Opinion ID: 2302870
Heading Depth: 1
Heading Rank: 4

Heading: encumbrances.

Text: It is urged by the exceptants that seven of the mortgage investments (Nos. 3, 5, 7, 8, 9, 10 and 11) were illegal because the real estate embraced by the mortgages was encumbered by various easements and use restrictions. The pertinent New York statutory authority requires that investments in bonds and mortgages be on unencumbered real property. Decedent Estate Law, § 111, L. 1922, c. 593; L. 1925, c. 604; L. 1926, c. 307; L. 1928, c. 362; McKinney's Consolidated Laws, c. 13. The advisory master relied upon dicta in two New York cases, Matter of Poillon, 298 N.Y.S. 220 ( Sur. Ct. 1937), and Matter of Adriance, 260 N.Y.S. 173 ( Sur. Ct. 1932), for the proposition that where a trustee takes a mortgage on encumbered property he will not be held liable for a loss thereon unless the loss is attributable to the encumbrances. There appears to be no suggestion that the various encumbrances contributed in any manner to the losses sustained on these investments. Moreover, it appears that in all of the mortgage investments here involved, excepting Nos. 5 and 8, the trustee had no notice of the alleged encumbrances and relied on the assurances of title companies that the mortgages were first liens and that the title was marketable. With respect to investment No. 5 the trustee had notice of an easement and restrictions but also had a title policy stating that the mortgage was a first lien on a good and marketable title. With respect to investment No. 8 the title policy disclosed restrictive covenants. These restrictions forbade the use of buildings for brewery, distilling, slaughter house, smith-shops    or for any other dangerous, noxious or offensive purposes   . The mortgaged premises (No. 8) were situated in a neighborhood where stores and apartments were located and it is not perceived how the restrictions could in any manner be considered an impairment of the mortgage investment. Additionally, the mortgages, excepting No. 8, were guaranteed. We find no error in the judgment below in connection with this item.