Adam Leitman Bailey, P.C. Protects a Bona Fide Purchaser of Property Dragged Into a Dispute Between Prior Owners
In a heated dispute between prior owners of a Property, Adam Leitman Bailey, P.C., successfully defended against claims that its client’s predecessor in interest fraudulently obtained the subject Property from the Plaintiff, and the subsequent sale of the Property to our client was null and void.
The Property at issue was originally owned an LLC, Plaintiff in the action. Plaintiff defaulted on its mortgage and a foreclosure action was commenced to foreclose that mortgage. Plaintiff sought to avoid foreclosure but was unable to refinance the existing mortgage on the Property and did not wish to sell. Instead, Plaintiffs entered into a “joint venture” another entity whereby that entity paid off the existing mortgage on the property, in an amount exceeding $2,000,000.00, and Plaintiff transferred the Property to a separate entity, owned 90% by the financing entity and 10% by Plaintiff. The transaction documents governing this arrangement gave the Plaintiff the option to purchase all of the membership interests in the new owner for so long as Plaintiff made “option premium payments” on a monthly basis until it exercised its option.
After several months, Plaintiff defaulted in making the required option payments. As a result, and in compliance with the transaction documents, the transaction entity terminated Plaintiff’s rights to purchase the membership interests of the new owner.
The new owner then entered into a contract of sale and sold the Property to Adam Leitman Bailey, P.C.’s client, for a purchase price in excess of $3,000,000.00. Adam Leitman Bailey, P.C.’s client conducted all necessary diligence to confirm that the new owner had authority to transfer title and paid valuable consideration.
Plaintiff then commenced an action, seeking to avoid the original transfer on the grounds that Plaintiff was fraudulently induced into entering into the transaction documents which ultimately terminated Plaintiff’s rights in the property and the subsequent sale to our client.
However, the Plaintiff could not prove any facts: (a) allowing them to avoid the consequences of that transaction, or (b) or connecting Adam Leitman Bailey, P.C.’s client to the alleged wrongdoing on the part the prior owner or any party acting on its behalf, or any other reason why Adam Leitman Bailey, P.C.’s client was not a bona fide purchaser of the Property for value whose interest is protected by Real Property Law (“RPL”) § 266.
Specifically, after extensive discovery, through documents and testimony, Adam Leitman Bailey, P.C. established that, in fact, the purpose and validity of the transfer of the Property from Plaintiff to the owner entity was well documented. Plaintiff testified that the Property was in foreclosure at the time she was introduced to the individual acting on behalf the owner entity and Plaintiff wanted to keep the Property. In order to “save” the Property from foreclosure, Plaintiff transferred the Property to the owner entity, who then paid off the existing mortgage on the Property. Plaintiff retained the right to repurchase the Property so long as they abided by its obligations. Plaintiff acted through an individual who was an experienced real estate owner/manager. Plaintiff sought to avoid the transfer by claiming that individual was not aware of what she was signing when she transferred the Property. However she did not deny that her signature is on the transfer documents.
“A party is under an obligation to read a document before he or she signs it, and a party cannot generally avoid the effect of a [document] on the ground that he or she did not read it or know its contents.” Anderson v. Dinkes & Schwitzer, P.C., 150 A.D.3d 805, 806 (2d Dept. 2017). Adam Leitman Bailey, P.C. established, at deposition, that Plaintiff acted through a well-educated, English-speaking individual, who owned or managed multiple real estate investment projects at the time she executed the transaction documents, was directly involved with the negotiation of the transaction, and understood the deal structure. There was also no evidence she was forced to sign the transaction documents or that she was suffering from any kind of disability that prevented her from
reading them prior to execution them. As a result, Adam Leitman Bailey, P.C. established that Plaintiff could not now seek to avoid the consequences of its agreement.
Adam Leitman Bailey, P.C.also established that even if there was any fraud in the original transfer to the owner entity, its client was not aware of any such fraud when it purchased the Property. Real Property Law § 266 provides that a bona fide purchaser or encumbrancer for value is protected in his or her title unless he or she had previous notice of alleged prior fraud by the immediate seller. CitiMortgage, Inc. v. Caldaro, 145 A.D.3d 851, 853 (2d Dept. 2016).
Adam Leitman Bailey, P.C. has presented numerous pieces of evidence to demonstrate that its client undertook all necessary due diligence to confirm that the owner had the proper authority to transfer the Property to its client. Those documents included a title report confirming the owner entity’s ownership of the property, the articles of incorporation and operating agreement for the owner entity, and a title affidavit attesting that the owner entity was authorized to sell the Property. Adam Leitman Bailey, P.C. also provided an affidavit from its client, attesting that it had reason to doubt the authenticity of any of those documents, or that the prior owner entity ever indicated that Plaintiff had any cognizable or arguable interest in the Property at the time of the sale.
Adam Leitman Bailey, P.C. argued that above-described documents were sufficient to demonstrate that its client reasonably believed that the owner entity had authority to lawfully transfer the Property, establishing its status as a bona fide purchaser for value. Adam Leitman Bailey, P.C. also pointed out that Plaintiff presented no evidence to the contrary. Plaintiff merely alleged, without any factual basis, that its client knew or should have known of some purported fraud. But, Plaintiffs did not and could establish any fraud on the part of the owner entity or anyone acting on its behalf, let alone present any evidentiary proof that Adam Leitman Bailey, P.C.’s client was aware of the purported wrongdoing.
Accordingly, because Plaintiff utterly failed to establish any fraud in the initial transfer, and because Adam Leitman Bailey, P.C.’s client was a bona fide purchaser for value, entitled to protection under RPL
§ 266, Adam Leitman Bailey, P.C. brought an ironclad motion for summary judgment, seeking dismissal of Plaintiff’s cause of action for a judicial declaration that Plaintiff, and no other person or entity, has all title and rights in the Property. The Court agreed, holding that Adam Leitman Bailey, P.C. established its client’s status as a bona fide purchaser for value under RPL §266 and therefore dismissed all causes of action against its client.
Courtney J. Lerias and Colin E. Kaufman represented the client in this matter.