Is a mortgagee a bona fide purchaser in the situation where apparent discrepancies existed between affidavits of zero-consideration, the HUD-1 form, and the closing checks?

This Court holds that a genuine issue of material fact exists as to whether the mortgagee was a bona fide purchaser due to the discrepancies in the closing documents.

Plaintiff alleges that on or about April 10, 2005, title to the premises which is the subject of this action (the Property) was transferred from defendant Hemant Rambaran (Hemant) to himself and defendant Baldeo both at 50% ownership. On or about August 10, 2005, Baldeo and Hemant obtained a loan in the amount of $302,250.00 from Freemont Investment and Loan (Freemont). In connection with the loan Baldeo and Hemant executed a note and as collateral security executed a mortgage for Freemont. It is undisputed that the note and mortgage was not recorded. Furthermore, Freemont admits that it not currently in possession of the mortgage documents. [*2]

Thereafter on March 30, 2007, Hemant executed a deed purportedly conveying all of his right title and interest to the premises to defendants Seema and Sushma, his daughters. The deed was recorded on March 30, 2007. On March 30, 2007 Seema and Sushma executed a note and mortgage for $423,750.00 secured by the Premises in favor of MERS as nominee for Delta Funding Corporation (Delta). The mortgage was transferred from MERS as nominee for Delta to HSBC.

Plaintiff alleges that Hemant's transfer to his daughters was fraudulent and that HSBC was or should have been on notice of the fraudulent transfer and therefore Freemont's mortgage should have primacy. In support of this position plaintiff relies upon two affidavits delivered at the March 30, 2007, closing in which Hemant states that he has received zero consideration for the transfer of the premises, that the transfer was between family members and two transfer tax documents which state that the consideration for the transfer was $0. In contrast to those documents, the HUD-1 form states that Hemant received $296,000.00 in consideration for the transfer. Lastly, plaintiff asserts that the checks issued at the closing were endorsed to parties other than Hemant and his daughters, further casting a suspicious light on the transfer.^[FN1]

New York is a "race-notice" state as provided in NY RPL � 291: "A conveyance . . .may be recorded. . .Every such conveyance not so recorded is void as against any person who subsequently purchases or . . contracts to purchase...the same real property in good faith and for valuable consideration, from the same vendor...and whose conveyance...or contract is first duly recorded..." Essentially there are two basic aspects to the statute. First, one who records will have priority over subsequent claimants, whether they have recorded or not. Second, one who records, without notice of an unrecorded prior claimant, will also have priority. See NY RPL � 291; Mortgage Liens in New York � 10:3 et. seq.

However, there are several exceptions carved out of this general rule. For example, a prior recorded mortgage would lose priority to an unrecorded mortgage if the mortgagee had notice, actual or constructive of such a conveyance. If a purchaser has knowledge of any fact, sufficient to put him on inquiry as to the existence of some right or title in conflict with that he is about to purchase, he is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty if a degree of negligence equally fatal to his claim, to be considered a bona fide purchaser. Maiorano v. Garson, 886 N.Y.S.2d 190 [2d Dep't 2009] citing Williamson v. Brown, 15 NY 354, 362 (internal citations omitted).

On a summary judgment motion the court must view the evidence in the light most favorable to the party opposing the motion, giving that party the benefit of every reasonable inference and determine whether there are any triable issues of fact outstanding. Branham v. Loews Orpheum Cinemas, Inc., 8 NY3d 931 [2007]. The court must determine if the [*3]moving party's papers justify holding as a matter of law that the "cause of action or defense has no merit." Marine Midland Bank, N.A. v. Dino & Artie's Automatic Transmission Co., 168 AD2d 610 [1990]. It is well established that summary judgment is a drastic remedy that should not be granted where there is any doubt as to the existence of a material issue of fact or where the issue is arguable. Stillman v. Twentieth Century-Fox Film Corp., 3 NY2d 395 [1957].

Initially, a summary judgment movant has burden to set forth evidentiary facts sufficient to entitle that party to a judgment as a matter of law, tendering sufficient evidence to eliminate any material issue of fact from the case, and that showing must be made by producing evidentiary proof in admissible form. Santanastasio v. Doe, 301 AD2d 511 [2003]. Generally, a party does not carry its burden in moving for summary judgment by pointing to gaps in its opponent's proof, but must affirmatively demonstrate the merit of its claim or defense. Dalton v. Educational Testing Service, 294 AD2d 462 [2002].

The defendant, HSBC moves for dismissal on the grounds that the defendant's purported lien was not recorded at the time that HSBC took a mortgage on the subject property. HSBC asserts that it had no knowledge, actual or constructive of the purported lien and therefore a bona fide good faith purchasers/encumbrancers and that the mortgage which they hold has priority.^[FN2]

Plaintiff, in opposition to the motion contends that HSBC is not a bona fide purchaser in good faith because, as discussed above, the closing documents associated with the transfer of the property between Hemant and his daughters conflict. Plaintiff further asserts that the contradiction between the documents raised HSBC's duty to inquire as to whether the transfer was a fraudulent transfer designed to evade Hemant's creditors.This Court holds that the discrepancies in the closing documents were sufficient to put HSBC on notice to further inquire as to the bona fides of the transaction. No evidence has submitted that HSBC engaged in any additional investigation in light of the discrepancies. Rather, it seems that HSBC simply pushed the documents through without the critical eye which is required in these transactions. Gone are the days in which closing documents are merely meant to be shuffled and stacked. A lending institution has an affirmative duty to inquire into the bona fides of the documents, prior to taking mortgage [*4]on a property. If they fail in that duty their status as a bona fide purchaser is threatened. See, Southwell v. Middleton, 17 Misc 3d 1129(A) [Sup. Kings. 2007].^[FN3]

Accordingly, the motion is denied.

This constitutes the decision and order of the court.

J.S.C.