U.S. Bank National Association v. 160 Palisades Realty Partners LLC

Background

U.S. Bank National Association, acting as trustee for the identified certificate holders, sued 160 Palisades Realty Partners LLC to collect rents from property subject to loan documents. The loan was originally made by CBRE Capital Markets, Inc., later assigned to the Federal Home Loan Mortgage Corporation, and then assigned to U.S. Bank. The loan documents covered property at 160 Palisade Avenue in Yonkers and included a provision stating that, after a default, the lender could collect rents as they became due.

U.S. Bank alleged that 160 Palisades defaulted by failing to make timely monthly payments beginning April 1, 2020. U.S. Bank also alleged other defaults involving a lien and a notice of pendency related to the property. U.S. Bank notified 160 Palisades of the alleged defaults, accelerated the amounts due, and demanded that the rents be paid to U.S. Bank. During settlement discussions, 160 Palisades offered to transfer the property by deed in lieu of foreclosure if the guarantors were released. U.S. Bank rejected that proposal and filed this action.

160 Palisades asserted one counterclaim, alleging that U.S. Bank breached the implied duty of good faith and fair dealing. U.S. Bank moved for summary judgment on that counterclaim. 160 Palisades opposed the motion. The opinion states that 160 Palisades did not respond to U.S. Bank’s statement of undisputed facts, allowing the court to treat the facts in that statement as uncontested and admissible where appropriate.

Legal standard

Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. The court must view the evidence in the light most favorable to the nonmoving party, but the nonmoving party must present admissible evidence showing a real issue for trial rather than relying only on the allegations in its pleadings.

Court’s analysis

The court applied New York law. Under that law, contracts include an implied duty of good faith and fair dealing, meaning that neither party may act to deprive the other of the benefits of the agreement. But the implied duty cannot add a new obligation that conflicts with the contract’s express terms.

160 Palisades argued that U.S. Bank breached this duty through its continued effort to pursue what 160 Palisades described as an invalid and meritless claim. U.S. Bank argued that it was simply enforcing its remedies under the loan documents while preserving claims under a guaranty during a period when New York State had restricted mortgage foreclosure actions.

The court relied on the mortgage provision stating that, after an event of default and while the default continued, the borrower’s authority to collect rents ended and the lender became entitled to collect those rents. The court noted that 160 Palisades admitted it was in default on its monthly payments. Because the contract authorized U.S. Bank to collect rents after that default, the court held that U.S. Bank did not breach the implied duty of good faith and fair dealing by seeking to enforce the contract.

The court did not decide whether 160 Palisades was also in default because of the lien or notice of pendency involving the property. It stated that those additional issues were irrelevant to the motion because the admitted missed monthly payments were enough to establish U.S. Bank’s contractual right to pursue rent collection. The court also declined to address other issues that 160 Palisades acknowledged were not directly before the court.

Disposition

Judge Kenneth M. Karas granted U.S. Bank’s motion for summary judgment on 160 Palisades’s counterclaim. The Clerk of Court was directed to terminate the pending motion.