Wells Fargo Bank v. Prince 26

Background

Prince 26, LLC, 29 Prince Street Associates LLC, and 137 Thompson Street LLC borrowed $32 million from Cantor Commercial Real Estate Lending, L.P. The borrowers gave Cantor a mortgage and security interest in properties at 26 Prince Street, 29 Prince Street, and 137 Thompson Street. Edmond Li and Jennifer Li guaranteed certain obligations of the borrowers.

The loan documents required monthly payments and treated failure to pay as an event of default. The borrowers and Wells Fargo agreed that the borrowers stopped making required payments beginning April 1, 2020. Wells Fargo later declared the debt immediately due and commenced this action, asserting claims for mortgage foreclosure, security-interest foreclosure, possession, appointment of a receiver, and breach of contract under New York law.

The case also named the New York City Department of Finance and the New York City Office of Administrative Trials and Hearings because of possible claims or interests involving unpaid taxes, fines, violations, or judgments affecting the properties. Those defendants did not appear, and certificates of default were entered against them.

Summary-Judgment Ruling

The court applied New York law, under which summary judgment in a mortgage-foreclosure case is appropriate when the plaintiff produces the note and mortgage and proves that the borrower failed to make required payments. Because the borrowers challenged Wells Fargo’s standing, Wells Fargo also had to show that it was the holder or assignee of the note when it filed the action.

The court held that Wells Fargo made that showing. It produced the agreement, note, mortgage, and assignment documents showing the transfer of Cantor’s interests to Wells Fargo before the lawsuit began. The court concluded that Wells Fargo was both the holder and assignee of the note when it filed the case. It also found that the loan documents established the borrowers’ payment obligation and the right to foreclose after default.

The answering defendants challenged the admissibility of the documents attached to Joao Gauer’s declaration, arguing that Gauer, an asset manager for Rialto Capital Advisors, lacked a sufficient foundation because the documents had been created or maintained before Rialto became the special servicer. The court rejected that argument. It found that Gauer’s statements sufficiently supported admission of the records under the business-records exception to the hearsay rule and that certain recorded assignment documents were self-authenticating government records. The court also found that Wells Fargo had shown Rialto’s authority to bring the action through the pooling and servicing agreement and Wells Fargo’s appointment of Rialto as attorney-in-fact.

The court concluded that the answering defendants failed to raise a genuine dispute of material fact or a valid defense to the foreclosure claims. It therefore granted summary judgment to Wells Fargo on the claims for mortgage foreclosure, security-interest foreclosure, and possession. The court referred calculation of the amount of the foreclosure judgment to Magistrate Judge Ona T. Wang.

Receiver Request

Wells Fargo sought appointment of Richard J. Madison as a receiver to take possession and control of the borrowers’ assets. A receiver is a person appointed by a court to protect property or other interests during litigation. The mortgage authorized Wells Fargo to apply for a receiver after default, and the court found that the borrowers’ failure to pay property taxes supported the request because unpaid taxes could lead to liens and reduce property value.

The court nevertheless denied the receiver request without prejudice. It held that Wells Fargo had not yet shown that a receiver was clearly necessary to protect its interests, particularly because the court had granted the primary foreclosure relief. The court stated that Wells Fargo could renew the request if it showed that foreclosure was inadequate to protect its interests.

Default-Judgment Requests

Wells Fargo sought default judgment against the Department of Finance and the Office of Administrative Trials and Hearings concerning any claims or interests they might have in the mortgaged properties. Although both defendants had defaulted, the court held that the complaint and Wells Fargo’s briefing did not sufficiently establish the defendants’ legal liability.

The court therefore denied the default-judgment motion without prejudice. It directed that, if Wells Fargo continued to pursue default judgment, it must file a memorandum explaining the legal basis for finding that the complaint’s factual allegations, taken as true, established claims against those defendants.

Motion to Strike and Severance

Wells Fargo moved to strike the answering defendants’ two affirmative defenses: lack of standing and lack of authority by the special servicer. Because the court’s summary-judgment ruling had rejected those defenses, and because the defendants did not develop them in their opposition, the court denied the motion to strike as moot.

Wells Fargo also asked the court to sever its breach-of-contract claim against Edmond Li and Jennifer Li for later determination. The court granted that request. It found that severance would promote efficient case management, avoid prejudice to Wells Fargo’s ability to seek recovery from the guarantors later, and not prejudice the answering defendants. The court did not decide whether the contract claim was legally valid.

Disposition

The court granted summary judgment on Wells Fargo’s mortgage foreclosure, security-interest foreclosure, and possession claims; referred calculation of the foreclosure judgment to Judge Wang; severed the breach-of-contract claim against the guarantors; denied without prejudice the receiver and default-judgment motions; and denied as moot the motion to strike the answer. The clerk was directed to terminate all pending motions.