MEMBER CONSENTS DEFEAT A CLAIM OF LACK OF AUTHORIZATION
In Atlantic Washington Funding, LLC v. Atlantic Upreal et al., Index No. 500538/2019 (Sup. Ct. Kings Co. Oct. 23, 2019), the mortgagee commenced a foreclosure, arising from a business transaction that apparently went bad. Defendant, a limited liability company, asserted an affirmative defense in its answer alleging that defendant was never authorized to execute the mortgage held by plaintiff, which was in the process of being foreclosed upon. Defendant relied upon a term sheet containing a lower loan amount, which had been executed in connection with the formation of the LLC years before the member consents relied upon in issuing the mortgage. Based on this term sheet, defendant argued that the originating lender (and any subsequent assignee) should have been on notice of a potential authority issue because the term sheet provided for such lower financing amount. However, after being presented with precedent that a lender does not have a duty of care to ascertain the validity of the documentation presented by an individual who claims to have the authority to act on behalf of a borrower corporation or entity, the court dismissed the affirmative defense of lack of authority, as a matter of law based on the consents proffered at the time of the loan, which authorized the higher financing amount. Ganfer Shore Leeds and Zauderer LLP represented the successful lender in this action.