The Supreme Court of New York, Suffolk County, recently held that a lender whose mortgage was executed after an allegedly forged deed was nonetheless entitled to an equitable lien on the property. See Otero v Montenegro, 2019 WL 6334917 (N.Y. Sup. Ct. Nov. 14, 2019). Plaintiff and the individual defendant lived together in the subject property as joint tenants. In 2002, they encumbered the property with a mortgage in the amount of $155,500. Later that year, the parties’ relationship ended and plaintiff moved out of the property. In 2006, a deed was executed conveying the property to the individual defendant alone, and the individual defendant then refinanced the 2002 mortgage with a mortgage in the principal amount of $276,000. In 2011, Plaintiff brought this quiet title action claiming that her signature on the 2006 deed was forged, and seeking to void the deed and the 2006 mortgage. The current holder of the mortgage filed a motion for partial summary judgment seeking, among other things, an order that its mortgage still encumbered the property under the doctrine of equitable subrogation.

The Court granted the motion. First, it found that $161,686.47 of the 2006 mortgage proceeds was used to pay off the 2002 mortgage that plaintiff had executed, and that the lender should be equitably subrogated for that amount. In doing so, the Court rejected plaintiff’s argument that the lender was not entitled to equitable subrogation because it was not in possession of the prior note, finding that equitable subrogation “is premised on the satisfaction of a prior mortgage lien rather than the assignment of a prior mortgage.” Second, the Court found that the lender had paid $79,824.40 in property taxes and was entitled to an equitable lien in that amount on the entire property, bringing the total amount of the equitable lien to $241,510.87, plus interest. Finally, the Court found that, even if the 2006 deed were set aside, the lender would hold a valid mortgage on the individual defendant’s interest in the property “for the original principal amount of the [2006] mortgage that is not covered by the equitable lien on the entirety of the property,” i.e., $114,313.53 ($276,000-$161,686.47).