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GA SUPREME COURT Rejects Bank’s Definition of “Duly Filed, Recorded, and Indexed” U.S. Bank v. GORDON

GA SUPREME COURT Rejects Bank’s Definition of “Duly Filed, Recorded, and Indexed” U.S. Bank v. GORDON


Supreme Court of Georgia.

Decided: March 25, 2011.

NAHMIAS, Justice.

The United States District Court for the North District of Georgia has certified a question to this Court regarding the 1995 Amendment to OCGA § 441-4-33. See Ga. L. 1995, p. 1076, § 1. The question is whether the 1995 Amendment

means that, in the absence of fraud, a security deed that is actually filed and recorded, and accurately indexed, on the appropriate county land records provides constructive notice to subsequent bona fide purchasers, where the security deed contains the grantor’s signature but lacks both an official and unofficial attestation (i.e., lacks attestation by a notary public and also an unofficial witness).

For the reasons that follow, we answer the certified question in the negative.

1. In October 2005, Bertha Hagler refinanced her residence through the predecessor-in-interest to U.S. Bank National Association (U.S. Bank) and granted the predecessor a first and a second security deed to her residence. The security deeds were recorded with the Clerk of the Fulton County Superior Court in November 2005, but the first security deed was not attested or acknowledged by an official or unofficial witness. According to the district court’s certification order:

Gordon, the Chapter 7 Trustee in Hagler’s bankruptcy case, sought to avoid or set aside the valid, but unattested, first security deed to the residence through the “strong-arm” power of Section 544 (a) (3) of the Bankruptcy Code. See 11 U.S.C. § 544 (a) (3). Gordon argued that under the proper interpretation of § 44-14-33 of the Georgia Code, a security deed that is not attested by an official and unofficial witness cannot provide constructive notice to a subsequent purchaser even if it is recorded. U.S. Bank argued, in opposition, that a 1995 amendment to § 44-14-33 changed the law to enable an unattested security deed to provide constructive notice. Gordon argued in response that the 1995 amendment served only to recognize constructive notice from a security deed with a “latently” defective attestation, meaning an irregular attestation that appears regular on its face; a deed with a “patently” defective attestation, meaning an attestation that is obviously defective on its face, would not provide constructive notice.

The bankruptcy court ruled in Gordon’s favor, concluding that, under the 1995 Amendment, a security deed with a facially defective attestation would not provide constructive notice, while a security deed with a facially proper but latently defective attestation would provide constructive notice. See Gordon v. U.S. Bank Natl. Assn. (In re Hagler), 429 BR 42, 47-53 (Bankr. N.D. Ga. 2009). Concluding that the issue involved an unclear question of Georgia law and that no Georgia court had addressed the issue after the 1995 Amendment, the district court certified the question to this Court. We conclude that the bankruptcy court properly resolved the issue.

2. OCGA § 44-14-61 provides that “[i]n order to admit deeds to secure debt . . . to record, they shall be attested or proved in the manner prescribed by law for mortgages.” OCGA § 44-14-33 provides the law for attesting mortgages:

In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers.

The second sentence of this Code section was added by the 1995 Amendment.

3. We first address Gordon’s contention that the 1995 Amendment does not apply at all to security deeds. He contends that only the first sentence of § 44-14-33, which expressly deals with attestation, is applicable to security deeds through § 44-14-61 and that, because the 1995 Amendment addresses constructive notice, it does not apply to security deeds. We disagree. The General Assembly chose to enact the 1995 Amendment not as a freestanding Code provision but as an addition to a Code provision clearly referenced by § 44-14-61. Moreover, “[t]he objects of a mortgage and security deed . . . under the provisions of the Code are identical — security for a debt. While recognizing the technical difference between a mortgage and security deed hereinbefore pointed out, this court has treated deeds to secure debts . . . as equitable mortgages.” Merchants & Mechanics’ Bank v. Beard, 162 Ga. 446, 449 (134 SE 107)Fair v. State, 288 Ga. 244, 252 (702 SE2d 420) (2010), so the placement of the amendment makes complete sense. Indeed, no reason has been suggested why the General Assembly would want the same type of recording to provide constructive notice for mortgages but not for security deeds. Accordingly, we conclude that the 1995 Amendment is applicable to security deeds. (1926). The General Assembly is presumed to have been aware of the existing state of the law when it enacted the 1995 Amendment, see

