ARCPE 1 LLC v. 25 West 51 Retail LLC

Background

Citigroup Global Markets Realty Corp. loaned $3,000,000 to 25 West 51 Retail LLC. The loan was secured by a mortgage on Condominium Unit 1 at 25 West 51st Street, New York, New York. Richard Weisfisch signed a limited recourse guaranty covering certain obligations of the borrower. Citi later assigned its interest in the loan, note, and mortgage to Deutsche Bank National Trust Company, acting through its special servicer, CWCapital Asset Management LLC.

The borrower missed required payments, received payment deferrals, and failed to repay the debt by the final July 6, 2022 deadline. Deutsche filed this foreclosure action on October 21, 2022. After the borrower and Weisfisch failed to respond on time, the Clerk entered defaults against them. The defendants moved to set aside the defaults, and Deutsche moved for default judgment. ARCPE 1 LLC later moved to replace Deutsche as plaintiff because Deutsche had transferred its interest in the loan to ARCPE. The substitution motion was unopposed.

Service on Weisfisch

Weisfisch argued that the court lacked personal jurisdiction over him because leaving the summons at the front desk of an office building was not proper service. The court rejected that argument because he was also served by certified mail, as authorized by the guaranty. The court therefore found that it had personal jurisdiction over him.

Motion to Set Aside the Defaults

Under Federal Rule of Civil Procedure 55(c), a court may set aside a default for “good cause.” The court considered whether the defendants’ default was willful, whether setting it aside would prejudice Deutsche, and whether the defendants had presented a potentially complete defense.

The court found that the defendants’ failure to respond was not willful. Their evidence indicated that they believed settlement negotiations were continuing, and they acted promptly after learning of the defaults by retaining counsel and filing a joint status letter within two weeks. The court also found that Deutsche had not shown the kind of prejudice required to preserve the defaults; Deutsche offered only a general assertion that delay would harm its eventual recovery.

The court nevertheless found that the defendants had not presented a meritorious defense. Their only identified defense was that Deutsche lacked standing, meaning the legal right to enforce the note and foreclose the mortgage. The court concluded that Deutsche established standing in two independent ways. First, the endorsed note was attached to the complaint, showing that Deutsche possessed the note when the action began. Second, a written assignment transferred Citi’s rights in the note and mortgage to Deutsche. The court rejected the defendants’ unsupported speculation about the authority of the person who signed the documents, differences in the signer’s name, and a possible gap in the chain of transfers.

Because the defendants failed to show good cause, the court DENIED their motion to vacate the defaults. The court also GRANTED Deutsche’s motion for default judgment.

Motion to Substitute Plaintiff

Federal Rule of Civil Procedure 25(c) permits a court to substitute a party when an interest in the lawsuit is transferred. The court found that Deutsche had transferred all of its right, title, and interest in the loan to ARCPE and that ARCPE’s written assignment showed it held the required interest in the action. The court therefore GRANTED ARCPE’s motion to substitute and directed the Clerk to substitute ARCPE as plaintiff.