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Effect Of Persons In Possession Of Real Estate Other Than The Owner/Vendor On A Buyer's Status As A Bona Fide Purchaser - NY State Court Cases

Effect Of Persons In Possession Of Real Estate Other Than The Owner/Vendor On A Buyer's Status As A Bona Fide Purchaser - NY State Court Cases

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Published by richdebt
The following compilation of New York state court cases address the issue of the effect of possession by an occupant of real property by one other than the seller/vendor thereof on a prospective real estate purchaser's status as a bona fide purchaser.

These cases are presented here to remind the reader of the importance of giving this issue the serious consideration it deserves when attempting to undo/unwind/void an abusive real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles) where, after scamming or otherwise abusively relieving an unwitting homeowner of his/her title, the scammer either sells the property to an unwitting third party, or encumbers the property with a loan from an unwitting mortgage lender, neither of whom participated in the abusive transaction with the homeowner, nor having any actual knowledge thereof.

Voiding the deeds and mortgages in these cases (in situations where the instruments are voidable, as opposed to being absolutely void - "void ab initio") will turn on whether the subsequent third party purchaser or encumbrancer, despite lacking in actual knowledge of the fraud or other abusive transaction, can otherwise be charged with notice of the fraud, thereby making bona fide purchaser/encumbrancer status unavailable to them and, consequently, subjecting the deeds or mortgages to being voided/rescinded/set aside.

This case law compilation represents raw research only, and certainly does not purport to be an exhaustive list of cases dealing with the issue of possession and the duty to inquire when attempting to establish (or attack) one's status as a bona fide purchaser.

I post it, however, with the view that some readers may find a part of the contents a helpful starting point for additional legal research in an effort to void certain abusive real estate transactions involving unwitting, financially strapped homeowners who have been screwed out of the equity in their homes by unscrupulous real estate operators.
The following compilation of New York state court cases address the issue of the effect of possession by an occupant of real property by one other than the seller/vendor thereof on a prospective real estate purchaser's status as a bona fide purchaser.

These cases are presented here to remind the reader of the importance of giving this issue the serious consideration it deserves when attempting to undo/unwind/void an abusive real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles) where, after scamming or otherwise abusively relieving an unwitting homeowner of his/her title, the scammer either sells the property to an unwitting third party, or encumbers the property with a loan from an unwitting mortgage lender, neither of whom participated in the abusive transaction with the homeowner, nor having any actual knowledge thereof.

Voiding the deeds and mortgages in these cases (in situations where the instruments are voidable, as opposed to being absolutely void - "void ab initio") will turn on whether the subsequent third party purchaser or encumbrancer, despite lacking in actual knowledge of the fraud or other abusive transaction, can otherwise be charged with notice of the fraud, thereby making bona fide purchaser/encumbrancer status unavailable to them and, consequently, subjecting the deeds or mortgages to being voided/rescinded/set aside.

This case law compilation represents raw research only, and certainly does not purport to be an exhaustive list of cases dealing with the issue of possession and the duty to inquire when attempting to establish (or attack) one's status as a bona fide purchaser.

I post it, however, with the view that some readers may find a part of the contents a helpful starting point for additional legal research in an effort to void certain abusive real estate transactions involving unwitting, financially strapped homeowners who have been screwed out of the equity in their homes by unscrupulous real estate operators.

