New York Supreme Court suspends UCC lockdown
August 3, 2020, at Shelbourne BRF LLC, Shelbourne 677 LLC v SR 677 BWAY LLC,1 the Supreme Court of the State of New York (the “To research“) granted the borrower’s plaintiffs petition for a preliminary injunction and barred the defendant lender from proceeding with a UCC foreclosure until October 15, 2020. This is the second decision in New York that has halted or delayed a UCC foreclosure due to the COVID -19 pandemic. Although the Court did not expressly refer to the previous case which granted an injunction to D2Mark LLC on June 23, 2020, temporarily preventing the seizure of the indirect holdings of the landlord of the leasehold in The Mark Hotel2, the Court in the Shelbourne came to a similar conclusion – that a UCC foreclosure may not be commercially reasonable and “that actions to simply delay the sale weigh in [the plaintiffs’ favor]”.3
The plaintiffs own 100% of the interests in Shelbourne Broadway LLC and Shelbourne Albany LLC (the “Owners“) who, as common tenants, own a property known as 677 Broadway, Albany, New York (the”Goods“). The Owners have contracted a mortgage loan secured by the Property (the “Mortgage”) And the plaintiffs entered into a mezzanine loan with the defendants secured by 100% of the interests in the owners. In May 2020, homeowners defaulted on the mortgage due to a missed payment. Shortly thereafter, and due to mortgage default, the defendants informed the plaintiffs that they would proceed with a UCC foreclosure sale, via video conference on July 20, 2020.4
While the plaintiffs have brought a number of causes of action relating to the alleged default and foreclosure of UCC, the court only ruled on the plaintiffs’ claim that they would suffer irreparable harm if the UCC’s foreclosure continued and refused to respond to the parties’ other arguments. and issued a preliminary injunction on this basis.5 In rendering its decision, the Court noted that “[p]Article 7 of the administrative order of the Chief Administrative Judge of Courts dated July 23, 2020 (AO / 157/20) provides that “no auction or sale of property in a residential or commercial foreclosure case shall must take place before October 15, 2020. ‘”6 The Court extended this logic of the administrative order, which by its terms only prohibits mortgage foreclosure, to cover mezzanine foreclosures on the theory that “the valuation of interests in a company that owns real estate is based on the value of real estate. himself.7 The court ruled that due to the COVID-19 pandemic, the assessments and therefore the offers received during a UCC lockdown would be highly uncertain and therefore barred the defendants from proceeding with the lockdown of the UCC. ‘UCC until October 15, 2020. While a mezzanine foreclosure is clearly not a mortgage foreclosure, the court ignored the legal distinction between a mezzanine loan and a mortgage loan.
Although the court has not provided guidance on what might make a UCC lockdown commercially reasonable during the COVID-19 pandemic, given the court’s ruling in Shelbourne BRF LLC and the June 23 injunction regarding the mezzanine loan on The Mark Hotel, lenders should exercise caution when attempting to make UCC foreclosures in New York State as the COVID-19 pandemic continues .
1 Shelbourne BRF LLC, Shelbourne 677 LLC v SR 677 BWAY LLC, Index No. 652971/2020 (NY Sup. Ct., August 3, 2020).
2 Cadwalader’s memorandum on the lockdown of the Mark Hotel UCC is available at https: //www.cadwalader.com/resources/clients-friends-memos/the-mark-hote ….
3 Shelbourne BRF LLC, 652971/2020 to 1.
4 Complaint verified, Shelbourne BRF LLC, Shelbourne 677 LLC v SR 677 BWAY LLC, Index n ° 652971/2020 at 3-6.
5 Shelbourne BRF LLC at 12.
6 Identifier. to 1 (quoting Administrative order of the chief administrative judge of the courts of 23 July 2020 (AO / 157/20)).
7 Identifier. to 1.
© Copyright 2021 Cadwalader, Wickersham & Taft LLPRevue nationale de droit, volume X, number 233