Ekstein v. Polito Associates, LLC

Background

David Ekstein, Sara Ekstein, and Gavriel Alexander brought the action, and Polito Associates LLC asserted counterclaims against them and 9 Polito LLC. The dispute arose from a $42,650,000 commercial real-estate loan secured by a mortgage on property at 9 Polito Avenue in Lyndhurst, New Jersey. The loan matured, the borrower defaulted, and a New Jersey foreclosure court entered a judgment authorizing a sale of the property. At the sheriff’s sale on June 11, 2021, no bid was placed, and the property remained with the defendant after a credit bid.

The court had previously ruled on several issues at summary judgment, including that the plaintiffs had voided their limited liability under the note by transferring their interest in the property, that the individual plaintiffs and 9 Polito LLC were equally liable to the defendant, and that the renovation guaranty had been discharged. The remaining issue for the three-day bench trial was the amount owed after accounting for the debt, interest, and the property’s fair market value at the time of the sheriff’s sale.

Motion to Reopen the Record

After trial, the plaintiffs asked the court to reopen the record to correct a mathematical error in their expert’s report. The court denied the motion. It explained that courts may correct obvious mathematical errors while evaluating the evidence, so reopening the record was unnecessary.

Amount of the Debt

The court calculated the debt under the prior foreclosure judgment. It applied 9.5 percent annual interest to $35,937,291.39 from December 1, 2020, through January 7, 2021. It then applied the lawful New Jersey interest rate from January 7, 2021, through the sheriff’s sale, and added court costs and foreclosure attorney’s fees. The court found that the plaintiffs owed $36,523,158.12 as of June 11, 2021.

Property Valuation

The court considered competing expert valuations under three approaches: the property’s current-condition value, called the “as-is” value; its projected value after reaching stabilized occupancy, called the “as-stabilized” value; and a possible apartment-conversion value. The court concluded that the as-is approach best measured fair market value on the date of the sheriff’s sale. It rejected the as-stabilized approach because it depended on speculative future improvements, leasing, and market conditions. It also found no credible evidence supporting an apartment-conversion valuation.

The court primarily credited the analysis of Polito Associates LLC’s expert, Christoper Otteau, while accepting one parking-income figure from the plaintiffs’ expert, Konstantin Belenky. Using the income approach, the court found an as-is property value of $34,944,388.75. The calculation began with an as-stabilized value of $53,992,948.75 and deducted one year of potential gross income, vacant-expense loss, leasing commissions, and tenant-improvement costs, while adding cell-tower income.

Judgment and Attorney’s Fees

Because New Jersey law allows a fair-market-value credit against a foreclosure deficiency, the court subtracted $34,944,388.75 from the $36,523,158.12 debt. It concluded that David Ekstein, Sara Ekstein, Gavriel Alexander, and 9 Polito LLC were jointly and severally liable to Polito Associates LLC for $1,578,769.37.

Polito Associates LLC requested $176,154 in attorney’s fees plus additional fees. The court denied that request because Polito Associates LLC did not submit contemporaneous time records or other supporting documentation showing the hours worked and the nature of the work performed. The court held that Polito Associates LLC was entitled to pre-judgment interest under New Jersey law from June 12, 2021, through entry of judgment, and post-judgment interest under the federal statutory rate. Judge Judith C. McCarthy directed the Clerk of Court to enter judgment for Polito Associates LLC and close the case.