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Published by: richdebt on May 29, 2014
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1 of 314 DOCUMENTSWarningAs of: May 27, 2014
City of New York, Plaintiff, against Brooklyn LLC, VIVIAN FISHER a/k/aVIVIAN FISCHER, PERGOL REALTY CORP., BERKSHIRE CREDIT LLC,GIANNA EQUITIES, INC., MILLENNIUM ABSTRACT CORP., AND "JOHN andJANE DOE,", SAID MOVING, DEFENDANTS, ET AL, Defendants.13072/04SUPREME COURT OF NEW YORK, KINGS COUNTY
 26 Misc. 3d 1215(A)
;
 907 N.Y.S.2d 99
;
 2009 N.Y. Misc. LEXIS 3592
;
 2009 NY Slip Op 52722(U)
December 18, 2009, DecidedNOTICE:
 THIS OPINION IS UNCORRECTED AND WILL NOT BE PUBLISHED IN THE PRINTED OFFICIALREPORTS.PUBLISHED IN TABLE FORMAT IN THE NEW YORK SUPPLEMENT.
SUBSEQUENT HISTORY: [*1215A] [**99]
 Quieting Title--Determination of Claim to Real Property--DiligentTitle Search.Reversed by, in part, Summary judgment denied by
 City of New York v. Brooklyn, LLC, 85 A.D.3d 707, 924 N.Y.S.2d 811, 2011 N.Y. App. Div. LEXIS 4904 (N.Y. App. Div. 2d Dep't, June 7, 2011)
PRIOR HISTORY:
 City of New York v. Brooklyn LLC, 41 A.D.3d 523, 838 N.Y.S.2d 604, 2007 N.Y. App. Div. LEXIS 7410 (N.Y. App. Div. 2d Dep't, 2007)
CORE TERMS:
 notice, block, recorded, purchaser, summary judgment, recording acts, mortgage, ownership, inquirynotice, recording, diligent, searcher, indexing, tax liens, condemnation, lot numbers, diligent searches, transferred,pendency, indexed, expired, constructive notice, free and clear, deed, conveyance, register, chain, condemnationproceeding, record owner, failed to provide
COUNSEL: [***1]
 For Plaintiff: Michael A. Cardozo, Esq., Corporation Counsel of the City of New York, Arthur H.Shaw, of Counsel.Page 1
 
For Berkshire Credit LLC, Defendant: Borchert, Genovesi, LaSpina & Landicino, P.C.For Millennium Abstract Corp., Brooklyn LLC, Defendants: Herrick, Feinstein LLP.
JUDGES:
 JUSTICE RICHARD VELASQUEZ, J.S.C.
OPINION BY:
 RICHARD VELASQUEZ
OPINION
Richard Velasquez, J.This action was brought by the plaintiff City of New York ("City") to quiet title to the real property located at331-369 Hinsdale Street, Brooklyn New York. It is also known as tax block 3784, lot 127 ("Premises"). The City hasalleged that it is the owner of the Premises by virtue of a condemnation order issued in 1996. Defendant BerkshireCredit LLC is the holder of a mortgage dated July 25, 1988 and recorded on August 9, 1988, which defendant Berkshiretook by assignment from Vivian Fisher on February 26, 2004, the same time that defendant Brooklyn, LLC purchasedthe Premises. This assignment of mortgage was recorded in Kings County on April 7, 2004. Defendant Berkshire CreditLLC, whose members are the same as Brooklyn LLC, took the mortgage in Berkshire's name so as to prevent anyclaims of merger.On August 9, 2005, plaintiff City moved
 [***2]
 for summary judgment on its complaint and to quiet title.Defendants Brooklyn LLC and Millennium Abstract Corp. cross-moved for an Order granting summary judgment anddismissing the complaint. The Court granted defendants' motion and plaintiff appealed. The Appellate Division: SecondDepartment reversed this Court's decision on the granting of summary judgment finding that although defendants hadestablished their entitlement as a matter of law, plaintiff raised a triable issue of fact as to whether a diligent titlesearcher should have discovered the plaintiff's interest in the subject property.
 City of New York v. Brooklyn LLC, 41 AD3d 523, 838 N.Y.S.2d 604 (2d Dept. 2007)
.Defendants Brooklyn LLC and Millennium Abstract Corp. now move the Court for summary judgement, as theAppellate Division found that defendants established a prima facie entitlement as a matter of law, if defendants' titlesearches were "diligent" . Plaintiff has cross-moved for summary judgment alleging through experts that the searchesconducted by defendants, had they been diligent, would have revealed the plaintiff's interest in the property. Thus, thesole issue before the Court herein is whether the title
 [***3]
 searches performed by defendants were diligent searchesthat should have discovered the plaintiff's interest.
Discussion
What acts constitute a diligent search?
The general purpose of recording acts and recording is to give notice to the world that the title toproperty has been transferred and by such notice to prevent the fraudulent sale of the sameproperty more than once to different purchasers. Accordingly, and in line with the generalprinciples concerning constructive notice, it is a well-settled rule that the recording of aninstrument affecting property is constructive notice to all subsequent purchasers, lienors, andother interested parties of its existence and contents
. NYJUR Records § 108.In New York counties using the "block and lot" indexing system, "a purchaser is charged with record notice of allmatters
 indexed
 under the block and lot numbers corresponding to the purchaser's property, regardless of whether suchinformation also appears in his or her direct chain of title. "
 Farrell v. Sitaras, 22 AD3d 518, 803 NYS2d 659 (2nd Dept.2005)
 citing to
 Andy Assoc. V. Bankers Trust Co., 49 NY2d 13, 399 N.E.2d 1160, 424 N.Y.S.2d 139 (NY 1979)
. KingsPage 226 Misc. 3d 1215(A), *1215A; 907 N.Y.S.2d 99, **99;2009 N.Y. Misc. LEXIS 3592, ***1; 2009 NY Slip Op 52722(U)
 
