Retek v 233 Assoc., Inc.

[*1] Retek v 233 Assoc., Inc. 2013 NY Slip Op 51780(U) Decided on October 4, 2013 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 4, 2013
Supreme Court, Kings County

Abraham Retek, et ano., Plaintiffs,

against

233 Associates, Inc., et al., Defendants.



233 ASSOCIATES, INC., et al., Defendants and Additional Defendant, - -

against

JUDITH RETEK a/k/a/ JUDY RETEK, et al., Additional Defendants on the Counterclaims.



11422/11



Plaintiff Attorney: Kelly Griffin-Fromm, Esq., Goldberg & Rimberg, PLLC, 115 Broadway, 3rd Floor, New York, NY 10006

Defendant Attorney: Nathan M. Ferst, Esq., 450 Seventh Avenue, Suite 2701, New York, NY 10123

David I. Schmidt, J.

Upon the foregoing papers, Federal National Mortgage Association (FNMA) moves for an order, pursuant to CPLR 3211 (a)(1) and (7), dismissing the claims of plaintiffs Abraham Retek and Judy Retek seeking the discharge of FNMA's mortgage on the subject property located at 223 Penn Street in Brooklyn.

Plaintiffs commenced this action pursuant to Article 15 of the Real Property Actions and Proceedings Law to compel determination of claims to the subject property. Defendant 223 Associates, Inc. (223 Inc.) acquired title to the property by deed dated November 12, 1992 and recorded December 10, 1992. On or about December 16, 1997, plaintiffs entered into a "shareholders agreement" and contract of sale whereby 223 Inc. would deliver shares of the corporation to plaintiffs and plaintiffs would receive title to a "condominium unit" consisting of the first floor, basement and backyard of the premises for a purchase price of $331,500.00. The contracts were signed by Nathan Leifer on behalf of the corporation. The shareholders agreement contained a restriction on the transfer of shares without compliance with the provisions of the agreement. The parties further agreed in riders to the contracts that "Leifer and Retek" will share equally in the costs of and will "cooperate" with each other in obtaining the condominium conversion. Subsequently, disputes arose regarding payments required under the contracts and allegedly impermissible construction work by plaintiffs which resulted in the imposition of violations and liens against the property. By deed dated October 30, 2006, 223 Inc. conveyed the property to Rivka Leifer. The deed was signed on behalf of 223 Inc. by Rivka Leifer, who identified herself as "president" of the corporation. The transfer was made for no consideration. On November 29, 2006, Rivka Leifer executed a mortgage on the property to secure a loan from Greenpoint Mortgage Funding Inc. (Greenpoint) in the amount of $450,000.00. The mortgage was recorded in favor of Mortgage Electronic Registration Systems (MERS) as nominee for Greenpoint. The mortgage was subsequently assigned to FNMA. On March 29, 2007, Rivka Leifer encumbered the property with an additional home equity line of credit (HELOC) mortgage in favor of Citibank, N.A.[FN1]

The instant action was commenced on May 19, 2011. In their amended complaint, filed on March 29, 2012, plaintiffs assert causes of action to void the transfer to Rivka Leifer as a fraudulent conveyance under the Debtor and Creditor Law. Among the allegations in the amended complaint is that at the time of the execution of the shareholders agreement, Nathan Leifer was the sole shareholder of 223 Associates, and that at no time were plaintiffs notified of nor did they consent to any transfer of shares from Nathan Leifer to Rivka Leifer. In their fifth cause of action, plaintiffs allege that as Rivka Leifer "was not the proper owner of the Property, the two mortgages taken out by her were improper, and Plaintiffs are thus entitled to have the GREENPOINT and CITIBANK mortgages cancelled and discharged of record."

FNMA moves to dismiss the claims of plaintiffs seeking to invalidate its mortgage, contending that there is no allegation in the amended complaint that FNMA's assignor, Greenpoint/MERS, had any notice of the alleged fraud on the part of 223 Inc. and Rivka Leifer. FNMA maintains that in the absence of any such allegation, it must be deemed a [*2]bona fide encumbrancer for value. Plaintiffs, on the other hand, contend that since Rivka Leifer was not a shareholder of 223 Inc. and did not have the authority to transfer the property on the corporation's behalf, the deed to Rivka Leifer is void ab initio and any encumbrances subsequently placed on the property are likewise void.

In determining whether a complaint is sufficient to withstand a motion to dismiss pursuant to CPLR 3211 (a)(7), "the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). The court must accept the facts alleged in the complaint to be true and determine only whether the facts alleged fit within any cognizable legal theory (see Dye v Catholic Med. Ctr. of Brooklyn & Queens, 273 AD2d 193 [2000]).

"Pursuant to Real Property Law § 266, a bona fide purchaser or encumbrancer for value is protected in his or her title unless he or she had previous notice of the alleged prior fraud by the immediate seller" (LaSalle Bank Natl. Assn. v Ally, 39 AD3d 597, 599-600 [2007]). A deed which is procured by fraudulent inducement is "voidable," and a mortgagee which issues a mortgage to the grantee without notice of the fraud is protected in its title. Fraud in the inducement "is usually based on facts occurring prior or subsequent to the execution of a contract which tend to demonstrate that an agreement, valid on its face and properly executed, is to be limited or avoided" (Mix v Neff, 99 AD2d 180, 183 [1984]). However, deeds and encumbrances that are forged or executed under false pretenses are the result of fraud in the factum and are thus are void ab initio (see Marden v Dorthy, 160 NY 39 [1899]; GMAC Mtge. Corp. v Chan, 56 AD2d 521 [2008]). The interests of subsequent bona fide purchasers or encumbrancers for value are not protected under RPL § 266 when their title is derived from a forged deed or one that is the product of fraud in the factum (see Ameriquest Mtg. Co. v Gaffney, 41 AD3d 750 [2007]).

