Court of Appeals Forces Significant Change for Title Insurance Companies

By Christopher Connors

The well-established precedent in New York has long been to apply a six-year statute of limitations on fraud applied to deed forgery claims.  A recent decision by the Court of Appeals would likely require title insurance companies to develop new policies in response to a critical change in a claim for deed forgery.  In a closely contested decision, the Court of Appeals made a drastic change from its traditional application of the statute of frauds in deed forgery cases.

 In a recent 4-3 ruling by the Court of Appeals, it was decided that the six-year statute of limitations set forth in CPLR 213, does not deny the plaintiff from setting aside a forged deed.  The Court in Faison v. Lewis, 25 N.Y.3d 220, went on to explain that a deed containing a forged signature is void initially and will not convey good title.  They also explained that what is void at its inception cannot be validated by the use of a statute of limitations defense.

 First cousins, Faison and Lewis were each set to receive a one-half interest in a property from their respective parents upon the parent’s death.  In 2001, a “correction deed” was created with the intentions of conveying the entire property to Lewis.  Shortly thereafter, Faison’s father passed away, and Faison challenged the deed, claiming that her father’s signature had been acquired through an act of forgery.  At the time she challenged the deed, however, Faison was not the administrator of her father’s estate, and the case was properly dismissed.  Despite Faison’s efforts to alert the estate’s attorney to pursue her claim, the attorney never took action. The attorney has since been disbarred from the practice of law.  In 2009, now in sole possession of the property, Lewis acquired a loan from Bank of America secured by a mortgage on the property.  Faison went on to challenge the validity of the deed and the newly acquired loan a year later when she was appointed the administrator of the estate by the Surrogate’s Court.  However, she failed when the court ruled that the claim was barred by a six year statute of limitations for fraud applied to forgery claims.

 Bank of America was successful in the lower courts, blocking Faison’s attempts to disregard the statute of limitations in this case.  On appeal however, the Court of Appeals reversed the intermediate and trial court’s decision, and established a new precedent in these types of cases.  It was determined that a statute of limitations defense may not be used to protect a document that was established by fraudulent means. The majority believed that “barriers” should not be placed around a forged deed to protect it given its fraudulent nature.    The court followed the belief that a forged deed is “void ab initio” or null at its inception, and therefore the statute of limitations defense does not apply.

 While the decision may be good news for those seeking to recover property lost by a forged deed many years ago, it exposes title insurers to increased litigation expenses and greater risk.  Regardless of how old a deed may be, claims for forgery may now be brought to set the deed aside, increasing the potential liability title insurance companies face. Title insurance companies should be mindful of this decision when developing policies and assuming risk.  For further information on this issue, please contact Flink Smith.