County, New York employs a "block and lot" indexing system,
 [***4]
 thus a purchaser in Kings County is chargedwith record notice of all matters indexed under such block and lot numbers. New York City's block and lot recordingsystem utilizes an index of documents recorded in the Office of the Register. Under the "block and lot" method of indexing recorded conveyances, the title searcher is required to search and review the documents in the index of thesubject block and lot.According to affidavits submitted by defendants to this action, "block and lot" searches of all matters indexed underthe block and lot numbers corresponding to the property at issue herein (Block 3784, Lot 127) were conducted onbehalf of defendant Brooklyn LLC beginning in August 2003. At that time, defendant Brooklyn LLC learned that theCity had issued a tax foreclosure notice against Pergol Realty Corp., recognized by the City as the then owner of theProperty. Defendant Brooklyn LLC contacted Pergol and negotiated a purchase price for the property. Defendantcontacted defendant Millennium Abstract Corp., to conduct a title search, which included a thorough review of alldocuments recorded in the index of the Property on file with the City Register for Kings County and the
 [***5]
 Officeof the Kings County Clerk, and found the Property to be free and clear of any outside interests, including any interest of any kind now claimed by the City. Defendant Brooklyn LLC then purchased the Property and promptly recorded thedeed.In November 2003, defendant Brooklyn LLC learned that certain mortgages might be encumbering the Property,and retained STG Associates to conduct a second title search of the Property and to provide a second abstract of thetitle. The second search also found the Property to be free and clear of any outside interests, including any interest nowclaimed by the City.Subsequently, Brooklyn LLC was informed by the Kings County District Attorney's Office that it may have beendefrauded when it purchased the property, as the individual who had executed the deed to the Property on behalf of theseller, was not an authorized agent of Pergol and had no power to convey title. Defendant Brooklyn LLC then identifiedthe true owners of Pergol and purchased the property. The defendant purchased title insurance on the Property throughMillennium and a third title search was performed. Again, it certified that Pergol could convey clear title to Brooklyn. A
[***6]
 second closing was held and a valid deed was delivered to Brooklyn from Pergol and thereafter, recorded. Twoweeks after closing, Millennium updated its title search and concluded again that the property was free and clear of anyoutside interests.In April 2004, the City made its first public claim to be the record owner of the Property, pursuant to acondemnation order issued in 1996. After reviewing the City's claim, the title insurer (Fidelity) arranged for a fourthindependent title search of the Property to determine whether the City's claim that it had properly recorded evidence of its alleged condemnation, had any merit. The fourth search, this time undertaken with the knowledge of the City'sclaimed interest, yielded the same result as that reached by both Millennium and SGT. Fidelity found the Property to befree and clear of any claimed interest by the City. Although Fidelity located a notice of pendency of the 1996condemnation proceeding -- which had expired after three years in 1999 -- it was recorded and indexed against differentproperties with different block and lot numbers, no notice of pendency was found to have been recorded against Lot127.In addition to the four
 [***7]
 searches, in January 2005, the City's Department of Health and Mental Hygieneserved defendant Brooklyn LLC with an Order finding defendant in violation of various health code provisions. TheOrder stated that "City records show that [Brooklyn is] the owner or agent of: the Property", and imposed a fine againstdefendant Brooklyn LLC. The City's Department of Finance, after the condemnation in 1996, continued treating Lot127 as though it were privately owned by issuing tax liens against the property, and then selling said tax lien. The factthat the City never recorded its interest in the Property is undisputed.In its opposition to defendants claim that all four of its searches were diligent searches, plaintiff opposesdefendants' motion for summary judgment on two grounds: first, that Brooklyn LLC had actual knowledge of the City'sownership interest in Lot 127, at the time Lot 127 was conveyed to it in 2004 by Pergol. Plaintiff alleges that the titlePage 326 Misc. 3d 1215(A), *1215A; 907 N.Y.S.2d 99, **99;2009 N.Y. Misc. LEXIS 3592, ***3; 2009 NY Slip Op 52722(U)

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