SOUTHERN ACQUISITION COMPANY LLC v. TNT LLC 119 LLC (2021)

This is a commercial foreclosure and an issue of first impression, wherein the Plaintiff requests the Court 1) to invalidate and find the COVID-19-related hardship declaration filed by Defendants as lacking merit, and 2) to authorize the foreclosure sale to occur before May 1, 2021, notwithstanding the Executive Orders and the “Covid-19 Protect Our Small Business Act of 2021” (L 2021, c 73). Defendants did not submit opposition by the return date of March 16, 2021, prompting Plaintiff's counsel to submit a proposed order granting their relief. Approximately a week after the return date, Plaintiff's counsel inquired as to the status of the proposed order and was reminded that pursuant to CPLR § 2219 (a) the Court has sixty days from the return date of the motion to render a decision. Counsel should further be aware that not all unopposed motions are granted, as in the instant case.

The novel coronavirus known as COVID-19 has impacted the global economy in many unprecedented ways, particularly here in New York which largely shouldered the initial brunt of the first wave in the United States. The ravaging effects of this virus echoed through nearly every facet of our lives, resulting in crippling and dire financial circumstances effecting people and businesses alike. This has become the impetus for a renewed surge of foreclosures, where we presently stand at the beginning of a new wave of actions.

Local and State governments, largely and previously without meaningful federal assistance, have been deputized with the herculean task of balancing the rights of mortgagees versus residential and commercial mortgagors. The majority of the Executive Orders and Judicial Administrative Orders have focused on residential mortgagors, including stays of all proceedings, moratoriums on new filings, and new procedures regarding holding hardship conferences.

But small businesses in particular have been disproportionally impacted by the effects of COVID-19, despite being largely left out of many of the protections enjoyed by residential mortgagors. This changed dramatically in January of 2021 with the introduction of the “Covid-19 Protect Our Small Business Act of 2021” (hereinafter the “Act”) which subsequently passed in both the Senate and Assembly, and was signed by the Governor on March 9, 2021 (L 2021, c 73).

The Legislature acknowledged that “COVID-19 presents a historic threat to small businesses[ ] ․ [and] [t]housands of small businesses are facing eviction or foreclosure due to necessary disease control measures that closed or restricted businesses across the state” (Act, § 3). Given this impact, “[i]t is, therefore, the intent of this legislation to avoid as many evictions and foreclosures of small businesses as possible for businesses experiencing a financial hardship during the COVID-19 pandemic” (id.).

The Act is separated into two Parts, with Part A focusing on eviction proceedings (tenant rights) and Part B focusing on foreclosure proceedings (owner or mortgagor rights). Part B is further categorized into Subparts governing any action to foreclosure a mortgage relating to commercial property, foreclosure tax proceedings, and applying to any owner or mortgagor of commercial real property relating to discrimination in credit decisions. Each Subpart provides for a hardship declaration form.

Pertinently here, Subpart A allows an owner of mortgagor of a commercial property owning ten or fewer commercial units, where the business is a resident of New York, and employs 50 or fewer people (Act, Part B, Subpart A, § 1), to complete a hardship declaration preventing a foreclosure “until at least May 1, 2021” if the owner or mortgager is experiencing financial hardship due to a loss of revenue, increase in necessary expenses, moving expenses and difficulty in securing an alternative commercial property, and if one or more of the business's commercial tenants has defaulted on a significant amount of their rent payments since March 1, 2020 (Act, Part B, Subpart A, § 2, [1]-[4]).

In any action to foreclosure a mortgage in which a judgment of sale has been issued prior to the effective date of the Act, like in this case, “the court shall stay the execution of the judgment at least until the court has held a status conference with the parties” (Act, Part B, Subpart A, § 8). However, where “the mortgagor provides a hardship declaration ․ prior to the execution of the judgment, the execution shall be stayed until at least May 1, 2021” (id.). “A hardship declaration shall create a rebuttable presumption that the mortgagor is suffering financial hardship, in any judicial or administrative proceeding that may be brought, for the purposes of establishing a defense under an executive order of the governor or any other local or state law, order, or regulation restricting actions to foreclose a mortgage against a mortgagor suffering from a financial hardship during ․ the COVID-19 pandemic” (Act, Part B, Subpart A, § 10 [emphasis added]).

Here, this foreclosure matter has a tortured history dating back to April 2, 2014 when the action was commenced. The judgment of foreclosure and sale was signed on August 19, 2015. Six foreclosures sales were scheduled and cancelled due to eleventh-hour payments by Defendants to Plaintiff, and the last one stayed due to a voluntary filing of a petition for bankruptcy on December 3, 2018. It is without question that the COVID-19 pandemic did not cause the financial hardship endured by Defendants.

However, a hardship declaration not only covers the loss of revenue or increase in expenses during the COVID-19 pandemic, but also moving expenses and the difference in securing new commercial property (Act, Part B, Subpart A, § 2) for an owner or mortgagor “during” the COVID-19 pandemic (Act, Part B, Subpart A, § 10). Here, while the pandemic was not the impetus for the foreclosure, the Defendants enjoy a rebuttable presumption of the financial hardship during the pandemic (id.).

Plaintiff has failed to competently attack that rebuttable presumption. Plaintiff merely states in self-serving and conclusory terms that the hardship declaration “lacks merit and is being used for the sole purpose of delaying the foreclosure sale from being scheduled.” Nor did Plaintiff offer any exhibits on the motion papers, including the hardship declarations itself. It is axiomatic that the Court cannot evaluate the merit of the hardship declarations if none were presented to the Court on the motion, and it is not the province of the Court to perform counsel's obligations in presenting same for inspection. (See Loeb v. Tanenbaum, 124 A.D.2d 941, 942, 508 N.Y.S.2d 688 [3d Dept. 1986] [“There is no authority compelling [the court] to consider papers which were not submitted in connection with the motion on which it is ruling; indeed, under CPLR 2214[c], the court may refuse to consider improperly submitted papers.”] [citations omitted]; Sheedy v. Pataki, 236 A.D.2d 92, 97—98, 663 N.Y.S.2d 934 [3d Dept. 1997] [finding no abuse of discretion where the supreme court denied the plaintiff's present motion which referenced but did not include exhibits from a previous motion “[b]ecause a Supreme Court Justice does not retain the papers following his or her disposition of a motion and should not be compelled to retrieve the clerk's file in connection with its consideration of subsequent motions․”]; see also CPLR R. 2214 [c] [“Each party shall furnish to the court all papers served by that party. The moving party shall furnish all other papers not already in the possession of the court necessary to the consideration of the questions involved.”].) Plaintiff even failed to submit the most basic of documents, the complaint with the mortgage, to confirm that the Act applied to the instant proceeding.

To the extent that it appears necessary to expressly state, this action is STAYED, until at least May 1, 2021, pursuant to Act, Part B, Subpart A, § 8, which such stay shall CONTINUE until further Court order after the required status conferences are conducted. A status conference is being scheduled for this matter under a separate cover letter.

Furthermore, to the extent not specifically addressed above, the parties' remaining contentions have been examined and found to be lacking in merit or rendered academic.

Thereby, it is hereby

ORDERED that Plaintiff's motion is DENIED, and all other relief requested therein is denied in its entirety; and it is further

ORDERED that this action is STAYED, until further order of this Court, pursuant to the Act, Part B, Subpart A, § 8.

This constitutes the Decision and Order of the Court.

IT IS SO ORDERED.

Lisa M. Fisher, J.