As title professionals, we frequently deal with money judgments, and the impact that they have on a real estate transaction. On a go forward basis, I will share with you some of the “Judgment 101” issues that arise, in the form of a “Question & Answer” scenario. Apropos to this segment, please consider the following:
Question: The abstract of title indicates the date when a judgment was “perfected”, and the date when a judgment was “docketed”. What does this mean?
Answer: The “perfection” date, is the date that the creditor is awarded the judgment by the Court. The “docketing” date, is the date that the judgment is entered in the judgment roll/book of the respective County Clerk’s Office.
Question: When is a judgment an actual lien against real property?
Answer: The docketing of a judgment in a county where the debtor owns real property, or later acquires real property, paves the way for the docketed judgment to become a lien against real property in that county.
Please look for future blog entries on this topic. In the interim, your questions and/or comments are welcome. Thank you…
Back on July 1, 2014, several changes were made to the New York Not-For-Profit Corporation Law (“NFP”). The Non-Profit Revitalization Act of 2013 amended the NFP law in a few ways. Among other things it replaced the then four types of NFP corporations (Type A, B, C and D) with just two, namely “charitable” and “non- charitable corporations”. Type B and C corporations as well as Type D corporations formed for charitable corporations were now deemed “charitable corporations”. Type A and all other Type D corporations were now deemed “non-charitable corporations”.
NFP Law Section 510 (a) (3) was also amended to provide that the sale, lease, exchange or other disposition of all or substantially all of the assets of a “charitable corporation” can be achieved by either obtaining a court order in accordance with NFP Section 511 or by obtaining the approval of the New York State Attorney General in accordance with NFP Section 511-a. (Prior to these changes the only option for a Type B or C corporation that was disposing of all or substantially all of its assets was to obtain a court order.)
What the Non-Profit Revitalization Act of 2013 did not do was change what was required of a religious corporation that was selling, mortgaging or leasing its real property. A religious corporation was still required by Religious Corporation Law Section 12 to get court approval for the disposition of its real property.
On December 11th, 2015, Section 12 of the Religious Corporation was amended to now also give religious corporations the option of obtaining approval from the Attorney General alone. A court order is no longer the exclusive method for a religious corporation to obtain approval to sell, mortgage or lease real property.
While decanting irrevocable trusts is not new in New York (the first decanting statute was enacted in 1992), it has suddenly become a hot topic of inquiry, perhaps because of the frequency with which trusts are now employed and because lifetime trusts created after 6/25/97 are irrevocable unless the trust provides otherwise. The term decanting refers to pouring wine from an old bottle into a new bottle. So, by analogy, trust assets, like wine, are decanted (invaded) and poured from the old trust into a new trust.
We all know that even an irrevocable trust can be revoked pursuant to the Estate Powers and Trust Law. EPTL, at section 7-1.9, permits the revocation of an irrevocable trust provided that the creator and all the beneficiaries join in a duly acknowledged signed writing. However, under certain circumstances, EPTL 10-6.6 permits a trustee, where the original trust granted the trustee the power to invade the principal, to use his power of appointment to transfer trust assets from an existing irrevocable trust into a new trust, without the consent of the trust creator or beneficiaries, even if the new trust favors only one, and not all, of the beneficiaries.
There are limitations on the trustee’s power to decant. For example, the new trust cannot benefit beneficiaries not named in the original trust, the exercise of this power of appointment must not decrease fixed income interest or violate general principals of fiduciary loyalty, AND, as with the exercise of any power by a trustee, must always be in furtherance of the trust purpose and in the best interests of the trust beneficiaries.
There are many tax consequences involved in the decision to decant, which are the province of accountants and tax lawyers and beyond the scope of title insurance, but should you get a call from a client concerning decanting, or should you see an example of a trustee transferring a trust asset into a new trust, you will have some familiarity with the concept. As always, call underwriting counsel with any questions.
Be careful when reviewing foreclosure actions since defaulting borrowers may still be entitled to notice of the default motion.
See Deutsche Bank Natl. Trust Co. v Gavrielova (2015 NY Slip Op 05907).
In a mortgage foreclosure action, defendant, Talib Bey, sought to vacate an order of the Supreme Court which denied his motion to vacate an order granting plaintiff Deutsche Bank’s motion for a default judgment and an order of reference appointing a referee to compute. Bey appeared in the action and filed a motion to dismiss which was denied without prejudice. Bey’s motion to renew his motion to dismiss was marked off the court’s calendar and he never answered the complaint. The court granted the plaintiff’s motion for default and an order of reference. Bey subsequently moved to vacate the order arguing that he was entitled to notice of the motion. The Supreme Court denied Bey’s motion and the Appellate Division reversed.
