Legal malpractice cases in real estate transactions sometimes are about multi-million dollar losses, sometimes about smaller deals gone bad.  FTF Lending, LLC v Mavirides Moyal Packman & Sadkin, LLP  2021 NY Slip Op 31502(U) May 4, 2021 Supreme Court, New York County Docket Number: 153620/2020 Judge: Margaret A. Chan is about a smaller deal.

“On or about May 30, 2018, FTF retained MMPS, which held itself out as “experts in real estate financing,” to represent FTF in loan transaction with 2330 Dutch and 2330 Dutch’s sole member Dwayne A. Samuels (“Samuels”) (id., ¶’s 8, 9). Weinberg is an associate at MMPS, who practices in MMPS’s commercial real estate practice group (id., ¶ 3).

On or about May 26, 2018, FTF and Samuels executed a Term Sheet, which contemplated FTF providing a to-be named entity owned by Samuels a $375,000 loan related to first mortgage financing for 2330 Dutch Broadway, Elmont, New York 11003 (the “Property”) (id, ¶ 12). As part of the transaction, FTF required, inter alia, that the Property be transferred from Samuels to 2330 Dutch, a title insurance policy be secured, a closing protection letter, and a first mortgage lien on
the Property (id, ¶ 15). On May 30, 2018, MMPS sent a check list of these requirements to counsel for Samuels and 2330 Dutch, Robert Thony (id., ¶ 14). On June 8, 2018, Thony sent MMPS a copy of an unmarked and marked up purported title reports purportedly prepared by Fidelity National Title Insurance Company (“Fidelity”) and a purported closing protection letter (id., ¶¶16, 17). Both the marked and unmarked purported title reports contained a purported deed falsely evidencing the transfer of the Property by Samuels to 2330 Dutch (id., ¶ 18).

Defendants scheduled the loan to close on June 12, 2018, and, at that time, on advice of defendants, FTF entered into a certain loan with 2330 Dutch in the amount of $375,000 (id., ¶ 19). In connection with the loan, 2330 Dutch also executed a certain Mortgage and Security Agreement, and Samuels executed a guaranty, which guaranteed all of 2330 Dutch’s obligations under the loan (id., 20).

Neither 2330 Dutch nor Samuels ever made payments and, as a result, FTF sought to foreclose on the Property (id., ¶ 25). After conducting a title search, on or about June 30, 2019, FTF discovered that the unmarked purported title report and marked up purported title report provided by Thony to MMPS were entirely fraudulent; that the  Property was encumbered by numerous liens, judgments and
the subject of a pending foreclosure proceeding; that the Property was never transferred to 2330 Dutch; that the “recorded” mortgage provided by Thony was not actually recorded in the Nassau County Clerk’s Office; and that title insurance policy with Fidelity was fraudulent and title insurance was never secured (id., ¶’s
27-33). ”

““[A]n action for legal malpractice requires proof of three elements: the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and proof of actual damages” (Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). Negligence is shown if a plaintiff can demonstrate that “the attorney failed to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession, and that this failure caused damages” (Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 140 [1st Dept ], lv denied 22 NY3d 855 [2013]).

Applying these principles, the court finds that FTF has sufficiently stated a claim for legal malpractice based on allegations that defendants breached their duty to FTF by not adequately reviewing the title report and various closing documents so as to ascertain that 2330 Dutch did not own the Property, and therefore caused damages to FTF. Moreover, defendants’ assertion that they relied on Thony’s status as an attorney does not provide grounds for dismissal based on the pleadings.

Additionally, contrary to defendants’ argument, evidence that FTF was
responsible for, and failed to exercise, due diligence, including in investigating Samuels, does not warrant the dismissal of the complaint for lack of causation. To survive a motion to dismiss under 3211(a)(7), “a pleading need only state allegations from which damages attributable to the defendant’s conduct may be reasonably
inferred” (Lappin v Greenberg, 34 AD3d 277, 279 [1st Dept 2006] [internal citations omitted]). And, at the pleading stage, a plaintiff “is not obligated to show…that it actually sustained damages” (Inkine Pharmaceutical Company, Inc. v Coleman, 305 AD2d 151, 152 [1st Dept 2003] [internal citation and quotation omitted]).

Here, the complaint sufficiently alleges that FTF’s damages are attributable to defendants’ failure to exercise the appropriate standard of care in examining the pre-closing documents. And, the cases relied on the defendants to argue lack of causation are inapposite as they were based on evidence refuting causation
submitted in support of summary judgment (see e.g. Stolmeier v Fields, 280 AD2d 342, 343 [1st Dept], lv denied 96 NY2d 714 [2001] [granting summary judgment dismissing plaintiff contractor’s legal malpractice claim against attorney based on attorney’s alleged failure to advise him of the need for a license based on “overwhelming evidence, including [plaintiff’s] own deposition testimony, that he
was aware prior to the [subject] contract” of the licensing requirement])”