GENESIS FINANCIAL INC v. COMMONWEALTH LAND TITLE INSURANCE COMPANY (2025)

MEMORANDUM AND ORDER

Appeal from an order of the Supreme Court (Martin Auffredou, J.), entered September 28, 2023 in Warren County, which, among other things, granted defendant's motion for summary judgment dismissing the complaint.

On June 30, 2005, Charles Cefalu, acting on behalf of The Lofts on South, LLC, purchased real property located in the City of Glens Falls, Warren County from its original owner.  The original owner received a partial cash payment toward the purchase price and accepted a note for the remainder of said price, secured by a mortgage on the property.  The same day, Cefalu, on behalf of The Lofts on South, executed a second note and mortgage and delivered it to Adirondack Real Estate Holdings, Ltd. (hereinafter Adirondack).  Adirondack then sought to protect its interest in the subject property, and that of its successors and assignees, with a lender's title insurance policy from defendant.  On July 7, 2005, Cefalu caused the mortgage documents held by the original owner and by Adirondack to be recorded in the Warren County Clerk's office.  Then, in December 2005, Adirondack assigned its note and mortgage to plaintiff, representing that its mortgage lien had first priority.

The original owner commenced an action in 2009 seeking to foreclose on his mortgage (hereinafter the foreclosure action), alleging, as relevant here, that his mortgage was superior to the mortgage then held by plaintiff.  As that action remained pending, plaintiff commenced the instant action seeking to recover damages allegedly caused by defendant's failure to represent plaintiff's interest in the foreclosure action, as well as for indemnity under the terms of the title insurance policy.  The foreclosure action proceeded to a nonjury trial, after which Supreme Court (Krogmann, J.) determined that the mortgage held by the original owner was entitled to higher priority than any interest then held by plaintiff.¹  Thereafter, defendant moved for summary judgment in the instant action, seeking dismissal of the complaint based on the alleged invalidity of the Adirondack mortgage which, defendant argued, also rendered the title insurance policy invalid.  Plaintiff opposed and cross-moved for summary judgment.  Supreme Court (Auffredou, J.) granted defendant's motion, denied plaintiff's cross-motion and dismissed the complaint.  Plaintiff appeals.

Although this appeal involves a summary judgment motion, the pertinent facts are not in dispute and, as such, this case presents a question of law (see Mills v. Chauvin, 103 A.D.3d 1041, 1045, 962 N.Y.S.2d 412 [3d Dept. 2013]).  As relevant here, a title insurance policy operates to protect against encumbrances or defects that cloud title in real property and cause loss to the insured party's interest in such property (see Insurance Law §§ 1113[a][18];  6401[b];  L. Smirlock Realty Corp. v. Title Guar. Co., 52 N.Y.2d 179, 187–188, 437 N.Y.S.2d 57, 418 N.E.2d 650 [1981];  Aubuchon Realty Co. v. Fidelity Natl. Tit. Ins. Co. of N.Y., 295 A.D.2d 725, 727, 743 N.Y.S.2d 626 [3d Dept. 2002]).²  A mortgage conveys “an interest in real property as security for performance of an obligation” (Black's Law Dictionary [12th ed 2024], mortgage;  accord Cancilla v. O'Rourke, 232 A.D.3d 1175, 1177, 223 N.Y.S.3d 324 [3d Dept. 2024]), and a mortgage lien is a valid interest insurable by title insurance (see Mayers v. Van Schaick, 268 N.Y. 320, 323, 197 N.E. 296 [1935];  see e.g. Zelber v. Lewoc, 6 A.D.3d 1043, 1045, 776 N.Y.S.2d 134 [3d Dept. 2004]).  As with other contracts, the conveyance of a mortgage must be supported by valid consideration (see Kommel v. Herb–Gner Constr. Co., 256 N.Y. 333, 337, 176 N.E. 413 [1931];  Wells Fargo Bank, N.A. v. Rottner, 128 A.D.3d 1199, 1201, 10 N.Y.S.3d 645 [3d Dept. 2015];  see also Apfel v. Prudential–Bache Sec., Inc., 81 N.Y.2d 470, 476, 600 N.Y.S.2d 433, 616 N.E.2d 1095 [1993];  Restatement [Second] of Contracts § 71).³  Where a party has not tendered valid consideration in exchange for a mortgage lien, a mortgage has not been formed, and that party has not acquired an interest in the property (see Kommel v. Herb–Gner Constr. Co., 256 N.Y. at 337, 176 N.E. 413).