The appellate court reasoned that Bey’s motion to dismiss constituted an appearance and he was therefore entitled to at least five days’ notice of the motion for default even though he defaulted subsequent to the appearance. The court stated that the failure of the plaintiff to provide the proper notice to Bey was a jurisdictional defect which deprived the Supreme Court of the jurisdiction to entertain the motion and held that the motion for the default judgment and the order of reference should have been vacated.
See also Citimortgage Inc. v LaFortune in which the plaintiff moved for a default judgment. The court, in denying the motion, reiterated that failure to provide the appropriate notice deprived the court of jurisdiction to hear the motion and that any resulting order would be a nullity. The court articulated the further rule that, pursuant to CPLR §3215, if one year has elapsed since the default, any defendant who has not appeared is also entitled to the same 5 day notice unless the court orders otherwise.
A large amount of the claims submitted involve claims in which the borrower seeks to set aside the judgment of foreclosure and/or the sale. Many foreclosure actions involve default judgments. When reviewing a foreclosure action be sure to review the notices provided to any defendant who has appeared. CPLR §320 provides that, “The defendant appears by serving an answer or notice of appearance, or by making a motion which has the effect of extending the time to answer.” If the defendant has answered, filed a notice of appearance or filed a motion, that defendant must have received notice of the default motion or an exception must be raised. If the motion for default is filed more than one year after the default, then all defendants must receive notice unless the court ordered otherwise or an exception should be raised.
To comment or ask a question please contact Judith Lanahan at 516-296-4650 or send an email to Judith.firstname.lastname@example.org
As many of us know, the process of insuring title is centered on claims avoidance. However, despite our professional and best efforts, claims do occur.
Claims predominantly occur as the result of: (1) Search and examination errors, (2) Improper Settlement Procedures, (3) Post-closing / Recording Errors, and (4) Fraud and Forgery.
Here is a breakdown of FNTG’s 2014 Claims nationwide and for New York:
- In 2014, FNTG spent $307,771,899 on claims nationwide (loss/expense totals). Of the claims nationwide:
- Approximately 25% was spent on claims involving search and exam errors;
- Approximately 13% was spent on claims involving improper settlement procedures; and
- Approximately 12% was spent on claims involving fraud and forgery.
- In 2014, FNTG spent $22,136,938 on claims in New York (nationwide, New York had the 2nd highest amount spent on claims; second to California
- The percentage allocation of claims nationally is typically similar in New York. However, in 2014, FNTG paid a large loss on a New York claim involving fraud and forgery. Therefore, of the $22 million spent in New York in 2014:
- 23% was spent on claims involving fraud and forgery;
- 19% was spent on claims involving underwritten risk (“Underwritten Risk” involve true insurance risks – risks we take with every policy even if everything is done absolutely right);
- 18% was spent on claims involving search and exam errors;
- 10% was spent on claims involving post-closing and recording issues; and
- 8% was spent on claims involving improper settlement procedures.
- The remainder of the New York claims involved: missing interests, survey issues, gap coverage, defalcation, access/easement, mechanic’s liens, enhanced/expanded policy and local law issues.
If you have any claims-related questions or comments, I encourage you to respond to this post. You can also contact me at email@example.com or (914) 682-3904.
Now that the TRID implementation date has arrived and the world has not come to an end it might be time to revisit the disclosures required of licensed agents by New York Insurance Law. You might be surprised to find out that some people have the idea that the new TRID rules do away with or substitute for the disclosures required under New York law. They do not. The TRID Closing Disclosure and the disclosures required by New York are unrelated. You might also be surprised to hear that some people thought that the New York disclosures were not required until the TRID rules became effective on October 3. That is also not the case. Licensed agents should have been sending the New York disclosures for at least a year.
As a reminder, if you are a licensed New York agent, you should be sending the following on all title insurance orders:
Good Faith Estimate,
Memorandum of Ancillary Charges, and
Final disclosure of charges.
Other disclosures may apply to some files under different circumstances, but the three listed above apply to all files. For more information on this topic you can access the 9/25/2014 memo on disclosures on the agency website.
Recently duped? If your shaking your head yes then you must have personally experienced or heard of a transaction which involved fraud or forgery. The title insurance industry is unfortunately not shielded from this. Of the claims submitted in the last three years, a significant amount involves a fraud of some sort.