4. Turning back to the certified question, we note that the “recordation” that is deemed to provide constructive notice to subsequent purchasers clearly refers back to “duly filed, recorded, and indexed” deeds. U.S. Bank argues that a “dulyin fact filed, recorded, and indexed, even if unattested by an officer or a witness. We disagree. filed, recorded, and indexed” deed is simply one that is

Particular words of statutes are not interpreted in isolation; instead, courts must construe a statute to give “`”sensible and intelligent effect” to all of its provisions,'” Footstar, Inc. v. Liberty Mut. Ins. Co., 281 Ga. 448, 450 (637 SE2d 692)State v. Bowen, 274 Ga. 1, 3 (547 SE2d 286) (2001). In particular, “statutes `in pari materia,’ i.e., statutes relating to the same subject matter, must be construed together.” Willis v. City of Atlanta, 285 Ga. 775, 776 (684 SE2d 271) (2009). (2006) (citation omitted), and “must consider the statute in relation to other statutes of which it is part.”

Construing the 1995 Amendment in harmony with other recording statutes and longstanding case law, we must reject U.S. Bank’s definition of “duly filed, recorded, and indexed.” Its definition ignores the first sentence of § 44-14-33, which provides that to admit a security deed to record, the deed must be attested by or acknowledged before an officer, such as a notary public, and, in the case of real property, by a second witness. See OCGA § 44-2-15 (listing the “officers” who are authorized to attest a mortgage or deed). Other statutes governing deeds and mortgages similarly preclude recording and constructive notice if certain requirements are not satisfied. See OCGA § 44-2-14 (“Before any deed to realty or personalty or any mortgage, bond for title, or other recordable instrument executed in this state may be recorded, it must be attested or acknowledged as provided by law.”); OCGA § 44-14-61 (“In order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages”). Indeed, U.S. Banks’ construction of the 1995 Amendment contradicts OCGA § 44-14-39, which provides that “[a] mortgage which is recorded . . . without due attestation . . . shall not be held to be notice to subsequent bona fide purchasers.”

Thus, the first sentence of § 44-14-33 and the statutory recording scheme indicate that the word “duly” in the second sentence of § 44-14-33 should be understood to mean that a security deed is “duly filed, recorded, and indexed” only if the clerk responsible for recording determines, from the face of the document, that it is in the proper form for recording, meaning that it is attested or acknowledged by a proper officer and (in the case of real property) an additional witness. This construction of the 1995 Amendment is also consistent with this Court’s longstanding case law, which holds that a security deed which appears on its face to be properly attested should be admitted to record, see Thomas v. Hudson, 190 Ga. 622, 626 (10 SE2d 396) (1940); Glover v. Cox, 137 Ga. 684, 691-694 (73 SE 1068) (1912), but that a deed that shows on its face that it was “not properly attested or acknowledged, as required by statute, is ineligible for recording.” Higdon v. Gates, 238 Ga. 105, 107 (231 SE2d 345) (1976).

We note that at the time the 1995 Amendment was considered and enacted, the appellate courts of this State had “never squarely considered” whether a security deed with a facially valid attestation could provide constructive notice where the attestation contained a latent defect, like the officer or witness not observing the grantor signing the deed. Leeds Bldg. Prods. v. Sears Mortg. Corp., 267 Ga. 300, 301 (477 SE2d 565) (1996). The timing of the amendment suggests that the General Assembly was attempting to fill this gap in our law as the Leeds litigation worked its way through the trial court and the Court of Appeals before our decision in 1996. See Gordon, 429 BR at 50. We ultimately decided in Leeds that, “in the absence of fraud, a deed which, on its face, complies with all statutory requirements is entitled to be recorded, and once accepted and filed with the clerk of court for record, provides constructive notice to the world of its existence.” 267 Ga. at 302. We noted that Higdon remained good law, because in that case the deed was facially invalid, did “not entitle [the deed] to record,” and “did not constitute constructive notice to subsequent purchasers.” Leeds, 267 Ga. at 302. Because we reached the same result as under the 1995 Amendment, we did not have to consider whether the amendment should be applied retroactively to that case. See id. at 300 n.1.

