The Appellate Division recently reminded us of the importance of investigating a no consideration deed prior to issuing a mortgage to the titleholder.
In 2386 Hempstead, Inc. v. 182 St., Inc., the Appellate Division held that the no consideration deed constituted notice of a potential previous fraud in the title spurring a duty to make inquiry concerning the circumstances of the transaction at issue.
By failing to make such inquiry, the lender lost its status as a bona fide encumbrancer for value and therefore, jeopardized its status as a prior lienholder, who gets paid first in a foreclosure action.
