Lien Survives Despite Unwinding of Fraudulent Transactions

March 14, 2010Articles Pennsylvania Land Title Association

Plaintiffs, husband and wife sought to avoid the Sheriff’s Sale of their home as a result of a foreclosure on their mortgage. Plaintiffs entered into a transaction with a third party who claimed that he would save their property by placing it in trust. After conveyance of the property to the third party in trust, the third party re-conveyed the property to new owners who made a new mortgage on the property, the proceeds of which were used to pay off plaintiffs’ existing delinquent mortgage and other debts. Plaintiffs claimed that they were the victims of fraud by the third party and sought to unwind the transaction with the third party, the subsequent transaction with the new owners and to divest the lien of the new mortgage from the property. The holder of the new mortgage claimed that it was a bona fide mortgagee for value and asked the Court to confirm that its mortgage was valid. HELD: The United States Bankruptcy Court for the Eastern District of Pennsylvania held that plaintiffs were victims of fraud, that both transactions should be unwound, but determined that the new lender was entitled to an equitable lien on the property to the extent of the debts that it paid off on plaintiffs’ behalf. Fowler, et al. v. Rauso, et al., Adv. No. 07-00139ELF (Bankruptcy E.D. Pa., March 4, 2010).

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