Our interpretation of the 1995 Amendment also is supported by commentators that have considered the issue. See Frank S. Alexander, Georgia Real Estate Finance and Foreclosure Law, § 8-10, p. 138 (4th ed. 2004) (stating that “[a] security deed that is defective as to attestation, but without facial defects, provides constructive notice to subsequent bona fide purchasers”); Daniel F. Hinkel, 2 Pindar’s Georgia Real Estate Law and Procedure, § 20-18 (6th ed. 2011) (without mentioning deeds with facial defects, explaining that the 1995 Amendment to § 44-14-33 and Leeds “provide that in the absence of fraud a deed or mortgage, which on its face does not reveal any defect in the acknowledgment of the instrument and complies with all statutory requirements, is entitled to be recorded, and once accepted and filed with the clerk of the superior court for record, provides constructive notice to subsequent bona fide purchasers”); T. Daniel Brannan & William J. Sheppard, Real Estate, 49 Mercer L. Rev. 257, 263 (Fall 1997) (without mentioning deeds with facial defects, stating that the 1995 Amendment to § 44-14-33 resolves “the issue that was before the court in [Leeds]”). As noted by the bankruptcy court, if Hinkel and the law review authors thought that the 1995 Amendment altered longstanding law with regard to deeds containing facial defects as to attestation, they surely would have said so. See Gordon, 429 BR at 52-53.

Finally, it should be recognized that U.S. Bank’s interpretation of the 1995 Amendment to § 44-14-33 “would relieve lenders of any obligation to present properly attested security deeds” and “would tell clerks that the directive to admit only attested deeds is merely a suggestion, not a duty,” and this would risk an increase in fraud because deeds no longer would require an attestation by a public officer who is sworn to verify certain information on the deeds before they are recorded and deemed to put all subsequent purchasers on notice. Gordon, 429 BR at 51-52. Moreover, while “it costs nothing and requires no special expertise or effort for a closing attorney, or a lender, or a title insurance company to examine the signature page of a deed for missing signatures before it is filed,” U.S. Bank’s construction would “shift to the subsequent bona fide purchaser and everyone else the burden of determining [possibly decades after the fact] the genuineness of the grantor’s signature and therefore the cost of investigating and perhaps litigating whether or not an unattested deed was in fact signed by the grantor.” Id. at 52.

For these reasons, we answer the certified question in the negative.

Certified question answered. All the Justices concur.

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GA Supreme Court Affirms | Quiet Title, Forged Deeds Cannot Vest Title AURORA LOAN SERVICES, LLC v. Veatch

GA Supreme Court Affirms | Quiet Title, Forged Deeds Cannot Vest Title AURORA LOAN SERVICES, LLC v. Veatch

“[A] forged deed is a nullity and vests no title in a grantee. [Cit.] As such, even a bona fide purchaser for value without notice of a forgery cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.” Brock v. Yale Mortgage Co



Supreme Court of Georgia.

Decided: March 18, 2011.

HINES, Justice.

In this quiet title action, the trial court entered a final order ruling that fee simple title to the subject property was vested in John Macrelay Veatch (“Veatch”), as personal representative of the estate of Raymond Wesley Veatch, Jr., unencumbered by the security deed held by Aurora Loan Services, LLC (“Aurora”), and striking various deeds from the deed records of Fulton County. Aurora appeals, and for the reasons that follow, we affirm.

