NO GOOD DEED GETS UNDONE (a/k/a BAD DEEDS GET UNDONE)
Print Article- Posted on: Apr 1 2022
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“The purpose of a deed is to pass title to land; it is the appropriate method of making a voluntary transfer of real property in the lifetime of the grantor.” 43 N.Y. Jur. 2d Deeds § 1 (citation/footnote omitted). A deed that is forged “lacks the voluntariness of conveyance.” Faison v. Lewis, 25 N.Y.3d 220, 224 (2015) (citation omitted). Accordingly, a deed with a forged signature “holds a unique position in the law; a legal nullity at its creation is never entitled to legal effect because void things are as no things.” Faison, 25 N.Y.3d at 224 (citation, internal quotation marks and brackets omitted). The Court in Faison held that since a deed with a forged signature is “void ab initio” (that is, it has no legal effect from inception), a statute of limitations defense in unavailable. Faison, 25 N.Y.3d at 222.
The facts in Faison, a case that nicely explains the law on forged deeds, are interesting (and are simplified in this article for the purpose of clarity). Defendant Lewis legitimately came to own a one-half interest in real property located in Brooklyn, New York (the “Brooklyn Property”). Lewis’ mother, who inherited a one-half interest in the Brooklyn Property from Lewis’ grandmother, subsequently transferred that interest to Lewis by quitclaim deed. Lewis’ uncle inherited the other 50% interest. Thereafter, in 2001, Lewis recorded a “deed claiming to correct the prior deed” in which the uncle’s half interest was also conveyed to Lewis. If valid, the corrected deed would have conveyed to Lewis, the entire fee interest in the Brooklyn Property. However, the uncle’s signature was forged. Shortly after the corrected deed was filed, the uncle died. In 2003, plaintiff’s prior action to declare the corrected deed void due to the forged signature was dismissed because she was not the administrator of the uncle’s estate. In 2009, Lewis borrowed $269,000 from Bank of America and, in conjunction therewith, delivered to the bank a mortgage on the Brooklyn Property. In 2010, after being appointed administrator, plaintiff filed another action seeking to declare the corrected deed and the BoA mortgage “null and void” based on the alleged forgery. BoA answered the complaint, asserting a statute of limitations defense, and then moved, pursuant to CPLR 3211 (a) (5), to dismiss the complaint as untimely under CPLR 213 (8).
The Faison Court, explaining the difference between void and voidable deeds procured by fraud, stated:
A forged deed that contains a fraudulent signature is distinguished from a deed where the signature and authority for conveyance are acquired by fraudulent means. In such latter cases, the deed is voidable. The difference in the nature of the two justifies this different legal status. A deed containing the title holder’s actual signature reflects the assent of the will to the use of the paper or the transfer, although it is assent induced by fraud, mistake or misplaced confidence. Unlike a forged deed, which is void initially, a voidable deed, until set aside, has the effect of transferring the title to the fraudulent grantee, and being thus clothed with all the evidences of good title, may incumber the property to a party who becomes a purchaser in good faith.
Faison, 25 N.Y.3d at 224-25 (citations, internal quotation marks, ellipses and brackets omitted).
A forged deed “cannot convey good title” nor can one become a “bona fide purchaser of real estate … from one who never had any title….” Faison, 25 N.Y.3d at 224-25 (citations, internal quotation marks and brackets omitted). See also Wu v. Wu, 288 A.D.2d 104 (1st Dep’t 2001). Along the same lines, “no property shall be encumbered, including by a mortgagee, in reliance on a forged deed.” Faison, 25 N.Y.3d at 225-26 (citations omitted). The Court of Appeals held that a forged deed is void ab initio and not subject to a statute of limitations defense because “[t]hat legal status cannot be changed, regardless of how long it may take for the forgery to be uncovered.” Faison, 25 N.Y.3d at 226.
