New York

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Schultz Management v.
Title Guarantee Company and Ticor Title Insurance Company,
158 A.D.2d 428 (N.Y.App.Div. Dept.1 02/27/1990)

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT

Nos. 38931, 38932

1990.NY.42254; 551 N.Y.S.2d 527; 158 A.D.2d 428

February 27, 1990

SCHULTZ MANAGEMENT, APPELLANT,

v.

TITLE GUARANTEE COMPANY/TICOR TITLE INSURANCE COMPANY, RESPONDENT

Concur -- Murphy, P. J., Sullivan, Ross, Kassal and Smith, JJ.

Judgment, Supreme Court, New York County (David Edwards, Jr., J.), entered on or about May 30, 1989, dismissing the complaint, unanimously affirmed, with costs. The appeal from the order of said court, entered April 20, 1989, granting defendant's motion for summary judgment and denying plaintiff's cross motion for summary judgment dismissed as subsumed by the appeal from said judgment, without costs.

In this action appellant seeks recovery under a title insurance policy guaranteeing its mortgage on certain property allegedly owned by Victor Ballestas and located in Old Westbury, New York. Appellant mortgagor closed on the mortgage two days before an order by the United States District Court (SDNY) was filed, stating that a third party, Eduardo Orozco, convicted of drug conspiracy and money laundering, had a substantial equitable interest in the property. Orozco was residing on the property, his name appeared on two mechanic's liens, and he was present and answered questions relevant to the property at the closing.

Thereafter, in a Federal action in which appellant was a party, appellant's mortgage was set aside in favor of the United States Government. (United States v Orozco-Prada, 636 F Supp 1537 [SD NY 1986, Goettel, J.].) The District Court found that appellant had at least constructive notice of the fraudulent transfer, was not a bona fide purchaser for value and set aside the mortgage pursuant to New York Debtor and Creditor Law § 278. The Court of Appeals for the Second Circuit affirmed. (847 F2d 836.)

The property was sold at auction, and this action followed. The title insurance policy expressly excepts from coverage "rights of creditors under the Debtor and Creditor Law." Moreover, the policy provides that the suppression of a material fact (here notice of the fraudulent transfer) voids the contract. (Vaughan v United States Tit. Guar. & Indem. Co., 137 App Div 623 [1st Dept 1910].)

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