Critical Real Estate Decision: Substance Over Form in Mortgage Documentation

This week we wanted to draw your attention to an interesting decision out of the Appellate Division, Second Department, which affirmed a Lower Court’s Order and imposed an Equitable Mortgage upon Real Property notwithstanding that the recorded mortgage failed to include a Legal Description of the mortgaged property and the last deed of record included a defective legal description. 
The relevant facts of, as well as a link to, the case are set forth below.

On June 30, 2006, the defendant Gloria Alleyne (hereinafter “Alleyne”) obtained the deed to the property known as 369 East 31st Street, Brooklyn, NY 11226 (the “2006 Deed”).  The Legal Description contained in the 2006 Deed was defective in that the course descriptions did not match prior recorded deeds. Simultaneously with the acquisition of the property, Alleyne executed a mortgage in the amount of $486,000 in favor of Wells Fargo Bank, N.A. (hereinafter “Wells Fargo”), with the subject premises as security (the “Wells Fargo Mortgage”). The Wells Fargo Mortgage did not include a legal description of the property, but did reference and identify the property by address as 369 East 31st Street, Brooklyn, NY 11226.   Thereafter, the Wells Fargo Mortgage was assigned to the plaintiff, US Bank National Association.
 
Subsequently, by deed dated November 19, 2013 (the “2013 Deed”), Alleyne conveyed the property to the Defendant, CMP Management Plus Corp. (hereinafter “CMP”) which 2013 Deed contained the same defective Legal Description of the property in the 2006 Deed.  US Bank National Association, upon discovering that the recorded Wells Fargo Mortgage failed to include a legal description of the property, commenced an action in July 2014 seeking, among other relief, an equitable mortgage on the property noting that “it’s security interest in the property was imperiled by the lack of a legal description” (citation omitted).  During the litigation, US Bank National Association made a motion for summary Judgment against CMP seeking a declaration that the mortgage validly encumbered the property notwithstanding the issues related to the defective and/or missing Legal Descriptions in the 2006 & 2013 Deeds and the Wells Fargo Mortgage.  By order dated May 23, 2018, the Supreme Court granted that branch of US Bank National Association’s motion which was for summary judgment on the complaint insofar as asserted against CMP and declared that the plaintiff had a first priority equitable lien in the amount of $486,000 against the property; with the metes and bounds of the property confirmed by a prior recorded deed that included a correct Legal Description.
 
CMP appealed and the Appellate Court affirmed the Lower Court’s Order, holding that "New York law allows the imposition of an equitable lien if there is an express or implied agreement that there shall be a lien on specific property (Deutsche Bank Trust Co. Ams. v Cox, 110 AD3d 760, 761 [2013]; see M & B Joint Venture, Inc. v Laurus Master Fund, Ltd., 12 NY3d 798, 800 [2009]). While [a] court will impose an equitable mortgage where the facts surrounding a transaction evidence that the parties intended that a specific piece of property is to be held or transferred to secure an obligation, it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances" (Deutsche Bank Trust Co. Ams. v Cox, 110 AD3d at 761 [internal quotation marks and citation omitted]; see JP Morgan Chase Bank, N.A. v Bank of Am., 164 AD3d 565, 567 [2018]).
 
The Appellate Court further held that  the documentary evidence submitted by the plaintiff sufficiently established the existence of the loan, the intent that it be secured by the property, and the debtor's obligation to satisfy the debt by a date certain (see Federal Deposit Ins. Corp. v Five Star Mgt., 258 AD2d 15, 22 [1999]; see also CPLR 4522).

 You can view this case by clicking the link below: 
https://www.nycourts.gov/reporter/3dseries/2020/2020_06166.htm