Capital Stack Fund, LLC v Badio

[*1] Capital Stack Fund, LLC v Badio 2012 NY Slip Op 51481(U) Decided on July 15, 2012 Supreme Court, Rockland County Jamieson, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 15, 2012
Supreme Court, Rockland County

Capital Stack Fund, LLC, Plaintiff,

against

Soeurette Badio aka SOEURETTE OCCENA, CLAUDE V. COLIN and DENISE COLIN, JOHN DOE and JANE DOE, Defendants.



2037/2011



Counsel: Counsel for Plaintif, Delbello Donnellan; Counsel for the Colins Defendants, Cuddy & Feder; Counsel for Badio, Arnold Blatt.

Linda S. Jamieson, J.

Thefollowing papers numbered 1 to 19 were read [FN1] on this motion:

PaperNumber

Notice of Motion, Affirmation and Exhibits1

Affidavit and Exhibits2

Affidavit and Exhibit3

Affidavit and Exhibits4

Affidavitand Exhibit5

Affidavit and Exhibits6

Memorandum of Law7

Binder of Prior Motion Papers8

Affidavits and Exhibits in Opposition9

Memorandum of Law in Opposition10

Reply Affidavit11

Reply Affidavit12

Reply Affidavit13

Reply Memorandum of Law14

Notice of Motion, Affidavits and Exhibits15 [*2]

Memorandum of Law16

Affirmation and Exhibits in Opposition17

Memorandum of Law in Opposition18

Reply Affidavit and Exhibits19

There are two motions for summary judgment before the Court. The first, brought by Claude V. and Denise Colin (the "Colins"), seeks summary judgment on their counterclaim, and a declaration that their mortgage is prior and superior to plaintiff's mortgage. Plaintiff's motion seeks (1) summary judgment; (2) to strike defendant Souerette Badio a/k/a Souerette Occena ("Badio")'s answer; (3) to strike the Colins' answer and dismiss their counterclaim; (4) a declaration that plaintiff's mortgage is superior to that of the Colins; (5) a referee to compute; and (6) to amend the caption to substitute Max and Melonie Occena for John and Jane Doe.

In this case, both plaintiff and the Colins hold mortgages given to them by Badio. Plaintiff loaned Badio $275,000 on July 3, 2008. The mortgage was not recorded until November 25, 2008. Badio used some of the money from plaintiff's mortgage to pay off a previous mortgage held by Residential Money Centers, Inc. ("Residential Money"). This payoff occurred on July 3, 2008, and a satisfaction of the Residential Money mortgage was recorded on August 21, 2008.

The Colins executed a mortgage with Badio on September 15, 2008, in the amount of $300,000. The Colins' mortgage was recorded on September 19, 2008. There is no dispute that the Colins loaned various sums of money to Badio over a period of time, with only approximately $22,664 being loaned on September 15, 2008.

Both plaintiff and the Colins want to foreclose on the same property belonging to Badio. While there is no dispute that plaintiff's mortgage was executed first, there is also no dispute that the Colins' mortgage was filed first. It was not until five months after plaintiff obtained its mortgage — two months after the Colins had recorded their mortgage — that plaintiff's mortgage was first recorded.

"Under New York's Recording Act (Real Property Law § 291), 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." Rite Capital Group, LLC v. LMAG, LLC, 91 AD3d 741, 936 N.Y.S.2d 280 (2d Dept. 2012). The questions, then — as the Court noted in its prior Decision and Order denying summary judgment without prejudice — are (1) are the Colins good faith lenders for value; and (2) did they record their mortgage without constructive knowledge of the prior mortgage. There is no dispute that the Colins had no actual knowledge of plaintiff's mortgage. [*3]

In support of its argument that the Colins' mortgage was not given for value, plaintiff asserts that "the Colin Mortgage is not supported by valuable consideration' that is sufficient to invoke the protection of the Recording Act." Plaintiff explains that this is because the Colins' mortgage was made only to "memorialize and collateralize Badio's pre-existing debt to the Colins." According to plaintiff, that pre-existing debt totaled approximately $228,763.

On the same date that the Colins and Badio executed the mortgage, September 15, 2008, the Colins also loaned Badio an additional $22,664.77.[FN2] Mr. Colins testified that the parties had originally planned that Badio would repay the funds to them in six months, when her construction was supposed to be completed, and that is why he had not contemplated getting a mortgage. He further testified that it was only after he got a lawyer involved in September 2008 that he decided to obtain a mortgage from Badio.

