CFSP 2024-AHP1 81-83 Seaman Avenue LLC v. 81 Seaman Realty LLC

Background

CFSP 2024-AHP1 81-83 Seaman Avenue LLC (“CFSP”) brought a mortgage-foreclosure action against 81 Seaman Realty LLC (“Seaman Realty”), Joel Wiener, the New York City Environmental Control Board, and unidentified defendants concerning a residential apartment building in New York City. CFSP moved under Federal Rule of Civil Procedure 66 to appoint a receiver over the property. A receiver is a person appointed by a court to take control of property or manage it to protect a party’s interests while litigation continues. Seaman Realty, which the opinion identifies as the borrower, opposed the motion.

Diversity Jurisdiction

The court concluded that it had diversity jurisdiction, which allows a federal court to hear certain disputes involving citizens of different states or countries. The court stated that the known defendants were citizens of New York and the British Virgin Islands. Because CFSP is a limited liability company, the court examined the citizenship of its sole member, Computershare Trust Company N.A., acting as trustee for the Series 2024-AHP1 Mortgage Trust.

The court determined that the Trust was a traditional trust rather than a business trust. As a result, the Trust’s citizenship was based on the citizenship of its trustee. Computershare’s main office was in Massachusetts, so the court treated CFSP as a Massachusetts citizen. Because none of the known defendants shared that citizenship, the court found complete diversity at that stage. The court noted that this could change if an unidentified defendant were later found to share CFSP’s citizenship.

Standing

The court also held that CFSP had standing, meaning that it had the required legal interest to bring the foreclosure action and seek a receiver. Seaman Realty argued that a defect in a document called the “Third Allonge” meant that CFSP was not the true holder of the note. The court explained that a plaintiff in a mortgage-foreclosure action may establish standing by showing that it was either the holder or the assignee of the note when the action began.

The court found that CFSP had shown it possessed the note before filing the action and that there was an unbroken chain of transfers to CFSP. Therefore, even if there was a problem with when the Third Allonge was attached to the note, CFSP had an interest in the note through a valid assignment and could pursue the action and request appointment of a receiver.

Appointment of a Receiver

The court held that CFSP satisfied the standard for appointing a receiver. Courts consider whether the mortgage agreement authorizes a receiver after default, along with factors such as possible harm to the property, the inadequacy of other legal remedies, the likely success of the plaintiff’s case, and the relative harm to the parties.

The loan documents expressly authorized CFSP to have a receiver appointed if Seaman Realty defaulted. The court found that this provision strongly supported appointment because it authorized a receiver as a matter of strict right and without regard to the property’s condition or Seaman Realty’s solvency. The court also found that Seaman Realty had defaulted by failing to make required payments, that CFSP was likely to succeed in the foreclosure action, and that CFSP lacked an adequate legal remedy because the loan was nonrecourse and generally limited recovery to the property, its leases, and its rents.

The court found that the risk of the property being lost or reduced in value also supported appointment, although only moderately. CFSP had advanced funds to pay property taxes, and the court noted that unpaid taxes could lead to liens, reduced value, or, in extreme circumstances, seizure. The absence of allegations of fraud did not prevent appointment because courts may appoint receivers even without evidence of fraud.

Disposition

Judge Ronnie Abrams granted CFSP’s motion to appoint a receiver. The court directed Seaman Realty to submit any objections to CFSP’s proposed receiver order by September 12, 2025, and directed CFSP to submit any reply by September 17, 2025.