In Crispino v. Greenpoint Mortgage Corp., 304 A.D.2d 608 (2nd Dep’t 2003), husband and wife owned property in West Islip, New York (the “WI Property”). Husband was a principal and vice president of a mortgage bank (the “Bank”). Husband executed and delivered a mortgage on the WI Property as security for a loan given to him by the Bank. Prior mortgages on which wife was a co-obligor were satisfied from the proceeds of the loan. The mortgage was subsequently assigned to Greenpoint Mortgage Corp. A deed conveying wife’s interest in the WI Property to husband was recorded. After husband’s death, wife commenced suit to “set aside the deed as a forgery.” After a jury found that the deed was a forgery, supreme court “directed the cancellation of the deed and the mortgage.” “Greenpoint then moved, inter alia, pursuant to CPLR 4404(b), to set aside the decision on the ground that the plaintiff was estopped from challenging the validity of the mortgage, and ‘for a conclusion of law to the effect that Greenpoint is entitled to be subrogated to the rights of the holders of mortgages which were satisfied out of the loan proceeds.’” The Second Department, which affirmed the denial of Greenpoint’s motion, found that wife was not estopped from challenging the mortgage because there is no proof that she “consented to the encumbrance of her interest in the property by the mortgage,” “actively participated in the transaction or the negotiations pertaining to the subject mortgage” or that she “was aware of the forgery or ratified her husband’s actions”. Crispino, 304 A.D.2d at 609 (citations omitted).
The Crispino Court also rejected Greenpoint’s argument that it should be equitably subrogated to the rights of the prior mortgagees “to prevent [wife] from being unjustly enriched by her husband’s wrongdoing,” and stated:
as assignee of the mortgage, Greenpoint acquired no rights greater than those of the assignor, [Bank], and took the assignment of the mortgage subject to all defenses and counterclaims which the plaintiff had against the assignor. Since [Bank] participated in the forgery of the deed through its principal, [husband], the doctrine of unclean hands would bar [Bank] from entitlement to equitable subrogation. Hence, Greenpoint, which is subject to the same defense, is not entitled to be subrogated to the rights of the prior mortgagees.
Crispino, 304 A.D.2d at 609-10 (citations omitted).
A forged satisfaction of mortgage was at issue in JP Morgan Chase Bank, Nat. Ass’n v. Aspilaire, 188 A.D.3d 850 (2nd Dep’t 2020). Here, Aspilaire delivered a mortgage to Bank 1 and subsequently recorded a forged satisfaction with respect to same. Thereafter, Aspilaire sold the subject property to Brown, whose title report, due to the recorded satisfaction, uncovered no outstanding mortgages. Brown, in turn, delivered a note and mortgage on the subject property to Bank 2. For a while after the conveyance, Aspilaire continued to make mortgage payments to Bank 1, but stopped. Brown defaulted on his mortgage and Bank 2 foreclosed and purchased the property at the foreclosure sale. Thereafter, Bank 1 commenced an action against, inter alia, Bank 2 to foreclose its mortgage and to vacate the bogus satisfaction. Banks 1 and 2 moved for summary judgment. Supreme court determined that the satisfaction was forged. Nonetheless, supreme court denied Bank 1’s motion for summary judgment and granted Bank 2’s cross-motion, agreeing “with [Bank 2’s] contention that it was a bona fide encumbrancer, stating that a forged satisfaction does not preclude a subsequent good faith encumbrancer for value from securing priority.” JP Morgan, 188 A.D.3d at 852 (internal quotation marks omitted).
The Second Department reversed, holding that Bank 2 was not “protected by its status as a bona fide encumbrancer for value under Real Property Law § 266, since the satisfaction of mortgage executed and recorded before [Bank 2’s] issuance of a loan with respect to the subject property was determined to have been forged and was void, not merely voidable” because a “discharge or satisfaction of a mortgage is void at its inception when it is executed and recorded by one who has no interest in the mortgage.” JP Morgan 188 A.D.3d at 853 (citations omitted).
