Commercial Division Blog
A Borrower's Subsequent Bankruptcy Frees Lender from its Election of Remedies
On October 7, 2013, Justice Kornreich of the New York County Commercial Division issued a decision in 172 Madison (NY) LLC v. NMP-Group, LLC, 2013 NY Slip Op. 51618(U), addressing whether a lender is bound by its election to foreclose on a mortgage rather than sue on the debt when the right to sue on the debt did not arise until after the election was made. Justice Kornreich held that it was not, writing:
[W]here, as here, a lender has conditionally agreed to limit its remedies to foreclosure, subject to the borrowing parties’ compliance with certain loan covenants, and the borrowing parties breach those covenants only after the commencement of foreclosure proceedings, RPAPL 1301 does not preclude the lender from seeking alternative relief at that point, since such relief was unavailable at the time the foreclosure action was commenced (see Gameways, Inc., 101 AD2d at 888 [holding that commencement of suit did not bar pursuit of previously unavailable administrative remedy]). To hold otherwise would undermine the widespread and settled use of nonrecourse loans subject to guaranties triggered by certain springing recourse events.