Elsie Veatch owned the subject property until her death in 1974; her sole heir was Raymond Wesley Veatch, Jr., Veatch’s father, who died on March 20, 2006. After his death, two forged deeds were recorded in the Fulton County deed records, purporting to convey title to the property to Antonio Simpson. One forged deed was styled “Quitclaim Deed,” purportedly executed on May 19, 2006 by Elsie Veatch, who had then been dead for 32 years; this purported deed was recorded on October 17, 2006. The other purported deed was styled “Executors Deed,” and was purportedly executed by Raymond Wesley Veatch, Jr., on March 15, 2006, a date on which he lay in a coma; it was recorded on November 6, 2006. After these forged deeds were executed and recorded, a warranty deed purportedly from Antonio Simpson to Darryl Matthews was recorded on November 8, 2006. Matthews then executed a security deed in favor of First Magnus Financial Corporation in connection with a loan for $187,500. The security deed was eventually assigned to Aurora.

On September 5, 2007, after Veatch discovered activity on the property and applied for, and was granted, letters of administration of the estate of Raymond Wesley Veatch, Jr., he filed in the Fulton County land records an affidavit stating that the Executor’s and Quitclaim deeds were false. He then filed in the superior court the present petition to quiet title. OCGA § 23-3-40 et seq. The trial court appointed a Special Master who concluded that Aurora was a bona fide purchaser for value. See Roop Grocery Co. v. Gentry, 195 Ga. 736, 745 (1) (25 SE2d 705) (1943). However, the trial court disagreed, finding that there was record notice that the forged deeds were fraudulent, and that in any event, a forged deed is a nullity and cannot convey title.

The trial court is correct. Aurora’s interest in the property is dependent upon the forged deeds made to Antonio Simpson. As the trial court noted, such a deed cannot convey title. “[A] forged deed is a nullity and vests no title in a grantee. [Cit.] As such, even a bona fide purchaser for value without notice of a forgery cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.” Brock v. Yale Mortgage Co., 287 Ga. 849, 852 (2) (700 SE2d 583) (2010). In that opinion, this Court specifically overruled prior precedent of this Court that extended “the bona fide purchaser for value doctrine to those acquiring title under a grantee in a forged deed.” Id. at 853 (2). Accordingly, it is of no moment whether the deed records provided notice of the forgeries at the time Matthews executed the security deed on which Aurora bases its claim; there was simply no title held by Simpson, Matthews, First Magnus Financial Corporation, or any subsequent assignee. Id. Accord, Second Refuge Church &c. v. Lollar, 282 Ga. 721, 726-727 (3) (550 SE2d 128) (2007). The trial court did not err in declaring title to be vested in Veatch, as personal representative of the estate of Raymond Wesley Veatch, Jr., unencumbered by the security deed held by Aurora.

Judgment affirmed. All the Justices concur.

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US BANK Tells Virginia BK Court MERS Web Site Would Have Been Enough for Constructive Notice of It’s Interest, NOT!!! In RE: TANEJA

US BANK Tells Virginia BK Court MERS Web Site Would Have Been Enough for Constructive Notice of It’s Interest, NOT!!! In RE: TANEJA

In re: VIJAY K. TANEJA et al., Chapter 11, Debtors.

Case No. 08-13293-SSM, (Jointly Administered).

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

March 15, 2011.

Andrew L. Cole, Esquire, Franklin & Prokopik, Baltimore, MD, Counsel for U.S. Bank National Association

H. Jason Gold, Esquire, Wiley Rein, LLP, McLean, VA, Chapter 11 trustee.

James Bruce Davis, Esquire, Bean, Kinney & Korman, P.C., Arlington, VA, Counsel for Virginia Commerce Bank.

