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