NY Property Rights: How Mental Capacity Affects Home Mortgages and Transfers

This week we wanted to draw your attention to an interesting, and what some may consider a surprising, decision out of the 2^nd Department wherein the Appellate Division affirmed a Lower Court’s Order that had denied a Lender’s motion for Summary Judgment seeking, among other relief, enforcement of its mortgage. The Order and Appellate Division’s affirmation were based, in part, on the determination that the Lender failed to provide evidentiary support refuting Plaintiff’s allegation that one of mortgagees was incompetent and, further that the Lender failed to provide proof that Lender was unaware of any facts alleging that the mortgagor was under undue influence at the time of transferring title or making the mortgage.
The relevant facts of, as well as a link to, the case are set forth below.

On or about April 7, 2010, the Plaintiffs’ mother, Olivia Marks, conveyed title to the subject property from herself, individually, to herself and the Defendant, Jaime Marks, as joint tenants with rights of survivorship. Olivia and Jaime thereafter obtained a loan on August 26, 2011from the Defendant/Appellant, Real Estate Mortgage Network, Inc. (the “Lender”), which loan was secured by a mortgage on the property. Olivia died on August 21, 2012, and, after her death, the Plaintiffs, Olivia’s children, commenced this action seeking to set aside the deed and cancel the mortgage alleging that Olivia was incompetent to enter into the deed and mortgage because she was suffering from Alzheimer’s disease and dementia at the time of the deed transfer and the mortgage transactions. The Plaintiffs further alleged that Jaime exercised undue influence over Olivia in having her execute the deed and mortgage. In the Lower Court, the lender moved for summary judgment dismissing the complaint on the ground that it was a bona fide encumbrancer for value whose interest was unaffected by the alleged undue influence from Jaime. The Lower Court denied Lender’s motion and the Lender appealed. In affirming the Lower Court’s Order, the Appellate Division, Second Department held:

“A mortgagee’s interest in the property is protected unless it has notice of previous fraud affecting the title of its grantor’” (citations omitted). “[A] mortgagee is under a duty to make an inquiry where it is aware of facts ‘that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue’” (citation omitted). “A mortgagee who fails to make such an inquiry is not a bona fide encumbrancer for value” (citation omitted).

“Here, the Appellant (Lender) failed to establish its prima facie entitlement to judgment as a matter of law on the ground that it was a bona fide encumbrancer for value. The Appellant failed to produce any evidentiary proof that affirmatively demonstrated that the decedent was not incompetent at the time of the relevant transactions. The Appellant also failed to establish that it did not have notice of the alleged fraud affecting the title to the property or that it was not aware of the facts regarding the decedents’ alleged incompetence that would trigger a duty to inquire into the circumstances of the subject transactions (citations omitted). Since the Appellant failed to establish its prima facie entitlement to judgment as a matter of law, we need not consider the sufficiency of the opposition papers (citations omitted).”

https://www.nycourts.gov/REPORTER/3dseries/2019/2019_02852.htm