UCC-1 May Be Void if Trustee of Trust Owning Cooperative Unit Applied Loan Proceeds for Non-Trust Debts

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Plaintiff, the sole trustee of a trust which owned a cooperative unit, commenced an Action for a declaration that a Uniform Commercial Code Financing Statement filed against the unit as security for a loan to the Plaintiff, personally and in his capacity as trustee, was void and for a preliminary injunction enjoining the Defendant from foreclosing on the apartment. The Plaintiff submitted an affidavit in which he claimed that the loan proceeds were for his personal use.

The Defendant submitted evidence that a portion of the loan proceeds were used to satisfy a money judgment against the Plaintiff, the Settlors of the trust, and the trust. The Supreme Court, Kings County, granted the Plaintiff’s motion for summary judgment, holding that the financing statement was null and void and granting a preliminary injunction. The Appellate Division, Second Department, modified the lower court’s Order, deleting the provision declaring that the financing statement was null and void. According to the Appellate Division,

“]p]ersons dealing with a trustee must take notice of the trustee’s authority…The record presents unresolved material issues of fact as to whether the loan proceeds were used to satisfy non-trust debts, and whether the lender acted in good faith in extending the loan”.

The grant of the preliminary injunction was upheld. Magid v. Sunrise Holdings Group, LLC, 2018 NY Slip Op 02775, decided April 25, 2018, is posted at http://www.nycourts.gov/reporter/3dseries/2018/2018_02775.htm

 

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