![]() ![]() While the court determined that Atlas could not unwind the UCC sale, it held that Atlas could seek money damages for Macquarie’s allegedly unreasonable sale.Ītlas offers a helpful clarification for mezzanine borrowers and lenders that find themselves facing a UCC disposition following a borrower’s loan default.Ītlas sends a clear message to defaulting borrowers: to prevent an allegedly improper UCC sale, the borrower should seek to enjoin the lender’s disposition as early as possible. Specifically, Section 9-625 allows the court to “order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions” if the secured party is noncompliant. The court supported its conclusions citing UCC 9-625, which addresses the remedies available to a debtor when a secured party fails to comply with Article 9 of the UCC. The court ruled that “unwinding” a disposition was not a remedy contemplated by the UCC and that the remedy for the borrower was to seek to enjoin the sale prior to the closing of the UCC disposition. In a decision that has given lenders assurance in the finality of UCC sales, the appellate court dismissed Atlas’ first cause of action seeking to invalidate or “unwind” the sale of pledged equity. Macquarie then appealed to the Appellate Division, First Department. Macquarie moved to dismiss and the trial court denied its request. Atlas alleged that the court should invalidate Macquarie’s transfer to KKR, return Atlas’ collateral, and impose punitive damages on Macquarie for conducting a commercially unreasonable disposition. Macquarie kept the sale’s $836,891.45 surplus, stating that it had incurred more than $1.3 million in attorneys’ fees. ![]() Macquarie rejected Atlas’ high-bid of $77 million and transferred the equity to KKR REPA AIV-2 L.P. While waiting for the court to decide on its request for an injunction, Atlas attempted to participate in the UCC auction. The trial court denied Atlas’ pre-sale request for a preliminary injunction, noting that Atlas “failed to demonstrate irreparable injury that cannot be redressed through a monetary award.” Prior to Macquarie’s disposition, Atlas moved to enjoin the sale. Eight days later, on January 11, 2017 Macquarie notified Atlas that it intended to sell Atlas’ equity in a nonjudicial public sale. On January 3, 2017-one day after the loan’s maturity date-Macquarie notified Atlas of its default and demanded payment. Atlas pledged its 100% equity interest as collateral for the loan. In Atlas, Atlas purchased 11 apartment complex properties financed with a $71 million mezzanine loan from Macquarie. and to deter potential buyers from bidding in nonjudicial sales.” The court reasoned that if courts were allowed to unwind UCC sales, “it would only serve to muddy the waters surrounding nonjudicial sales . . . Macquarie Texas Loan Holder, 174 A.D.3d 150, 152 (N.Y.S.3d 2019), New York’s Appellate Division, First Department, held that mezzanine borrowers may not invalidate a lender’s UCC disposition of its collateral after the sale’s conclusion. ![]() On June 6, 2019, in Atlas MF Mezzanine Borrower, LLC v. In anticipation of a potential flurry of UCC foreclosures, mezzanine lenders and borrowers should be reminded that seeking to unwind a completed UCC foreclosure sale is not permitted by New York law. Following years of forced inaction caused by the COVID-19 pandemic, lenders are again enforcing their rights against defaulting commercial real estate borrowers. ![]()
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