Plaintiff argues that the additional $22,664.77 that the Colins loaned to Badio on the same date as the execution of the mortgage is inadequate to constitute "valuable consideration." In support of its argument, plaintiff cites the case of HSBC Mortg. Services, Inc. v. Alphonso, 58 AD3d 598, 874 N.Y.S.2d 131 (2d Dept. 2009). In that case, the Appellate Division found that a party with a first-recorded deed did not have priority of title because it was not a bona fide purchaser for value. The Court held that

A nominal sum, though actually paid, or an antecedent debt . . . do not constitute valuable considerations. Here, Point paid $20,000 for a property appraised at $600,000. Despite its contention that the mortgage on the property should be deemed part of its consideration, Point presented no evidence that it sought in any way to make payments on the alleged mortgage. Moreover, although it submitted a contract for repairs totaling more than $100,000, it presented no evidence that it actually paid for any such repairs. Accordingly, Point was not a bona fide purchaser for value and, therefore, was not entitled to the protection of the recording statute.

While the Court agrees with the result in HSBC — a case that presented a plain case of fraud — that is not what happened here, where there is no evidence of fraud by the Colins. [*4]

There is no real dispute that the Colins did loan well over $250,000 to Badio. (Although plaintiff disputes that the entire sum of $300,000 was disbursed to Badio, Badio herself confirms that she received the benefit of the entire loan.) It is true that only $22,664.77 was disbursed at the time of the mortgage. Yet the Court does not find, contrary to plaintiff's assertion, that this was only "nominal consideration." While there is scant case law on what constitutes "nominal consideration," the Court finds that, consistent with the applicable precedent, "nominal consideration" tends to refer to recitations like "ten dollars and other such good and valuable consideration." See, e.g., Barnes v. Oceanus Navigation Corp., Ltd., 21 AD3d 975, 801 N.Y.S.2d 368 (2d Dept. 2005) ($100 was nominal consideration); Lengares v. B & A Warehousing, Inc., 159 AD2d 692, 553 N.Y.S.2d 184 (2d Dept. 1990) ($1 was nominal consideration); Ochenkowsky v. Dunaj, 137 Misc. 674, 244 N.Y.S. 267 (Sup. Ct. Mont. Co. 1930). Indeed, research has revealed that many of the cases that found that a transaction included only nominal consideration involve allegations of significant fraud (which, as stated, is not present here).

Since there is no dispute that the Colins loaned Badio $228,763 in "antecedent debt," plus another $22,664.77 simultaneously with the execution of the mortgage, the Court finds that this is valuable, and not nominal, consideration. Thus, the Court finds that the Colins are good faith lenders for value.

Turning to plaintiff's assertion that the Colins should have known about plaintiff's as-yet unrecorded mortgage based on the fact that the Residential Money mortgage was satisfied 25 days prior to the Colins' mortgage, the Court disagrees. The Colins submit affidavits from (1) their real estate lawyer, who drafted the mortgage, hired the title company to search the title, and obtained title insurance for the Colins; (2) their title insurance company; and (3) a third party title insurance company. All three state unequivocally that they did not convey to the Colins or their lawyer any information about the recently-satisfied Residential Money mortgage. Jean Patridge, Esq., principal and chief counsel of Benchmark Title Agency, LLC stated in her Affidavit that "extraneous information that does not reveal the existence of any open title encumbrance against real property, such as mortgages that have already been satisfied, tax liens that have already been paid off, and encumbrances that have already been discharged, is not turned over to a title company's client." Plaintiff submitted no expert affidavits to the contrary.

The Court thus finds that by doing a title search and acquiring title insurance, the Colins did make a "reasonably diligent inquiry" into whether they should "question the transaction," as plaintiff argues. They should not be charged with constructive notice of plaintiff's later-recorded mortgage. While this situation is unfortunate for plaintiff, it is not the Colins' fault that plaintiff's mortgage was the second mortgage to be recorded, five months after it was given to plaintiff.

Accordingly, the Court denies plaintiff's motion in its entirety, and grants the Colins' motion in its entirety. It does not appear that the Colins' answer and counterclaims includes a cause of action for foreclosure against Badio. Therefore, the action is dismissed.

The foregoing constitutes the decision and order of the Court. [*5]

Dated:New City, New York

July __, 2012

____________________________

Hon. Linda S. Jamieson

Justice of the Supreme Court Footnotes

Footnote 1:The Court does not accept unauthorized sur-replies.

Footnote 2:The Colins' mortgage is for $300,000. The Colins have only documented $289,164.77 of this amount, and state that they remaining amount was "disbursed in cash and to cover closing expenses." Badio actually confirms the Colins' statement. She testified at her deposition that the Colins gave her "approximately $300,000."