John E. Rinaldi, Esquire, Walsh, Colucci, Lubeley, Emrich & Walsh, P.C., Prince William, VA, Counsel for Ann DiMiero and Marshall Vosteen


STEPHEN S. MITCHELL, Bankruptcy Judge

Before the court is the motion of Specialized Loan Servicing, LLC, as attorney in fact for U.S. Bank National Association, as trustee for Terwin Mortgage Trusts (“U.S. Bank”) to vacate an order entered more than a year ago approving the sale of real estate located at 4621 Holly Avenue, Fairfax, Virginia, free and clear of liens. U.S. Bank, whose deed of trust had been released prior to the bankruptcy filing by what appears to have been a false certificate of satisfaction, was not served with, or given notice of, the sale motion, and the proceeds of the sale (less escrowed sums to satisfy disputed mechanic’s liens) were paid to Virginia Commerce Bank on account of three deeds of trust securing loans it had made. The motion to vacate the sale order is opposed by the chapter 11 trustee; by Ann DiMiero and Marshall Vosteen, the purchasers of the property; and by Virginia Commerce Bank.


On June 9, 2008, Vijay K. Taneja (“the debtor”) and four companies controlled by him, including a mortgage loan originator known as Financial Mortgage, Inc. (“FMI”), filed voluntary petitions in this court for reorganization under chapter 11 of the Bankruptcy Code.[1] H. Jason Gold was appointed as chapter 11 trustee in all five cases, which are being jointly administered. On June 18, 2008, U.S. Bank filed a proof of claim (Claim No. 1) asserting a secured claim in the amount of $458,449.27. Attached to the proof of claim were copies of a deed of trust note and deed of trust executed by Taneja, both of which identified the collateral as real property located at 4621 Holly Avenue, Fairfax, Virginia. That same day, a “request for special notices and services [sic]” was filed. Although the docket entry states that the request was filed by “U.S Bank National Assciation [sic], as Trustee for Terwin Mortgage Trust 2005-12ALT, Asset-Backed Certificates, Series 2005-12ALT, without recourse, Specialize [sic] Loan Servicing, LLC,” the actual notice does not mention either U.S. Bank or Terwin and identifies only Specialized Loan Servicing, LLC, as the “creditor” and Moss Codilis, L.L.P. as its agent for service of notice. Aside from filing the proof of claim and request for notices, Specialized, U.S. Bank, and Terwin took no other action in the case with respect to the property, such as filing a motion for relief from the automatic stay.

Taneja acquired title to 4621 Holly Avenue by deed dated May 16, 2005. Contemporaneously with the purchase, deeds of trust were recorded securing a $480,000 loan and a $120,000 loan, both made by FMI. The deed of trust at issue here is dated eight days later (May 24, 2005). It secures $480,000 and contains language that the loan constitutes a refinance of an existing debt with the same lender. Like the original deed of trust, it identifies FMI as the lender and Mortgage Electronic Registration Systems, Inc. (“MERS”)—as nominee for the lender—as the beneficiary. The May 24, 2005, loan was immediately sold into the secondary market and was ultimately assigned to U.S. Bank as trustee for a securitized mortgage pool. No assignments of the deed of trust were recorded in the land records. However, U.S. Bank asserts that the identity of the current holder, or at least servicer, of the loan could be obtained from an Internet web site maintained by MERS using the “mortgage identification number” that appears on the first page of the deed of trust. In any event, in June and July 2005, Taneja, as president of FMI, signed two certificates of satisfaction purporting to release the deed of trust. Oddly, no release of the original (May 16, 2005) $480,000 deed of trust was recorded prior to the bankruptcy filing. Contemporaneously with the releases, Taneja obtained loans from Virginia Commerce Bank (“VCB”) secured by three deeds of trust against the property totaling $2,750,000.