A relatively recent case, ABN AMRO Mortgage Group, Inc. v. Kayann Stephens (91 A.D.3d 801) is a prime example of the most commonly used method fraudsters use to conduct fraudulent activity; that method being the use of a power of attorney in a real estate transaction. In this 2012 case, a power of attorney was allegedly given by Manderville to Brown. Brown executed a deed using the power of attorney to Westport Marketing, Inc. Through a series of subsequent deeds Stephens ends up with the property and mortgages it also. The plaintiff, ABN AMRO took a mortgage on the subject property from another purported owner, Allam. The plaintiff commenced the action alleging the Brown power of attorney to be a forgery. Plaintiff submitted evidence showing that Manderville was in an assisted living facility in 2002 and was 77 years old at the time. An affidavit of the notary that acknowledged the power stated that Manderville was in her 40’s. This was sufficient proof for the court to rule in favor of the plaintiff and therefore the plaintiff’s mortgage is valid. The court reasoned that if a signature on a power of attorney is forged, any document executed by the purported attorney-in-fact pursuant to the power is void. The court also noted that if a document purportedly conveying a property interest is void, it conveys nothing, and a subsequent bona fide purchaser or bona fide encumbrancer for value receives nothing.
This case demonstrates the strong need to exercise extreme caution when presented with a power of attorney to be used in connection with your transaction. The following are a few underwriting guidelines you can use to minimize the risk of a fraudulent power of attorney.
- Obtain the original power of attorney for review
- Verify the principal’s identity by obtaining a valid form of photo identification. Then check the signature on the power to the identification and against a previously recorded instrument (whenever possible).
- Verify the agent’s identity with proper photo identification
- Power of attorney must survive incompetency/disability of principal. If the principal is incompetent then establish competency when the power was executed by obtaining an affidavit from the attending physician or other medical professional or, at the very least, an attorney who supervised the execution of the power.
- If the principal is competent, call the principal at closing to verify the power has not been revoked and that they are aware that it is being used for this specific transaction. When speaking with the principal, for identification purposes (where applicable) ask the principal questions regarding prior recorded transactions (ie. mortgage amounts, name of lenders, dates of refinances, etc.).
- All proceeds from the closing must be made payable to the principal with the exception of paying off existing mortgages, other liens or real estate taxes owed by the principal.
- If a family member is the agent in the power then other family members should be aware of it. This is more appropriate when the principal is incompetent. You must then look to the other members to make sure no one is objecting to the use of the power.
- Obtain a full force and effect affidavit.
- Search the record for a revocation.
- Self-serving transactions (where the agent uses the power to deed the property to them individually) should be discussed with underwriting counsel.
- Notary should not be a party to the power
Each transaction will have its own set of circumstances that may give rise to additional problems and concerns not discussed here. So although this list of guidelines is exhaustive it is by no means meant to be comprehensive. I encourage you to share your experiences triggered by fraudulent activity or simply voice your concerns on this matter by responding to this post. Feel free to contact Company counsel with any questions or concerns you may have.
Join us for a Live Seminar
Topic: New York State Agent Licensing
Speakers: Frank Carroll, Ted Werner and Richard Estrella
To be held in these locations:
4/9 – Cheektowaga, NY
4/9 – Rochester, NY
4/10 – Syracuse, NY
4/10 – Albany, NY
Contact Your Agency Business Advisor for more information.
When a mortgagee or nominee takes title to the property pursuant to a deed in lieu of foreclosure and either discharges the mortgage or agrees not to sue for the collection of the mortgage debt, the mortgage ceases to secure a bona fide debt. When this happens, any subsequent instrument that purports to assign, modify, or consolidate the mortgage may not be treated as a supplemental mortgage pursuant to section 255 of th Tax Law, and may not be recorded without mortgage recording tax on the full amount of debt secured. See attached link to the Tax Bulletin issued by NYS Department of Tax and Finance for a complete discussion. http://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/mrt/deed_in_lieu.htm
You should be aware that the New York State Department of Taxation and Finance issued Tax Bulletin TB-MR-575 on January 6 , 2014, concerning mortgage recording tax in the context of a a deed in lieu of foreclosure transaction. The bulletin makes it clear that where a deed in lieu is given, the underlying mortgage may not treated as a supplemental mortgage under Section 255 of the Tax Law and therefore cannot be assigned, modified or consolidated without the payment of mortgage tax on the full amount of the debt secured. http://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/mrt/deed_in_lieu.htm
When mortgagee and borrower decide it is mutually advantageous to avoid the foreclosure process and where borrower’s indebtedness exceeds the equity in the property, borrower may make an offer to convey the property to the lender in return for certain consideration such as forgiveness of personal liability on the note. When the same entity is both the owner of the real property as well as the holder of the mortgage, the fee interest and the mortgage interest are said to merge, thereby extinguishing the lien of the mortgage. Under certain circumstances, the mortgagee may wish to avoid a merger and to keep the mortgage alive. One reason was the belief that when the mortgagee transfers the property to a new purchaser, the mortgage can be assigned to a new lender thereby saving the purchaser some mortgage tax and making the property that much more attractive. The Tax Bulletin makes clear that this is not possible and mortgage tax must be paid on the full amount of the debt secured.