Insofar as Rivka Leifer signed her own name to the deed, and held herself out to be the person signing the deed, the deed cannot be deemed void ab initio on the ground of "forgery" (LaSalle Bank Natl. Assn., 39 AD3d at 599-600 [2007]). Further, despite plaintiffs' argument to the contrary, even where one signs a deed on behalf of a corporation without authority to make the conveyance, such would not defeat the interest of a bona fide purchaser or encumbrancer for value. In LaSalle, plaintiff was seeking a declaration that its mortgage on certain property was superior to a mortgage held by Nationscredit Financial Services Corporation (Nationscredit). New Era Housing, Inc. (New Era), the former owner of the property, purportedly conveyed the property to Karen Williams (Williams), who thereafter encumbered the property with the Nationscredit mortgage. The deed from New Era to Williams was signed by Leonard Goggins (Goggins), who represented that he was "president" of New Era. Subsequently, the property was purportedly conveyed by New Era's sole shareholder, director and officer to Christopher Ally, who then executed a mortgage on the property in favor of plaintiff. The Appellate Division, Second Department affirmed the decision of the Supreme Court declaring plaintiff's mortgage superior, finding that plaintiff established, as a matter of law, that Goggins was without actual or apparent authority to sign the deed to Williams on behalf of New Era. Notably, the Appellate Division stated that: "Nationscredit also failed to offer evidence that it lacked knowledge of facts that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue. Under the circumstances, Nationscredit possessed facts that would lead a prudent lender to investigate Goggins' purported corporate status and authority to act on New Era's behalf, [*3]and it is undisputed that Nationscredit did not do so" (LaSalle Bank Natl. Assn., 39 AD3d at 600 [citations omitted]).

Considering the court's separate analysis of whether Nationscredit was aware of or should have been aware of Goggins' lack of authority, there is an implication that a lender in Nationscredit's position could be a bona fide encumbrancer for value where there is no reason to suspect that one may not have authority to sign a deed on behalf of a corporate property owner.

In Congregation Talmud Torah Ohev Shalom R. Morris Kevelson v Sorscher (69 AD3d 898 [2010]), defendant Bernice London (London) signed a deed as "President" of plaintiff religious corporation conveying certain real property to Liberty Hall Church of God, Inc. (Liberty Hall), which then proceeded to encumber the property with a mortgage in favor of Evangelical Christian Credit Union (ECCU). Plaintiff thereafter sought to cancel the deed and mortgage, alleging that London, along with other defendants, did not have the authority to convey the property on plaintiff's behalf. In affirming (in part) the decision of the Supreme Court, the Appellate Division, Second Department found that there was an issue of fact as to whether or not London and the other defendants had the authority to act on plaintiff's behalf. Significantly, the Appellate Division stated: "Moreover, the opposition papers of Liberty Hall and ECCU raised a triable issue of fact as to whether those defendants were, respectively, a bona fide purchaser and encumbrancer of their interests in the property" (Congregation Talmud Torah Ohev Shalom R. Morris Kevelson, 69 AD3d at 899). Thus, the Appellate Division clearly acknowledged that a mortgagee can be entitled to bona fide encumbrancer status even where the signer of a deed lacks the authority to convey property on a grantor's behalf (see also Chemical Bank v Colonna, 208AD2d 583 [1994][where corporate conveyance was challenged in mortgage foreclosure action as violative of Business Corporation Law § 909 (i.e. failure to obtain approval for the conveyance by board of directors and two-thirds of all shareholders), the lower court properly found that, in addition to the challenge being untimely, plaintiff mortgagee was a bona fide encumbrancer for value]).

Accordingly, even accepting as true the allegation that Rivka Leifer was without authority to convey the property on behalf of 223 Inc., such fact alone would not nullify any subsequent mortgages placed on the property. Because there is no allegation that Greenpoint/MERS had notice of any of the dealings between plaintiffs, Nathan Leifer and/or 223 Inc., had notice of any fraudulent motivation behind the no consideration conveyance of the property to Rivka Leifer,[FN2] possessed any knowledge that Rivka Leifer did not have the authority to sign the deed on behalf of 223 Inc. or was aware of facts which would lead a reasonable lender to make further inquiry,[FN3] FNMA's motion to dismiss plaintiffs' claims on the ground that it is a bona fide encumbrancer for value is granted.

The fifth cause of action in plaintiffs' amended compliant is hereby dismissed.

The foregoing constitutes the decision and order of the court.

E N T E R, [*4]

J. S. C. Footnotes

Footnote 1:According to the records of the City Register, the HELOC mortgage was satisfied as evidenced by a satisfaction of mortgage dated June 26, 2012 and recorded July 10, 2012.

Footnote 2:"Evidence of a gratuitous transfer in the chain of title does not, without knowledge of fraud, render a conveyance fraudulent and voidable as against a purchaser or mortgagee for value" (Miner v Edwards, 221 AD2d 934, 934 [1995]).

Footnote 3:Two prior mortgages on the property, each recorded on October 28, 1997, were also signed by Rivka or "Rivkie" Leifer as "president" of 223 Inc.