Here, it is uncontroverted that there was no obligation or debt underlying the Adirondack mortgage and, consequently, said mortgage lacked consideration (see Tornatore v. Bruno, 12 A.D.3d 1115, 1117, 785 N.Y.S.2d 820 [4th Dept. 2004];  Adirondack Bank v. Simmons, 210 A.D.2d 651, 653, 619 N.Y.S.2d 383 [3d Dept. 1994]).  Under the circumstances presented herein, this fact is dispositive.  Adirondack failed to tender valid consideration, thus a valid mortgage never formed, and Adirondack never obtained a mortgage lien over the subject property.  As Adirondack possessed no insurable interest in the property at the time, it could not have validly obtained title insurance from defendant (see Fidelity Natl. Tit. Ins. Co. of N.Y. v. Consumer Home Mtge., Inc., 272 A.D.2d 512, 514, 708 N.Y.S.2d 445 [2d Dept. 2000];  Sher v. Luxury Mortg. Corp., 2012 WL 5869303, *8, 2012 U.S. Dist LEXIS 165039, *25-26 [D. Md. 2012];  Fidelity Nat. Title Ins. Co. v. Cole Taylor Bank, 878 F.Supp.2d 453, 458 [S.D.N.Y. 2012];  Pacific Am. Constr. v. Security Union Title, 1999 UT 87, ––––, 987 P.2d 45, 47 [Utah 1999];  Gerrold v. Penn Title Ins. Co., 271 N.J. Super. 50, 54, 637 A.2d 1293, 1295–1296 [N.J. App.Div.1994]).

Adirondack's subsequent assignment of the purported mortgage to plaintiff is of no consequence.  As Adirondack's assignee, plaintiff is subject to any defenses that would have prevailed against Adirondack, including the lack of consideration necessary for the formation of a mortgage and the absence of any interest to which a title insurance policy could have attached (see Hammelburger v. Foursome Inn Corp., 54 N.Y.2d 580, 586, 446 N.Y.S.2d 917, 431 N.E.2d 278 [1981];  Kommel v. Herb–Gner Constr. Co., 256 N.Y. at 337, 176 N.E. 413;  Fidelity Natl. Tit. Ins. Co. of N.Y. v. Consumer Home Mtge., 272 A.D.2d at 514, 708 N.Y.S.2d 445).  Therefore, Supreme Court properly granted summary judgment in favor of defendant and dismissed the complaint.  Plaintiff's remaining contentions, to the extent not expressly addressed herein, have been examined and found to lack merit.

ORDERED that the order is affirmed, with costs.

FOOTNOTES

1.   Supreme Court also noted that the record made clear that Adirondack had not given consideration in exchange for its mortgage.

2.   A title insurance policy protects against defects in title to the land, not the land itself or the debt underlying an interest in the property (see Insurance Law §§ 1113[a][18];  6401[b];  L. Smirlock Realty Corp. v. Title Guar. Co., 52 N.Y.2d at 187–188, 437 N.Y.S.2d 57, 418 N.E.2d 650;  see also Bank of Miami Beach v. Fidelity & Cas. Co. of N.Y., 239 So.2d 97, 99 [Fla. 1970]).

3.   Generally, a mortgage is supported by valid consideration where it is given to secure an underlying obligation or debt (see e.g. O'Brien v. Fleckenstein, 180 N.Y. 350, 353, 73 N.E. 30 [1905];  Kawai Am. Corp. v. Hilton, 205 A.D.2d 1021, 1022, 613 N.Y.S.2d 989 [3d Dept. 1994], lv dismissed 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 [1996];  Blueberry Invs. Co. v. Ilana Realty, Inc., 184 A.D.2d 906, 908, 585 N.Y.S.2d 564 [3d Dept. 1992];  see also Sherwood v. Brock, 65 A.D.3d 738, 739, 884 N.Y.S.2d 793 [3d Dept. 2009]).

Clark, J.P.

Reynolds Fitzgerald, Ceresia, McShan and Powers, JJ., concur.