RSS WFCM2018-C44 - NY LOD, LLC v. 1442 Lexington Operating DE LLC

Background

The case concerns an $11.6 million loan secured by a mortgage on 1442 Lexington Avenue in New York. The borrower obtained the loan from Ladder Capital Finance LLC on April 12, 2018, and signed a loan agreement and promissory note. Afshin Hedvat and Daniel Rahmani signed a guaranty covering recourse obligations. Payments were due monthly, and the unpaid principal and other amounts were due on May 6, 2023.

The borrower defaulted as of April 6, 2020, including by failing to make required payments and failing to pay property taxes. The plaintiff paid the property taxes on the borrower’s behalf. After assignments, RSS WFCM2018-C44-NY LOD, LLC became the holder and owner of the note, mortgage, other loan documents, and guaranty. The plaintiff filed this action on May 17, 2021, and a receiver was appointed for the property on September 28, 2021.

The plaintiff moved for summary judgment, which is a procedure for deciding claims without a trial when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. The defendants submitted a memorandum opposing the motion but no declaration or documents. They also did not submit a required counterstatement of facts, so the facts in the plaintiff’s submission were treated as admitted.

Claims for Foreclosure and Related Relief

The first three counts sought foreclosure of the mortgage, a public sale of the property, and a declaration that the plaintiff was entitled to possession of the property and related collateral. The court found that the loan documents established the borrower’s obligations, that events of default had occurred, and that the plaintiff had shown its right to enforce the loan documents. The defendants offered no evidence creating a factual dispute about their obligations or the plaintiff’s right to foreclose.

The court therefore granted summary judgment on the first three counts.

Affirmative Defenses

The plaintiff also moved to strike the affirmative defenses in the defendants’ answer. The court granted that motion. Among other arguments, the defendants contended that only Ladder could enforce the guaranty and that Ladder therefore had to be joined as a party. The court rejected that argument because the guaranty provided that an assignee or transferee of the lender received the lender’s benefits. Because the loan had been assigned to the plaintiff and the plaintiff held the note, the court held that the plaintiff alone could enforce the guaranty and that Ladder did not need to be joined.

The defendants also argued that discovery was needed to determine whether the plaintiff acquired the loan documents for the purpose of bringing this lawsuit, which they said would violate New York’s champerty law. The court explained that the law does not prohibit an assignment made to collect a legitimate claim. Because the borrower’s default and the loan’s acceleration occurred before the assignment, the court found no need for discovery and struck the defenses based on lack of standing, lack of a real party in interest, champerty, and lack of capacity.

Guaranty Claim and One-Action Rule

The plaintiff asked to sever Count Five, which sought enforcement of the guaranty, because it would pursue that claim only if the property sale did not satisfy the borrower’s obligations. The defendants instead argued that the claim should be dismissed under New York’s One-Action Rule, which generally restricts separate actions to recover mortgage debt while a foreclosure action is pending or after judgment.

The court rejected that argument. It explained that the rule does not prevent a mortgagee from seeking a deficiency judgment in the same foreclosure action. It also noted that failing to name a guarantor in the initial foreclosure action could cause the lender to lose the right to recover a deficiency. The court granted the request to sever Count Five for later determination if the property sale did not produce enough to pay the amount owed.

Disposition

Judge Denise Cote granted the plaintiff’s October 22, 2021 motion for summary judgment. The court struck the affirmative defenses from the answer and severed Count Five for later determination if an auction of the property did not allow the plaintiff to recover the full amount due. The opinion did not state the final amount of any judgment or decide whether a deficiency would ultimately remain.