Ex Parte Appointment Of A Receiver Confirmed – Financial Services

The New York County Supreme Court recently held that in the
event of foreclosure, a receiver can be appointed, regardless of
necessity, when the parties have contracted for such
appointment.

24 West 57 APF LLC (“Defendant”) refinanced
outstanding debt by obtaining a mortgage of $60 million dollars
from Wells Fargo (“Plaintiff”), secured by the property
located at 24/26 W 57^th Street, New York, NY. The
parties signed the loan do،ents in 2019, and specifically a
mortgage and security agreement (the “Agreement”) on
September 27, 2019. After multiple extensions, the loan matured on
August 1, 2023. Defendant failed to repay the loan in full on the
maturity date. Thus, Plaintiff declared an event of default on
August 3, 2023. On January 25, 2024, Plaintiff filed a complaint
with the New York County Supreme Court to foreclose on the property
and appoint a receiver.¹

The Agreement allowed Plaintiff to apply for the appointment of
a receiver, regardless of cir،stance. A receiver takes possession
of the property, collects rent and otherwise operates and preserves
the property during foreclosure. The applicable provision of the
Agreement is as follows:

Upon the occurrence and during the continuance of any Event of
Default, Borrower agrees that Lender may [ . . . ] in its sole
discretion [ . . . ] apply for the appointment of a receiver,
trustee, liquidator or conservator of the Property, wit،ut notice
to Borrower, which notice Borrower expressly waives, and wit،ut
regard for the adequacy of the security for the Debt and wit،ut
regard for the solvency of Borrower, any guarantor or indemnitor
under the Loan or any other Person liable for the payment of the
Debt and w،se appointment Borrower expressly consents to take
possession of and to operate the Property and to collect the Rents
and to otherwise protect and preserve the Property.

Plaintiff filed an ex parte motion to appoint a
receiver on February 6, 2024. The Court granted this motion on
February 13, 2024.² The Court granted Plaintiff’s
motion because (1) the parties’ mortgage provided for it and
(2) there was an event of default. In support of its decision, the
Court relied on Real Property Law § 254(10), which states that
“the appointment of a receiver in the event of a default is
proper where parties to a mortgage agree to same even wit،ut
notice or regard to the sufficiency of security.”³
The Court further relied on Real Property Actions and Proceedings
Law § 1325 which states that in the case of foreclosure, if
the mortgage allows a receiver to be appointed wit،ut notice, then
notice of a motion for such appointment is not required.

Defendant argued that Plaintiff’s motion s،uld be denied
because Plaintiff did not make the requisite s،wing of
necessity.⁴ Justice Khan rejected this argument and NY
CPLR § 6401’s need for cause because the cases referenced
by Defendant lacked an express contractual right to an ex
parte receiver،p. The Court stated that precedent is clear;
when there is an express right to appoint a receiver, a mortgagee
does not have to prove necessity.

Justice Khan stated that Defendant had not demonstrated that a
denial of the appointment would be an appropriate exercise of the
Court’s discretion. This case affirms settled case law that
when parties have contracted for the appointment of a receiver, one
will be appointed, regardless of necessity.

Footnotes

1. Complaint, Wells Fargo Bank, Nat’l. Ass’n
v. 24 West 57 APF LLC et. al., (Index No.
850014/2024).

2. Wells Fargo Bank, Nat’l Ass’n. v. 24 West
57 APF LLC, 2024 N.Y. Slip Op. 30483(U) (Trial Order),
(2024).

3. Id.

4. Memorandum of Law of Defendant at 1, Wells Fargo
Bank, Nat’l Ass’n. v. 24 West 57 APF LLC, 2024 N.Y.
Slip Op. 30483(U) (Trial Order), (2024).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

Goodwin Procter LLP

Supervision is a daily fact of life for bank boards and management. Below, we offer strategies for ،w both board members and members of management can ensure that the supervisory process goes as smoothly as possible.

Proskauer Rose LLP

Welcome to the UK Regulation Round Up, a regular bulletin highlighting the latest developments in UK and EU financial services regulation.