Heller, Han, and Biegel Secure Dismissal of All Claims Against Lender Client in Mortgage-Rescue Dispute

Michael Heller, Lawrence Han, and Jason Biegel secured the dismissal of all claims against a lender client in litigation arising from an alleged mortgage-rescue scheme involving residential property in New York.

The plaintiffs asserted claims for fraud, constructive trust, conversion, breach of fiduciary duty, and other equitable and property-related relief, alleging that the lender participated in a broader scheme concerning the transfer of their home. Michael, Lawrence, and Jason argued that their client’s role was limited to financing the transaction, that the complaint failed to allege any specific wrongdoing by the lender, and that the loan proceeds were used to satisfy the plaintiffs’ preexisting mortgage.

The court agreed, granting the lender’s motion to dismiss in its entirety. The court found that the complaint contained no specific, nonconclusory allegations establishing that the lender had notice of or participated in the alleged fraudulent scheme. The court further held that the parties’ arm’s-length lending relationship could not support the plaintiffs’ constructive-trust or fiduciary-duty theories.

Significantly, the court also held that equitable subrogation independently protected the lender’s interest. The documentary evidence established that the lender’s loan proceeds were used to satisfy the plaintiffs’ preexisting mortgage in full, resulting in the discontinuance of the prior foreclosure action. The court concluded that, even assuming the underlying deed was void as the plaintiffs alleged, the lender remained entitled to equitable subrogation because its funds discharged a prior valid mortgage. Holding otherwise would permit the plaintiffs to retain the benefit of the satisfied mortgage while denying the lender the corresponding equitable rights of the prior mortgagee.

The decision resulted in the complete dismissal of all claims against the lender and confirmed the application of equitable subrogation where loan proceeds are used to discharge a preexisting valid mortgage, notwithstanding a subsequent challenge to the underlying transaction.