On September 2, 2009, the trustee filed a motion to approve the sale of the property to DiMiero and Vosteen free and clear of liens for $800,000. The motion represented that the chapter 11 trustee had obtained a title report reflecting three VCB deeds of trust, two mechanic’s liens, and two deeds of trust in favor of FMI for which releases had been recorded with incorrect recording references for the original instruments. Notice of the motion was mailed or electronically transmitted to a number of parties, but not to Specialized.[2] On September 25, 2009, an order was entered approving the sale of the property to DiMiero and Vosteen free and clear of liens, with the order making a finding under § 363(m), Bankruptcy Code, that they were good faith purchasers. The order was amended on October 20, 2009, to address a criminal restitution lien that had been filed by the United States in connection with Taneja’s federal criminal conviction for money laundering, but the substantive provisions otherwise remained the same. The closing took place on November 3, 2009. In connection with the sale, someone—no one seems to know who—recorded a dummied-up certificate of satisfaction of the original (May 16, 2005) $480,000 deed of trust. The report of sale filed by the trustee reflects that $704,401 of the proceeds were paid to Virginia Commerce Bank and $40,465.86 into an escrow for the mechanic’s liens. After payment of commission and closing costs, there were no proceeds for the bankruptcy estate. The present motion to vacate was filed on November 24, 2010.



Rule 9024, Federal Rules of Bankruptcy Procedure, incorporates—with certain limitations not relevant here—Rule 60, Federal Rules of Civil Procedure. Rule 60 in turn allows a court to grant relief from a final judgment or order on various grounds, including that “the judgment is void.” Fed.R.Civ.P. 60(b)(4). As the Supreme Court has recently explained in the context of a bankruptcy court order,

[A] void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final. The list of such infirmities is exceedingly short; otherwise, Rule 60(b)(4)’s exception to finality would swallow the rule. “A judgment is not void,” for example, “simply because it is or may have been erroneous.” . . . Instead, Rule 60(b)(4) applies only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard.

United Student Aid Funds, Inc. v. Espinosa, 559 U.S. ___, 130 S.Ct. 1367, 1377, 176 L.Ed.2d 158 (2010) (internal citations omitted).


That the trustee’s failure to provide Specialized with notice of the proposed sale constitutes a serious procedural error is clear. Specialized requested copies of all notices, and the court’s order limiting notices in the case required that notice be sent to any party that had filed requests for notices. There is also a larger issue. Rule 6004(c) requires that a motion for authority to sell property free and clear of liens or other interests must “be served on the parties who have liens or other interests in the property to be sold.” By the time the motion to sell had been filed, the trustee had actual notice that Taneja had engaged in a number of fraudulent mortgage loan practices, including the fraudulent release of mortgage loans that had been sold into the secondary market. See HSBC Bank USA, N.A. v. Gold (In re Taneja), 427 B.R. 109 (Bankr. E.D. Va. 2010).[3] Given the variety and pervasiveness of Taneja’s fraudulent activity, it is astonishing, to say the least, that the trustee would rely solely on a title report in terms of giving notice to possible lien holders, and would not, for example, review the proofs of claim and other pleadings filed in the case to determine if there were parties other than those reflected in the land records with arguable claims. To be sure, the trustee’s strong-arm powers might well, as in HSBC, ultimately allow him to prevail over parties with unrecorded or falsely-released deeds of trust, but due process is not measured by expectations as to the final outcome but by adequate notice and an opportunity to be heard.


Be that as it may, relief under Rule 60(b)(4) vacating the sale order would be appropriate only if there were a reasonable likelihood that U.S. Bank—had it been properly served with the motion—could have successfully objected to the sale of the property free and clear of its lien. The answer seems clear that it could not. Section 363(f)(4) allows a trustee to sell property free and clear of an interest if “the interest is in bona fide dispute.” Given the recorded certificate of satisfaction, U.S. Bank’s lien interest was plainly in bona fide dispute. For that reason, a sale free and clear of its deed of trust could have been approved, with the lien of the deed of trust attaching to the proceeds of sale, thereby leaving for another day the merits of the claimed lien.

