We’re disappointed that the legal malpractice question takes the back seat in an Appellate Division decision, but in Weiss v Phillips 2017 NY Slip Op 08209 Decided on November 21, 2017
Appellate Division, First Department Renwick, J. whether Phillips has a claim against his attorney is a question for the future.
“In this case, plaintiff Peter Weiss seeks, among other things, a foreclosure and sale based [*2]on a Mortgage and Note Extension and Modification Agreement (CEMA)[FN1] executed by defendant Edward Phillips. Plaintiff lent $500,000 to borrowers who purported to own the real estate property they sought to mortgage [FN2]. The borrowers signed a note, in which they promised to pay the loan, and a mortgage, in which they gave the plaintiff/lender a security interest in the property they purported to own. The borrowers, however, acquired the property by fraudulent means. After the rightful owner, Phillips, reacquired the property, he executed the CEMA with the individual lender, Weiss. Pursuant to the CEMA, Phillips acknowledged Weiss’s rights under the note and mortgage; and, Weiss agreed to forbear from foreclosing on the subject property for a year, presumably to permit Phillips to obtain refinancing.
We find that the motion court properly granted Weiss summary judgment. Unlike the dissent, under the circumstances of this case, we find that Weiss’s interest in the property as a mortgagee was not rendered null and void because his borrowers, the mortgagors, had acquired the property by fraudulent means. In addition, we find that Weiss met his burden for summary judgment, on his claim for foreclosure and sale, by submitting the Mortgage and CEMA, along with undisputed evidence establishing both the existence of the note, which obviated the need to submit the note as proof that Weiss had the right to foreclose, and the nonpayment.”
“In this case, the complaint seeks a foreclosure and sale based on the CEMA and the mortgage encumbering the subject property. As indicated, under the CEMA, as the “new owner,” Phillips ratified and affirmed all the terms of the note and mortgage and warranted that there were no deductions, counterclaims, defenses, and/or setoffs to any obligations under the note. When the CEMA’s extension period expired, without complete payment, Weiss commenced this action. Under these circumstances, Weiss established the allegations of the complaint by submitting the CEMA and the mortgage contract, along with unchallenged [*5]deposition testimony of the existence of the note and nonpayment.
Unlike the dissent, we do not view this action as a typical mortgage foreclosure action. In a typical mortgage foreclosure transaction, a prima facie case is based on production of the unpaid note and mortgage, which establishes that the plaintiff is entitled to foreclose on the unpaid note. A prima facie case is established here, however, by plaintiff’s submission of the mortgage and the CEMA, in which Phillips acknowledges the existence and validity of the unpaid note and mortgage, as well as the deposition testimony in which the existence of the note is unchallenged (see Seaway Capital Corp. v 500 Sterling Realty Corp., 94 AD3d 856 [2d Dept 2012]).
We are not persuaded by the dissent’s argument that UCC 3-804 mandates a different result. As fully explained below, the dissent takes UCC 3-804 out of context. UCC 3-804 allows one to maintain an action as a “holder” on a promissory note even though the instrument has been lost or destroyed. The section does not apply here where it is established that plaintiff has the right to sue on the note as the undisputed “holder” of the note.[FN5]“
“To be clear, a deed may be cancelled because it is void or because it is voidable. The difference, however, between a void deed and a voidable deed is important under the law because it affects a party’s ability to defend against a future purchaser or encumbrancer for value. A void real estate transaction is one where the law deems that no transfer actually occurred (Faison v Lewis, 25 NY3d 220, 225 ). Accordingly, if the deed is void, it does not pass title and cannot be enforced even if title is later acquired by a bona fide purchaser (id.; ABN AMRO Mtge. Group, Inc. v Stephens, 91 AD3d 801, 803 [2d Dept 2012]). Similarly, a lender who takes a mortgage to a property subject to a void deed does not have anything to mortgage, so the lender’s mortgage is invalid as well (Cruz v Cruz, 37 AD3d 754 [2d Dept 2007]; Yin Wu v Wu, 288 AD2d 104, 105 [1st Dept 2001]). In contrast, a voidable real estate transaction is one where a transfer is deemed to have occurred, but can be revoked. In that situation the deed is only voidable (Faison v Lewis, 25 NY3d at 225).
The question becomes whether the deed by which Welch-Ford and Smith acquired the subject real estate was a void deed or a voidable deed. Forged deeds and/or encumbrances are those executed under false pretenses, and are void ab initio (see Marden v Dorthy, 160 NY 39 ; GMAC Mtge. Corp. v Chan, 56 AD3d 521, 522 [2d Dept 2008]; Cruz v Cruz, 37 AD3d 754). The interests of subsequent bona fide purchasers or encumbrancers for value are thus not protected under Real Property Law § 266 [FN7] when their title is derived from a forged deed or one that is the product of false pretenses (see Ameriquest Mtge. Co. v Gaffney, 41 AD3d 750 [2d Dept 2007]; LaSalle Bank Natl. Assn. v Ally, 39 AD3d 597, 599-600 [2d Dept 2007]). In contrast, a fraudulently induced deed is merely voidable, not void (see Marden v Dorthy, 160 NY at 150; Dalessio v Kressler, 6 AD3d 57, 61 [2d Dept 2004]; Yin Wu v Wu, 288 AD2d at 105).”