Brooklyn Jury Convicts Condo Developer Of Failing To Deliver Title To Buyers, Then Using Deeds As Collateral To Pocket Proceeds From Subsequent Loans

In Brooklyn, New York, the Daily News reports:

• A ambitious [sic] Brooklyn developer was found guilty Tuesday of stealing more than $18 million from dozens of Hasidic families and several banks in a massive subprime mortgage scam. Eliyahu Ezagui, 39, preyed on his fellow congregants, sold them condominiums but never gave them the deeds when construction was finished. Instead, he gave the deeds to family members - including his wife, father and mother. He then used the deeds to take out mortgages on 53 apartments he didn't own and pocketed the money.

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• Because Ezagui didn't make payments on the illicit mortgages to lending banks, the condo owners are facing foreclosure proceedings and eviction in a separate civil court proceedings. "Now that the fraud has been established, I expect that the (civil) court will recognize the mortgages as fraudulent and cancel them," said [lawyer for many of the defrauded condo buyers Robert] Tolchin.(1)

For the story, see Brooklyn developer Eliyahu Ezagui found guilty of stealing $18M from Hasidic families.

(1) Despite the successful criminal prosecution in this case, the burden remains with the victimized condo buyers to initiate civil lawsuits to void/set aside/cancel any subsequent title transfers and lien encumbrances to recover title to their homes. In this case, if the victims can establish that the scams were pulled off by way of forged documents, the subsequent deed transfers and mortgages would likely be found void (as opposed to voidable) and subject to cancellation by a civil court.

In the event scams similar to this one are pulled off by duping the victims into unwittingly signing the deeds, mortgages, etc., those transfers and mortgages could be found to be voidable (as opposed to void), in which case, those interests could still be subject cancellation, provided the subsequent grantees and mortgagees are found to have had either actual or constructive notice of the victims' outstanding rights and equities. In that case, they [the subsequent grantees and mortgagees] would not be considered bona fide purchasers/encumbrancers entitled to the protection of the state recording statutes. Arguably, in this case, the victims' possession of the premises at the time the subsequent deeds and mortgages were made could constitute notice to the world of their interests in the condos. See Phelan v. Brady, 119 N.Y. 587; 23 N.E. 1109 (NY 1890):

• Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish. [citations omitted].

For similar case law in other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.