Mae v. Quickway Estates LLC

Background

Fannie Mae brought a commercial mortgage foreclosure action involving property at 5 Quickway Road, Monroe, New York. The defendants were Quickway Estates LLC, the borrower and property owner identified in the loan documents, and Jacob Grunhut, the loan guarantor and Quickway’s managing and sole member. The New York State Department of Taxation and Finance and several unidentified parties were also named, but they had not appeared at the time of the opinion. The defendants asserted a counterclaim alleging that Fannie Mae improperly filed a notice of pendency against the property.

The loan documents included an amended note with an outstanding principal amount of $1,800,000, mortgage documents securing the debt, a security agreement, and Grunhut’s guaranty. Greystone Servicing Company LLC originated the loan and assigned and delivered the loan documents to Fannie Mae on December 9, 2019. Fannie Mae alleged that Quickway stopped making monthly payments beginning August 1, 2020, and that neither Quickway nor Grunhut cured the defaults. Fannie Mae sent a default, acceleration, and demand-for-payment letter on December 3, 2020.

Motions and jurisdiction

Fannie Mae moved for summary judgment against Quickway and Grunhut, moved for default judgment against the New York State Department of Taxation and Finance, and sought damages and attorneys’ fees. The defendants cross-moved for summary judgment. They argued that the assignment from Greystone to Fannie Mae was collusive and was intended to manufacture diversity jurisdiction. They also argued that Fannie Mae had not established a prima facie foreclosure case because it had not provided enough evidence of the payment default.

The court rejected the jurisdictional challenge. Under 28 U.S.C. § 1359, an assignment made improperly or collusively to create federal jurisdiction cannot support jurisdiction. The court found that the defendants had not shown a parent-subsidiary relationship or other basis for presuming collusion. It further found that the timing of the assignment—more than two years before the lawsuit and before the default notices—and the evidence of a regular, arms-length business transaction indicated that the assignment was legitimate. The court therefore concluded that it had subject-matter jurisdiction and denied the defendants’ cross-motion for summary judgment.

Foreclosure ruling

For a mortgage foreclosure claim, the court explained that a plaintiff generally establishes a prima facie case by presenting the note, the mortgage, and proof of default. Fannie Mae produced the relevant loan and assignment documents, sworn declarations concerning the missed payments, and the December 3, 2020 default letter. The court found that the defendants did not provide evidence showing that the required payments were made or were not required.

The court also addressed the defendants’ 31 affirmative defenses. The defendants did not support those defenses with evidence or respond to Fannie Mae’s arguments addressing them. The court concluded that unsupported statements and blanket denials were insufficient to create a genuine dispute of material fact. It therefore granted Fannie Mae’s motion for summary judgment. Because the counterclaim was based on the same defenses and the defendants had effectively abandoned it during the motion practice, the court dismissed the counterclaim.

Relief

Fannie Mae sought $2,423,493.10, including principal, contract and default interest, protective advances, late charges, yield maintenance, fees, and attorneys’ fees and costs, as well as additional ongoing expenses. The court held that the mortgage documents authorized recovery of reasonable attorneys’ fees. Rather than finally calculating the entire amount, the court directed Fannie Mae to file a proposed foreclosure judgment providing for a sale of the property and requesting appointment of a referee. The proposed referee would calculate the total amount owed, conduct the sale, and distribute the sale proceeds.

Default judgment and disposition

The court’s individual rules required a party seeking default judgment to proceed by an order to show cause. Fannie Mae had not used that procedure. The court therefore denied Fannie Mae’s motion for default judgment without prejudice and stated that Fannie Mae could refile a motion complying with the court’s rules.

The final dispositions were: Fannie Mae’s motion for summary judgment was granted; Fannie Mae’s motion for default judgment was denied without prejudice; the defendants’ motion for summary judgment was denied; and the defendants’ counterclaim was dismissed. The court also stated that Fannie Mae could file a renewed default-judgment motion and directed the Clerk to terminate specified unidentified defendants upon Fannie Mae’s certification.