Important NY Ruling on Mortgage vs. Mezzanine Lender Rights
This week we wanted to draw your attention to an interesting decision issued by Justice Andrew Borrok in the Commercial Division of the Supreme Court, New York County, which held, in relevant part, that absent an Intercreditor Agreement to the contrary, a Mezzanine Lender had no standing to challenge the foreclosure proceeding brought by the Mortgagee holding the first mortgage on a property.
The relevant facts of, as well as a link to, the case are set forth below.
U.S. Bank National Association (“U.S. Bank”) and 342 Property LLC (“342 Property”) were the respective holder and debtor of a $40,000,000.00 loan and mortgage (collectively the “Mortgage”) that was the subject of a foreclosure action for non-payment. Axonic Credit Opportunities Master Fund, L.P. (the “Mezzanine Lender”) was the holder of a certain mezzanine loan given to 342 Property and sought injunctive relief challenging U.S. Bank’s right to foreclose on the Mortgage. Notwithstanding the Mezzanine Lender’s objections, Justice Borrok granted the U.S. Bank’s motion for summary judgment. According to the Court, “[t]he Mezzanine Lender was structurally subordinate to the Mortgage Lender’s position. In the absence of an intercreditor agreement…providing otherwise, the Mezzanine Lender simply has no basis to contest the Mortgage Lender’s right to foreclose on the real property…It does not matter that the borrower under the mezzanine loan documents may have violated the mezzanine loan documents by consenting to the foreclosure of the Mortgage.” U.S. Bank, N.A. v. 342 Property LLC, 2022 NY Slip Op 30488, is posted at https://www.nycourts.gov/reporter/pdfs/2022/2022_30488.pdf
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