The First Department, in a full-fledged opinion by Justice Renwick, over a comprehensive dissenting opinion, determined plaintiff could foreclose on a mortgage despite the initial fraudulent transfer of the property and the absence of the note:
…[P]laintiff Peter Weiss seeks, among other things, a foreclosure and sale based on a Mortgage and Note Extension and Modification Agreement (CEMA) executed by defendant Edward Phillips. Plaintiff lent $500,000 to borrowers who purported to own the real estate property they sought to mortgage. The borrowers signed a note, in which they promised to pay the loan, and a mortgage, in which they gave the plaintiff/lender a security interest in the property they purported to own. The borrowers, however, acquired the property by fraudulent means. After the rightful owner, Phillips, reacquired the property, he executed the CEMA with the individual lender, Weiss. Pursuant to the CEMA, Phillips acknowledged Weiss’s rights under the note and mortgage; and, Weiss agreed to forbear from foreclosing on the subject property for a year, presumably to permit Phillips to obtain refinancing.
… [W]e find that Weiss’s interest in the property as a mortgagee was not rendered null and void because his borrowers, the mortgagors, had acquired the property by fraudulent means. In addition, we find that Weiss met his burden for summary judgment, on his claim for foreclosure and sale, by submitting the Mortgage and CEMA, along with undisputed evidence establishing both the existence of the note, which obviated the need to submit the note as proof that Weiss had the right to foreclose, and the nonpayment. * * *
UCC 3-804 allows one to maintain an action as a “holder” on a promissory note even though the instrument has been lost or destroyed. The section does not apply here where it is established that plaintiff has the right to sue on the note as the undisputed “holder” of the note. * * *
Forged deeds and/or encumbrances are those executed under false pretenses, and are void ab initio … . The interests of subsequent bona fide purchasers or encumbrancers for value are thus not protected under Real Property Law § 266 when their title is derived from a forged deed or one that is the product of false pretenses … . In contrast, a fraudulently induced deed is merely voidable, not void … . Weiss v Phillips, 2017 NY Slip Op 08209, First Dept 11-21-17
FORECLOSURE (DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/REAL PROPERTY LAW (DEEDS, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/UNIFORM COMMERCIAL CODE (FORECLOSURE, HOLDER OF THE NOTE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/HOLDER (NOTE, UNIFORM COMMERCIAL CODE, FORECLOSURE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/DEEDS (VOIDABLE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))