Wilmington Tr. v. Winta Asset Mgmt.

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WILMINGTON TRUST, NATIONAL ASSOCIATION, Plaintiff, v. WINTA ASSET MANAGEMENT LLC, et al., Defendants.

No. 20-CV-5309 (JGK) (VF)

United States District Court, S.D. New York

December 21, 2023

JOHN G. KOELTL, UNITED STATES DISTRICT JUDGE

REPORT AND RECOMMENDATION

VALERIE FIGUEREDO, UNITED STATES MAGISTRATE JUDGE.

This matter was referred to the undersigned for a Report and Recommendation as to whether a judgment of foreclose and sale should be issued and the amount of the judgment, as well as whether a receiver should be appointed.

BACKGROUND^[1]

Plaintiff Wilmington Trust, National Association, as Trustee for the Registered Holders of Wells Fargo Commercial Mortgage Trust 2015-NXS2, Commercial Mortgage Pass-Through Certificates Series 2015-NXS2, acting by and through Rialto Capital Advisors, LLC (the “Special Servicer”), under the Pooling and Servicing Agreement dated as of July 1, 2015 commenced this action against Winta Asset Management LLC (the “Borrower”), New York City Department of Finance,^[2] and Shuigun Chen (the “Guarantor,” and together with the Borrower, the “Defendants”) to foreclose a Consolidated, Amended and Restated Mortgage, Assignment of Lease and Rents and Security Agreement dated April 29, 2015 (the “Mortgage”), see ECF No. 149-3, in the original principal amount of $15,000,000. The Mortgage is secured by, among other things, the real property at 70 Broad Street in Manhattan (the “Property”). See ECF No. 149, Decl. of Javier Callejas (“Callejas Decl.”) ¶¶ 2, 5, 8.

In a loan agreement dated April 29, 2015 (the “Loan Agreement”), the Borrower obtained a loan from Silverpeak Real Estate Finance LLC in the amount of $15,000,000 (the “Loan”). Callejas Decl. ¶¶ 5-6, Ex. 1 (the Loan Agreement). The loan was memorialized in the Consolidated, Amended and Restated Promissory Note, dated April 29, 2015, and executed by the Borrower (the “Note”). Callejas Decl. ¶ 7, Ex. 2 (the “Note”). As additional collateral security for payment of the Loan, the Borrower executed a Mortgage and an Assignment of Leases and Rents, dated April 29, 2015. Id. at ¶¶10-11. The Mortgage granted the lender a security interest in the Property and the Assignment of Leases and Rents granted the lender a security interest in all rents generated from the property. Id.

In Count I of the First Amended Complaint, Plaintiff sought a judgment of foreclosure and on November 5, 2021, Plaintiff moved for summary judgment against the Borrower on that count. See ECF No. 107, at 2; see also ECF No. 57 at ¶¶ 10-62 (First Am. Compl.). In a memorandum opinion and order dated July 8, 2022, the Honorable John G. Koeltl granted Plaintiff's summary judgment motion as to Count I, concluding that Plaintiff had set forth sufficient facts to establish its prima facie entitlement to a judgment of foreclosure and Defendants had failed to raise a genuine issue of fact as to a bona-fide defense to the foreclosure claim.^[3]See ECF No. 136 at 11, 15, 19. More specifically, the Court concluded that Plaintiff had set forth facts establishing the existence of the Mortgage, the Note, and the Borrower's default. See ECF No. 136 at 11. As the Court explained: Plaintiff had shown that the Borrower executed the Note in favor of the lender; the lender advanced the loan to the Borrower pursuant to the terms of the Loan Agreement and the Note; as collateral security for payment of the Loan, the Borrower executed and delivered the Mortgage to the lender; the Plaintiff is the assignee of the Note by virtue of assignments of the Mortgage; and the Borrower is in default of its obligations under the Loan Agreement. Id. The Court instructed Plaintiff to file “a proposed judgment of foreclosure or seek a reference to the Magistrate Judge for an inquest as to the proper judgment.” Id. at 22.

On February 10, 2023, Plaintiff moved for entry of a Final Judgment of Foreclosure pursuant to Federal Rule of Civil Procedure 54(b) in favor of Plaintiff and against the Borrower. See ECF No. 147. As part of its motion, Plaintiff seeks a computation of the amounts owed to it as follows: (1) the principal balance of the Loan, in the amount of $15,000,000; (2) accumulated unpaid interest owed on the principal balance of the Loan through February 6, 2023, in the amount of $1,853,467.92; (3) default interest, at the default rate of 5%, through February 6, 2023, in the amount of $7,372,800.64; (4) late fees under the Loan Agreement in the amount of $7,622.11; (5) fees owed to the Special Servicer in the amount of $122,500; (6) taxes and insurance advances paid by Plaintiff with respect to the Mortgaged Property in the amount of 1,357,834.89; (7) property protective advancement payments for operating expenses, repair and maintenance costs and other expenses relating to the Mortgage Premises, in the amount of $426,578.19; (8) accrued interest on the taxes and insurance advances and on the property protective advances in the amount of $249,410.61; (9) a liquidation fee for the Special Servicer in the amount of $191,610.77; (10) a yield maintenance premium of $150,000; and (11) a UCC filing fee in the amount of $85.23, and a payoff processing fee in the amount $1,200. See Callejas Decl. ¶¶ 49, 54, 58, 59, 65-68, 72, 78, 79-82; see also ECF No. 153, Reply Decl. of Javier Callejas (“Callejas Reply Decl.”) ¶¶ 7-8; ECF No. 150 at 2; ECF No. 215 at 1. Plaintiff is in possession of $260,445.90, which it will apply to the amount it claims is owed by Defendants. Callejas Decl. ¶¶ 85. Plaintiff thus seeks a total award of $26,472,664.46. See ECF No. 150 at 2; Callejas Decl. ¶ 48 and Schedule I. Plaintiff has brought no other action or proceeding to recover any part of the mortgage indebtedness it seeks to recover here. Callejas Decl. ¶ 84. Additionally, Plaintiff also seeks an award of attorneys' fees in the amount of $384,424.36 and costs in the amount of $5,891.37. See ECF No. 148, Decl. of Keith Brandofino (“Brandofino Decl.”) ¶¶ 8, 13.

