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TJ, Esq.
TJ, Esq., Attorney
Category: Real Estate Law
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Experience:  JD, MBA
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We are plaintiffs in a lawsuit, regarding non payment

Customer Question

We are plaintiffs in a lawsuit, regarding non payment for construction services. A lis pendens was filed in the county where the subject property is located - Suffolk County NY.
The lis pendens was filed on 12/04/13 - valid for three years. Can the owners acquire a subsequent mortgage?
The owners had a mortgage of $800,000 prior to that date of filing the lis pendens then had it assigned to a new lender.
The original mortgage that was assigned was in the amount $800,000 acquired on 02/02/12 and the owners got an additional $455,000 mortgage which the bank that granted this loan took the assignment of the $800,000 and did a ext/con/mod and recorded a mortgage of $1,250,00 on 11/10/14.
Although our lien of $74,000 was bonded- there were other mechanic liens (not bonded) filed on 9/25/13, 9/27/13, 10/01/13, 10/11/13, 12/31/13. The lien filed on 9/17/13 was renewed on 9/23/14 -
How is it possible for the owners to acquire a subsequent mortgage with a lis pendens and numerous un-bonded liens?
Submitted: 9 months ago.
Category: Real Estate Law
Expert:  TJ, Esq. replied 9 months ago.

Hello and thank you for the opportunity to assist you. My name is ***** ***** I will do my very best to answer your legal questions.

A lis pendens does not prevent a mortgage lender from giving a homeowner a loan. The lis pendens means that any subsequent mortgage loan becomes subordinate to your interest provided you take action before the lis pendens expires. For example, assuming you take action against the homeowner and win a judgment for the amount owed, then the priority of claims against the property would be (1) the $800k mortgage, (2) your claim, and (3) the additional $455k. That's what the lis pendens does ... it preserves the priority of your claim.

Priority is important because it is the order of payment when there aren't enough funds to go to everybody. For example, let's say the house burns down. If the house is worth $$850k, then that is what insurance will pay even though it isn't enough to repay both mortgages and you. So this is how it would work: The $800k mortgage will be paid in full first, then your claim will be paid with what is left over, and finally the second mortgage will be paid with anything left over.

But again, the above scenario assumes that you take action to make your claim real by suing and winning a judgment prior to the expiration of the lis pendens.

Does that answer your question? Please let me know if you need clarification, as I am happy to continue helping you until you are satisfied.

Customer: replied 9 months ago.
Ok- So that means the bank that granted the additional $455K loan after our lis pendens was filed- accepted that and are willing to take the risk of the outcome of the lawsuit? That's unusual, no bank would accept a title with a "cloud".
Also, how was the bank that granted the 455k loan able to grant a loan when there were superior mechanic's lien prior to the date of the acquisition of the additional 455K?
Customer: replied 9 months ago.
Action on the lis pendens - litigation is proceeding currently. At the commencement of the lawsuit, it was originally "breach of contract" and during discovery, the evidence of mortgage fraud was uncovered, the bank that had granted the construction loan had required the homeowners to provide an executed contract with the builder. The owners filed false tax returns in order to inflate their income. We also had filed a criminal report with the US atty office and D.A. So now, the breach of contract is being amended to contractual fraud which in NYS - permits punitive damages which cannot be predicted. So in essence the subsequent lender basically accepted this risk?
Customer: replied 9 months ago.
As we further read- this is the information we read, copy and pasted:"You may ask, why would anyone buy or lend against a property with a lis pendens? The answer: they don’t. A lis pendens cripples real estate. If you have one recorded against your property, you want it off, fast. As long as the lis pendens is there, you can forget selling or refinancing your property. True, you may find a wheeler-dealer type who’ll buy your property, or a hard money lender who’d refinance, subject to the lis pendens, but they’ll demand a steep discount or high interest to assume that risk."So, I guess the above is incorrect?
Expert:  TJ, Esq. replied 9 months ago.

Hi again.

Q: So that means the bank that granted the additional $455K loan after our lis pendens was filed- accepted that and are willing to take the risk of the outcome of the lawsuit? That's unusual, no bank would accept a title with a "cloud".

A: That is correct, and I agree that it is unusual. It sounds like their title review people may have made a mistake, unless the the value of the house is clearly more than the first mortgage, your claim, and the second mortgage combined.

Q: Also, how was the bank that granted the 455k loan able to grant a loan when there were superior mechanic's lien prior to the date of the acquisition of the additional 455K?

A: The answer to this is the same as before. The mechanics liens do not prevent a lender from giving a loan. It just means there are priority issues. But just as a lis pendens expires, so do mechanics liens. If the lienholder does not take action within one year, then the mechanics lien expires. Accordingly, the liens that you mention from 2013 and 2014 are gone.

Q: So in essence the subsequent lender basically accepted this risk?

A: Yes, I would say so.

Q: So, I guess the above is incorrect?

A: No, that quote you referenced is exactly correct in my opinion. That's why I wrote that it sounds like the lender made a mistake. To clarify: Can you sell the property or lend money against the property with a lis pendens? Yes, it is legally permissible. Will you be able to do so? Not likely, unless (a) a mistake was made, or (b) you find a wheeler-dealer type mentioned in the paragraph you quoted.

I hope that makes sense. Please let me know if you need further clarification, and please remember to provide positive feedback. Thank you.

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