This, in turn, squarely raises the question of whether, under this court’s decision in HSBC v. Gold, the trustee could have avoided U.S. Bank’s falsely-released deed of trust under his strong-arm powers as a bona-fide purchaser for value. In HSBC, this court concluded that under Virginia law, a bona fide purchaser would prevail over the holder of a falsely-released deed of trust. U.S. Bank, however, argues that the availability of the MERS web site would have provided constructive notice of U.S. Bank’s interest in the supposedly-released loan, such that a bona fide purchaser could not have relied on the certificate of satisfaction. The court does not concur. No Virginia statute, and no reported decision in Virginia, has recognized a privately-maintained database—which is all the MERS web site is—as an extension of the land records system or as providing constructive notice of mortgage assignments. Nor is there any evidence that title examiners in Virginia, as a matter of custom or practice, review the MERS web site to verify the validity of recorded releases.

The only real difference, but nevertheless a significant one, between the noteholder in HSBC and U.S. Bank in this case is that the deed of trust securing the loan that was purportedly refinanced by the loan that U.S. Bank purchased had not yet been released of record at the time the bankruptcy case was filed. Under the Virginia doctrine of equitable subrogation, as recognized and applied by this court in Mayer v. United States (In re Reasonover), 236 B.R. 219, 231-32 (Bankr. E.D. Va. 1999), vacated and remanded on other grounds, 238 F.3d 414 (4th Cir. 2000) (unpublished table decision), op. on remand, 2001 WL 1168181, 2001 Bankr. LEXIS 2109 (Bankr. E.D. Va., April 16, 2001), U.S. Bank could have claimed the benefit of the May 16, 2005, deed of trust to the extent the loan it purchased had paid off the loan secured by the earlier, and still unreleased, deed of trust. On the present record, it is by no means certain that U.S. Bank could show that the loan it purchased actually paid off the earlier loan (or, for that matter, that the earlier loan had actually been made). In a number of other adversary proceedings filed by the trustee, it is alleged that Taneja, though FMI, operated what was essentially a Ponzi scheme, with the proceeds of new loans not necessarily going to pay off the prior loans on a particular parcel. But even if U.S. Bank might have an uphill battle establishing its equitable subrogation claim, elementary due process requires that it be given the opportunity to do so.


A determination that U.S. Bank’s due process rights were infringed when it was not given notice of the proposed sale does not, however, require that the sale itself be set aside. As noted, even if U.S. Bank had been given notice and had objected, the court could—and likely would—have approved a sale free and clear of U.S. Bank’s disputed lien. What would have been different is that the sale order would have expressly provided for all the liens, including U.S. Bank’s disputed lien, to attach to the proceeds of sale without alteration of priority, and further proceedings would have been set to adjudicate the validity and relative priority of those liens. That being the case, no basis has been shown for setting aside the sale to DiMiero and Vosteen or for calling into question their title to the property. This is particularly so given the finding of good faith made in the sale order. Under § 363(m), Bankruptcy Code, “[t]he reversal or modification on appeal of an authorization . . . of a sale . . . of property does not affect the validity of a sale . . . under such authorization to an entity that purchased . . . such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale . . . were stayed pending appeal.” Although § 363(m) speaks specifically of appeal and does not specifically address a motion to vacate a sale based on a failure to give adequate notice, the policy favoring the title of a purchaser at a bankruptcy sale is very strong, and only the most exceptional circumstances would justify setting such a sale aside. No such circumstances are present in this case.

Instead, the court determines that the appropriate remedy is to vacate only that portion of the sale order directing payment of the sales proceeds to VCB, and to grant relief from the sale order by providing that any non-avoidable lien that U.S. Bank may have shall attach to the proceeds of sale, whether or not subsequently disbursed by the trustee to VCB or other lien claimants. Such relief will be conditioned upon U.S. Bank promptly commencing an adversary proceeding to determine the validity, priority, and extent of its lien. VCB must obviously be made a party to the action, since a ruling establishing the validity of U.S. Bank’s lien would require the trustee to demand repayment from VCB of any sales proceeds previously paid to it.

A separate order will be entered consistent with this opinion.

[1] The four companies were Elite Entertainment, Inc., Case No. 08-13286-SSM; Financial Mortgage, Inc., Case No. 08-13287-SSM; NRM Investments, Inc., Case No. 08-13290-SSM; and Taneja Center, Inc., Case No. 08-13292-SSM.

