Nothing in the Documentation Submitted to the Lender Raised Any Questions About the Applicant’s Authority, as the Sole Member, to Enter the Mortgage on Behalf of Defendant Limited Liability Company—Therefore the Affirmative Defense Alleging the Mortgage Was Invalid Because there Were Undisclosed Members of the Limited Liability Company Was Properly Dismissed

In an action to foreclose a mortgage, the Second Department determined the defendants’ affirmative defense claiming the mortgage was invalid was properly dismissed. The defendants alleged the member of defendant limited liability company who applied for the mortgage, Botticelli, did not have the authority to enter the mortgage on behalf of the limited liability company because he was not the sole member. However, there was nothing in the documents submitted to the lender by Botticelli which raised questions about the existence of undisclosed members. Therefore the mortgagee was not under any obligation to make inquiries to ensure Botticelli had the proper authority and the mortgagee was a bona fide encumbrancer:

The operating agreement of the defendant Jericho Plaza, LLC (hereinafter the LLC), which was formed to build and sell new homes, provided that Silvia Cerrone held a 50% interest, that her son-in-law Giuliano Botticelli held a 25% interest, and that his father, Anthony Botticelli, held a 25% interest in the LLC. The LLC obtained a $600,000 loan, secured by a mortgage on the only property it owned. At the closing, Giuliano Botticelli presented documents indicating that he was the sole member of the LLC, and was authorized to execute the mortgage on its behalf. Thereafter, the plaintiffs commenced this foreclosure action against the LLC and others. Silvia Cerrone successfully moved to intervene. The LLC and Silvia Cerrone (hereinafter together the defendants) moved for summary judgment dismissing the complaint insofar as asserted against them, contending that the mortgage was invalid by reason of Cerrone’s undisclosed interest in the LLC, and the plaintiffs cross-moved for summary judgment dismissing the defendants’ affirmative defenses which were based upon the alleged invalidity of the mortgage.

A mortgagee is not a bona fide encumbrancer where, despite being aware of facts that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue, it fails to make such inquiries … . However, mortgagees “do not have a duty of care to ascertain the validity of the documentation presented by an individual who claims to have the authority to act on behalf of a borrower corporation or entity” … .

Here, the plaintiffs established their prima facie entitlement to judgment as a matter of law dismissing the defendants’ affirmative defenses which were based upon the alleged invalidity of the mortgage, by submitting evidence demonstrating that Giuliano Botticelli submitted documents at the closing which indicated that he was the sole member of the LLC, and had the authority to enter into the mortgage on its behalf. Moreover, the plaintiffs established, prima facie, that the circumstances presented would not lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue. 334 Corp. v Jericho Plaza, LLC,2015 NY Slip Op 03827, 2nd Dept 5-6-15