CIT Lending Servs. Corp. v East Houston Partners, LLC

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CIT Lending Servs. Corp. v East Houston Partners, LLC 2010 NY Slip Op 34105(U) March 10, 2010 Supreme Court, New York County Docket Number: 113222/09 Judge: Judith J. Gische Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [* 1] Surpreme Court of the State of New York County of New York: Trial Part 10 ---x CIT Lending Services Corporation, ' Plaintiff, Decision/Order Index #113222109 Mot. Seq. # 001 -againstEast Houston Partners LLC, Kyle Ransford, Trevor Stahelski, A &B Caulking Company, ff!c. Bayport Construction Corp., FSM Electrical Corporationt Saramac International Inc., Stone Diversified Services, Park Avenue e·uilding and Roofing Supplies, LLC, Kiska Group, Ltd. 1 Rotavele Elevator, Inc., United Rental North America, Solco Plumbing Supply, Inc., Malota Plumbing contracting Corp., Thomas S. Brown Associates, lnc. 1 ERA_USA Contracting LLC, Colgate Scaffolding & Equipment Corp., A &E Surfaces, Co., and John does #1 through John Doe # 101 Defendants. Gische, J.: -----x Pursuant to CPLR 2219{a) the following numbered papers were considered by the court on this motion: PAPERS • NUMBERED Ex Parte Motion SAC affd., exhibits.................................................................................1 BCK declaration, exhibit. .................................................................................................2 TS affd. in Opp., exhibits.................................................................................................3 TS supplemental affd. In Opp., exhibits...............................................................:............4 Upon the foregoing papers, the decision and order of the Court is as follows: The underlying action is to fqreclose certain mortgages made by plaintiff, CIT Lending Services C1Clr') to defendant East Houston Partners, LLC in connection with developing the properties located at 41 and 45 East Houston Street, New York, New Page 1of4 [* 2] ,J York (11properties11). CIT originally presented an ex-parte order for the appointment of a receiver for the properties, based upon its claim that East Houston Partners, LLC was in ·' default on the mortgages. The Court converted the application to a motion on notice to defendants. The motion is opposed only by defendants East Houston .Partners, LLC, its principal, Trevor Stahelskl estahelskn and Kyle Ransford C'.Ransford') (collectively "EHP11}. EHP obtained financing to develop the properties into an eleven story building consisting of condominium units and retail space on the first floor. CIT provided approximately $17,000,000.00 of financing for the project, which consisted of: [1] a Project Loan Mortgage dated 12/29/06; [2] an Acquisition Loan Mortgage dated 12/29/06; [3] a Building loan Mortgage dated 12/29/06; [4] a Substitute Building Loan Mortgage dated 4/27/07 and (5) a Substitute Project Loan Mortgage dated 4/27/07 (collectively 11mortgages"). Each of the mortgages provides that in the event of a default by East Houston Partners, LLC, CIT has the right to secure the appointment of a receiver. CIT claims that East Houston Partners, LLC defaulted on the mortgages by: (1) failing to pay the principal surn of $16,992,151.72 which came due on January 1, 2009; (2) failing to maintain insurance; and [3] failing to pay materialmen, mechanics and laborers. A significant amount of the project has been completed. The parties report that . the project is 95% completed. At some point, however, EHP stopped construction and CIT claims that its collateral is currently being compromised. It claims that the properties are not properly secured, which has led to and creates a risk that materials Page2of 4 [* 3] will be removed from the site. It claims that certain p~rmits have expired and that systems, like sidewalks are in ne~d of repair. The properties currently produce no ! income. In opposition to the application EHP argues that !t has a prior action filed against CIT for breach of contract, breach of the covenant of good faith and fair dealing and other claims arising form CIT's failure to timely and fully fund the lending commitments. It further argues that, the based upon its own observations, the property is not deteriorating since CIT halted funding was in March 2009 and that it too has an interest In protecting its $71000,000.00 investment in the ~roperties. EHP claims that a receiver will add an unnecessary level of expense to the project and that the Court should, in its discretion, deny the application. EHP also argues the receiver is being sought under false pretenses since CIT originally sought a recevier to collect rents and pay expenses, but there are no such expenses to pay. A mortgage provision which provides for the ex parte appointment of a receiver upon default is valid and binding on the parties. RPL §254.10. The court, however, still maintains discretion over such appointment. Naarv. J.J. Litwak &Co., 260 AD2d 613 (2nd dept. 1999); Clinton Capital Coro. v. One Tiffany Place Developers, Inc., 112 AD2d 911 {2nd dept. 1985). The problem with this application for a receiver in this case is two fold. First, it is unclear what CIT would want the receiver to do. Since this is not an operating property, but one that it is still in development, it would seem that any Receiver's role wold be limited to protection of the property until the foreclosure action is concluded. Secondly, since the property produces no income, CIT has not set forth what financial Page3 of 4 [* 4] arrangements, if any, it is willing to make to pay for the seivices that may be required to preserve its collateral. ! Where, as here, the monies available frpm the building are insufficient to meet the expenses, the plaintiff cannot be compelled to advance the necessary funds. Litho Fund Equities. Inc. V. Alley Spring Apartment Coro., 94AD2d13 (1 51 dept. 1983); East Chatham Com. v. Iacovone, 25 AD2d 622 (1 1t dept. 1966). CPLR § 8004(b) permits a Court to order, at the end of the receivership, that the party who sought the appointment in the first place pay the receiver's commissions under certain circumstances (Sun Beam Enterorises. Inc. v. Liza Realty Corp., 210 AD2d 153 [1 51 dept 1994)). We already know that the building does not produce any income to pay receivership commissions. There is no similar provision that allows the Court to order that other ongoing receivership expenses be so paid. Accordingly, the motion is denied without prejudice to renew upon an application by CIT Indicating the specific duties and obligations it seeks for any appointed receiver in connection with preserving the collateral and a financial commitment to pay the expenses attendant to fulfilling the duties and responsibilities assigned, including reasonable compensation for the receiver, to the extent there are no funds available in running the buildlng. Dated: New York, New York March 10, 201 O SO ORDERED: J.G. Page4of 4 J.S.C.~

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