Adam Leitman Bailey, P.C. Uncovers and Negotiates Equitable Lien for Insured in Foreclosure Action and Obtains Settlement Check for Insured at the Closing Table
In 2008 when a borrower defaulted on her mortgage payments, the lender commenced what it believed would be a routine residential foreclosure action in Supreme Court, Suffolk County. However, the case quickly took a complicated turn when the previous owner’s heirs filed a third-party complaint against the lender. The heirs claimed that the borrower improperly transferred the premises to herself and that she had no authority to give the mortgage. They sought vacatur of the deed and discharge of the mortgage.
The borrower did not appear in the action. Adam Leitman Bailey, P.C. was brought in to defend against the third-party plaintiffs’ claims.
The deceased passed away in 2004, leaving a last will and testament. In 2005, following a petition by the borrower, the will was probated in the Surrogate’s Court, Suffolk County. The will designated the borrower as the executrix of the deceased’s estate. The will also designated the borrower as the trustee of a certain trust created under the will. The third-party plaintiffs were named beneficiaries under the will. The will expressly gave the borrower, as executrix and trustee, the power to sell the premises. In July of 2006, the borrower transferred title to the premises from “the borrower as trustee pursuant to letters of trusteeship under the will of the deceased” to the borrower, individually. No consideration was cited in the deed. On the same day, the borrower gave a mortgage to a bank, secured by the premises for $125,000. In July of 2007, the borrower refinanced and gave a mortgage to the insured secured by the premises for $250,000.
Adam Leitman Bailey, P.C.’s investigation and research confirmed that the borrower’s self dealing rendered her deed to herself voidable. Because the lender was on inquiry notice regarding the self-dealing via the face of the deed, which clearly indicated that the borrower had, in her capacity as executrix, conveyed the premises to herself in her individual capacity, the bank lacked the bona fides necessary to avoid the natural consequences of voiding that deed, to wit, the avoidance of its mortgage.
Following the Money
Realizing that the lender’s lien could be wiped out entirely, Adam Leitman Bailey, P.C. undertook a detailed investigation into the flow of the funds of the original loan and the lender’s loan proceeds to ascertain whether expenditure of the funds would support an equitable lien in favor of the lender. An equitable lien could provide a lender with a remedy if the lender can demonstrate that its loan proceeds were used to make improvements, repairs or other expenditure that permanently increases the value of the premises. Adam Leitman Bailey, P.C. served subpoenas for the borrower’s several bank accounts, which led to the discovery of additional bank accounts and information and the identity of a contractor who performed work on the subject premises. The team then subpoenaed and interviewed the contractor and followed the paper trail to ensure that every penny was accounted for. Adam Leitman Bailey, P.C. uncovered that approximately $85,000 of the loan proceeds were traceable to expenditures on the premises.
Adam Leitman Bailey, P.C. aggressively pursued and negotiated the equitable lien and obtained a concession of over $93,000 from the third-party plaintiffs. Ultimately the premises were sold to an independent third-party buyer and the lender received a check for the full negotiated amount. By analyzing the merits of the case early on and thinking outside the box, Adam Leitman Bailey P.C. spared the lender from a protracted and expensive discovery process and trial where there was a likelihood that the lender’s entire lien would be wiped out.
Therefore, Adam Leitman Bailey P.C. was able to rescue the lender from what would have been a total loss.
Vladimir Mironenko of Adam Leitman Bailey, P.C. represented the lender.