[2] Notice of the motion was, however, sent to counsel representing U.S. Bank with respect to a different loan.

[3] The complaint in HSBC v. Gold—which outlined precisely the sort of fraud of which U.S. Bank appears to have been a victim—was filed on February 24, 2009, approximately six months prior to the trustee’s motion to sell the Holly Avenue property.

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[NYSC] “Bona Fide Purchaser After Foreclosure, Inequitably Effected” WAMU v. EDWARD MURPHY

[NYSC] “Bona Fide Purchaser After Foreclosure, Inequitably Effected” WAMU v. EDWARD MURPHY


Upon resolution of the jurisdictional issue raised by Murphy, he also seeks to add Luciano as a party defendant  because of his alleged “bona fide purchase” of the Millstone Road premises from the plaintiff after foreclosure. The application is granted and Luciano is added as a party defendant to this action because he is a necessary party in order for the Court to grant the proper and necessary relief in this lawsuit. CPLR §1001 provides that persons “who might be inequitably affected by a judgment” shall be made a party. Clearly, Luciano as the present owner of the Millstone Road premises may be “inequitably affected” by the jurisdiction question to be decided. Further, the events surrounding the dates of contract and sale of this property and the sale price are all issues requiring Court scrutiny as to Luciano’s claim to be a “bona fide purchaser” of the property for value.

Here, the closing on the sale of the Millstone Road premises occurred just 3 days prior to Murphy’s order to show cause seeking injunctive relief asserting the lack of knowledge of and Court jurisdiction over this foreclosure action. Obviously, any conversations, discussions, settlement negotiations or other communications between the plaintiff, Murphy and possibly Luciano concerning Murphy’s prospective actions as to this foreclosure action in which Luciano claims no knowledge as well as possible “bad faith” on the part of plaintiff are all issues which the Court needs to explore to assure the foreclosure process was fair and equitable.

Real Property Law §266 provides an innocent “bona fide purchaser” for value is protected in his/her title to property unless he/she had previous notice of the alleged fraud by the seller. See, Karan v. Hoskins. 22 AD3d 638, 803 NYS2d 666 (2nd Dept. 2005); Barnes v. West, 29 Misc3d 1230(A), WL 4941987 (2010). In the event, the Court finds that jurisdiction was not acquired over Murphy, Murphy’s remedy is to be put back into possession of the Millstone Road premises unless it has been purchased by a “bona fide” innocent and good faith purchaser, in which case Murphy’s remedy is limited to damages against the plaintiff.


Finally, Murphy cannot be charged with equitable estoppel as his actions through his attorney have all been to avoid the very sale which the plaintiff conducted to Luciano. The Court in Bank of America, NA v 414 Midland Ave. Associates, LLC, AD3d ,911 NYS2d 157 (2nd Dept 2010) noted:

“Where an owner knows of a defect in title and fails to address it,
laches does not apply unless the facts are sufficient to constitute equitable
estoppel (see, Krakerv. Roll, 100 AD2d 424,433,474 NYS2d 527;
Washington Temple Church of God in Christ, Inc. v. Global Props &
Assoc., Inc., 15 Misc3d 1142[A], 2007 N.Y. Slip Op 51114[U], 2007 WL
1558884, aff’d. 55 AD2d 727, 865 NYS2d 641). Equitable estoppel arises when
a property owner stands by without objection while an opposing party asserts an
ownership interest in the property and incurs expense in reliance on that belief
(see, Andrews v. Cohen, 221 NY 148, 153, 116 NE 862). The property owner
must ‘inexcusably’ delay in asserting a claim to property knowing that ‘the
opposing party has changed his position to irreversible detriment’ ( Orange &
Rockland Utils v. Philwold Estates, 70 AD2d 338, 343,421 NYS2d 640,
mod. on other grounds 52 NY2d 253, 437 NYS2d 291, 418 NE2d 1310.”

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