These issues were recently discussed by the Second Department in its March 30, 2022, decision in Selene Finance, L.P. v. Jones, but in the context of a forged power of attorney. In 2001, defendant Mentore executed a power of attorney appointing Nykian as her agent for real estate transactions. Thereafter, Mentore and defendant Jones purchased property in Brooklyn, New York, and were given a bargain and sale deed. On the same day, Jones and Nykian, acting as Mentore’s agent, borrowed $300,000 from Bank 1 and, in exchange, delivered a note and a mortgage on the property to Bank 1. The note and mortgage were assigned to Bank 2 shortly thereafter. In November of 2001, the power of attorney was recorded and in 2008 it was revoked by Mentore by delivering written notice of such revocation to Jones and Nykian. In 2009, pursuant to a forged power of attorney (the “2009 PoA”) that purportedly expanded Nykian’s powers, Nykian “conveyed” Mentore’s one-half interest in the property to Jones. Jones then borrowed $350,000 from Bank 2 (the “2009 Loan”) and delivered a mortgage to secure repayment of said loan (the “2009 Mortgage”). With some of the proceeds of the 2009 Loan from Bank 2, Jones fully repaid the outstanding loan to Bank 1 and a satisfaction of that obligation was recorded.
Thereafter, Jones and Nykian pleaded guilty to charges related to, inter alia, the forged 2009 PoA and the theft of Mentore’s 50% interest in the property. After the guilty pleas, the 2009 Mortgage was assigned and, ultimately, held by Bank 3. Jones executed a loan modification with Bank 3 by which she added $65,000 to the outstanding debt on the 2009 Loan. Jones claims that she advised Bank 3 of the “forged signature on the power of attorney, the subsequent invalid transfer of her interest in the subject property to Jones, and the convictions of Jones and Nykian.” Thereafter, Bank 3 assigned the loan to plaintiff, which “commenced this action against, among others, [Mentore] and Jones, seeking, inter alia, an equitable lien on the property with interest from February 28, 2009, and a judgment declaring that the plaintiff holds an equitable mortgage encumbering all of the defendants’ interests in the property.”
Mentore answered and asserted a fraud counterclaim. The “plaintiff moved for summary judgment striking [Mentore’s] answer and dismissing her counterclaims, or alternatively, for summary judgment declaring that its mortgage interest in at least one half of the subject property was valid and declaring that it had a priority equitable mortgage lien in the sum of $494,887.85.” Mentore opposed the motion and cross-moved for summary judgment.
Supreme court determined that the 2009 Mortgage and deed were void and should be extinguished because they were precured by fraud. However, because it determined that plaintiff did not perpetrate fraud in acquiring the mortgage, supreme court declared that plaintiff “had a priority equitable mortgage lien in the sum of $290,325.63, ‘such amount representing the pay-off amount of the [Bank 1] mortgage based upon principles of equitable subrogation….’”
The Second Department reversed to the extent that supreme court found in plaintiff’s favor, finding that Mentore “demonstrated her prima facie entitlement to judgment as a matter of law by submitting evidence in support of her cross motion which demonstrated that the 2009 [PoA] was forged, and that the 2009 deed was obtained by false pretenses and thus, was void.” (Citations omitted.) Plaintiff’s opposition failed to raise a triable issue of fact because “the fact that the defendant had not properly revoked the 2001 power of attorney at the time the 2009 deed was executed is irrelevant, as the 2009 deed explicitly referenced the 2009 power of attorney ‘being recorded simultaneously herewith.’”
Finally, “the plaintiff failed to establish its prima facie entitlement to judgment as a matter of law declaring that its mortgage interest in at least one half of the subject property was valid [because Mentore] established that the 2009 deed was obtained by false pretenses and is void [and, accordingly,] the mortgage based on that deed and subsequently assigned to the plaintiff is also void.”
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.