BH STERLING REALTY LLC v. 727 LLC (2026)

DECISION & ORDER

In an action, inter alia, for specific performance of a contract for the sale of real property, the plaintiff appeals from an order of the Supreme Court, Kings County (Leon Ruchelsman, J.), dated December 7, 2023.  The order, insofar as appealed from, granted those branches of the motion of the defendants 727 Knickerbocker Ave, LLC, and S3 RE Funding III, LLC, which were to dismiss the first and second causes of action insofar as asserted against them.

ORDERED that the order is reversed, on the law, with costs, and those branches of the motion of the defendants 727 Knickerbocker Ave, LLC, and S3 RE Funding III, LLC, which were to dismiss the first and second causes of action insofar as asserted against them are denied.

In May 2023, the plaintiff commenced this action against the defendants Louise Longoria and Elaine Jones, inter alia, to recover damages for anticipatory breach of a contract for the sale of real property (hereinafter the contract) located in Brooklyn (hereinafter the property) and filed a notice of pendency.  The defendants 727 Knickerbocker Ave, LLC, and S3 RE Funding III, LLC (hereinafter together the LLC defendants), were granted leave to intervene in the action, and thereafter, the plaintiff filed a supplemental summons and amended complaint.  The first and second causes of action alleged, among other things, that the LLC defendants had actual and/or constructive knowledge of the contract and that the LLC defendants did not purchase and encumber the property in good faith.  The plaintiff sought, inter alia, a judgment declaring invalid any deed and mortgages in favor of the LLC defendants.

The LLC defendants moved, inter alia, pursuant to CPLR 3211(a) to dismiss the first and second causes of action insofar as asserted against them.  The plaintiff opposed.  In an order dated December 7, 2023, the Supreme Court, among other things, granted those branches of the LLC defendants' motion.  The plaintiff appeals.

“The New York Recording Act (Real Property Law § 290 et seq.), inter alia, protects a good faith purchaser for value from an unrecorded interest in a property, provided such a purchaser's interest is first to be duly recorded” (Harrison DGR44, LLC v. Luiso 44 Harrison, LLC, 219 AD3d 1413, 1415 [internal quotation marks omitted] ).  Thus, New York has a so-called “race-notice” statutory scheme (139 Lefferts, LLC v. Melendez, 156 AD3d 666, 667 [internal quotation marks omitted];  see Real Property Law § 291).  However, “[t]he status of good faith purchaser for value cannot be maintained by a purchaser with either notice or knowledge of a prior interest or equity in the property, or one with knowledge of facts that would lead a reasonably prudent purchaser to make inquiries concerning such” (436 Franklin Realty, LLC v. U.S. Bank N.A., 188 AD3d 960, 962 [internal quotation marks omitted] ).  “If the purchaser fails to use due diligence in examining the title, he or she is chargeable, as a matter of law, with notice of the facts which a proper inquiry would have disclosed” (id. [internal quotation marks omitted];  see 139 Lefferts, LLC v. Melendez, 156 AD3d 666).  Therefore, to establish itself as a bona fide purchaser for value, a party has the burden of proving that it purchased the property for valuable consideration and did not have “knowledge of facts that would lead a reasonably prudent purchaser to make inquiry” (TCJS Corp. v. Koff, 74 AD3d 1188, 1189 [internal quotation marks omitted];  see Impact Equities 2016, LLC v Johnson, 245 AD3d 906, 907).

In considering a motion to dismiss for failure to state a cause of action pursuant to CPLR 3211(a)(7), the court must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Gould v. Decolator, 121 AD3d 845, 846–847).  “To succeed on a motion to dismiss based upon documentary evidence pursuant to CPLR 3211(a)(1), the documentary evidence must utterly refute the plaintiff's factual allegations, conclusively establishing a defense as a matter of law” (HSBC Bank USA, N.A. v. Alexander, 221 AD3d 865, 867 [internal quotation marks omitted] ).  When a court considers evidentiary material submitted by a defendant in support of a motion to dismiss pursuant to CPLR 3211(a)(7), and the motion has not been converted to one for summary judgment, the criterion is whether the plaintiff has a cause of action (see Sokol v. Leader, 74 AD3d 1180, 1181), and, unless it has been shown that a material fact as claimed by the plaintiff to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, dismissal should not be granted (see Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275).

Here, although the LLC defendants demonstrated that the plaintiff failed to record the contract, they failed to show that 727 Knickerbocker Ave, LLC, purchased the property and S3 RE Funding III, LLC, provided funding to Longoria and Jones secured by mortgages on the property without actual or constructive knowledge of the unrecorded contract (see HSBC Bank USA, N.A. v. Alexander, 221 AD3d at 868;  US Bank N.A. v. Vogel, 171 AD3d 1243, 1245).

The evidence submitted by the LLC defendants in support of their motion did not show that a material fact as claimed by the plaintiff—that the LLC defendants had actual or constructive knowledge of the unrecorded contract—was not a fact at all (see CPLR 3211[a][7];  Guggenheimer v. Ginzburg, 43 N.Y.2d at 275) and did not utterly refute the plaintiff's factual allegations and conclusively establish a defense as a matter of law (see CPLR 3211[a][1];  Goshen v Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326).

Thus, the Supreme Court should have denied those branches of the LLC defendants' motion which were to dismiss the first and second causes of action insofar as asserted against them (see U.S. Bank N.A. v. Vogel, 171 AD3d at 1245).

The LLC defendants' remaining contention is without merit.

DUFFY, J.P., DOWLING, TAYLOR and LOVE, JJ., concur.