In support of its motion, Plaintiff has provided declarations from Javier Callejas, in his capacity as an Asset Manager of Rialto Capital Advisors, LLC, the Special Servicer for the loan. See Callejas Decl.; Callejas Reply Decl.. Callejas attests that the facts set forth in his declaration are based on his personal knowledge and his review of the books and records of Plaintiff and the Special Servicer. Callejas Decl. ¶¶ 3-4.

On March 3, 2023, the Defendants opposed the motion. See ECF No. 151. On May 1, 2023, the motion was referred to the undersigned for Report and Recommendation. ECF No. 156. A hearing on the motion was held on December 14, 2023. See ECF No. 239 (“Tr.”).

DISCUSSION

A. Judgment of Foreclosure and Sale

After concluding that Plaintiff had established a prima facie entitlement to foreclosure and that Defendants had failed to raise a genuine issue of fact as to any defense, Judge Koeltl awarded Plaintiff summary judgment on the foreclosure claim in Count I of the First Amended Complaint. See ECF No. 136 at 11, 18-19. Plaintiff is thus entitled to a final judgment of foreclosure and sale. See Capital One Nat'l Ass'n v. 48-52 Franklin, LLC, No. 12-CV-3366 (LGS), 2014 WL 1386609, at *8 (S.D.N.Y. Apr. 8, 2014) (awarding judgment of foreclosure and sale where plaintiff established prima facie case and defendant had no defense).

Additionally, “courts regularly appoint referees in cases of mortgage foreclosures and sales” in order to oversee the sale of the property and ensure the proceeds from the sale are distributed in accordance with the Court's computation. See Windward Bora, LLC v. Brown, No. 21-CV-3147 (KAM) (RER), 2022 WL 875100, at *5 (E.D.N.Y. Mar. 24, 2022); see also U.S. Bank Tr., N.A. v. Dingman, No. 16-CV-1384 (CS), 2016 WL 6902480, at *4 (S.D.N.Y. Nov. 22, 2016) (explaining that appointment of referee is appropriate to oversee sale of property). Here, Plaintiff's proposed Judgment asks for the appointment of Ian V. Lagowitz as Referee, see ECF Nos. 150, 216, and Defendants have not objected to his appointment. I thus recommend that Mr. Lagowitz be appointed as Referee for purposes of accomplishing a sale of the property.

Moreover, I also recommend that the proceeds of the sale be applied to the total amount owed pursuant to the loan documents, as set forth below. See OneWest Bank, N.A. v. Denham, No. 14-CV-5529 (DRH) (AKT), 2015 WL 5562980, at *14 (E.D.N.Y. Aug. 31, 2015) (recommending foreclosure and sale of property with proceeds to be applied to amount owed on the loan, where plaintiff established existence of an obligation secured by a mortgage and a default of that obligation).

B. Damages

Under Section 1321 of the New York Real Property Actions and Proceedings Law (“RPAPL”), a “trial court has the authority to compute the amount owed or appoint a referee to do the same.” Dingman, 2016 WL 6902480, at *4. It is Plaintiff's burden to prove damages. Lupia v. N.J. Transit Rail Operations, Inc., No. 21-CV-11077 (LJL), 2023 WL 2387100, at *6 (S.D.N.Y. Mar. 7, 2023). Damages must be determined with reasonable certainty. Hosking v. New World Mortg., Inc., 570 Fed.Appx. 28, 31 (2d Cir. 2014). “Any determination of damages in an action for foreclosure and sale should be determined under the terms of the Notes and Mortgages.” E. Sav. Bank, FSB v. Rabito, No. 11-CV-2501 (KAM) (VVP), 2014 WL 4804872, at *1 (E.D.N.Y. Sept. 10, 2014).

1. Unpaid Principal

The original loan amount was for $15,000,000. Callejas Decl ¶ 5; see also id. Ex. 1, § 2.1. The Borrower was obligated to make interest-only payments until March 6, 2020; payment of the principal was to begin on April 6, 2020. Callejas Decl. ¶ 50; see also id. Ex. 1, §§ 1.1, 2.2.1. On April 6, 2020, however, the Borrower did not pay the Monthly Debt Service Payment as required under...