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In Re 347 Linden LLC

June 8, 2011

IN RE 347 LINDEN LLC


The opinion of the court was delivered by: Matsumoto, United States District Judge

MEMORANDUM & ORDER

On April 22, 2011, 347 Linden LLC ("347 Linden," "Debtor," or "Appellant") brought an "Emergency Order to Show Cause with Temporary Restraints" to this court, requesting that the court order Federal National Mortgage Association ("Fannie Mae," or "Appellee") to show cause why an order should not be entered (1) staying two March 8, 2011 orders by the United States Bankruptcy Court, Eastern District of New York (Rosenthal, J.) granting relief from a stay and dismissing 347 Linden's chapter 11 petition, and (2) staying a foreclosure sale of the property known as 347 Linden Street, Brooklyn, New York 11237, Block 3328, Lot 47 (the "Property"). Fannie Mae opposes debtor's emergency application. On April 22, 2011, the court denied debtor's application to stay the foreclosure sale unless debtor posted a $100,000 bond by April 27, 2011. Debtor posted the bond on April 27, 2011 and the court stayed the sale, pending briefing on the instant motion. For the reasons set forth below, the debtor's request for a stay of the bankruptcy court's orders and of the foreclosure sale is denied.

BACKGROUND

I.Facts

Debtor is a New York limited liability company. (ECF No. 1, [Debtor's] Emergency Order to Show Cause with Temporary Restraints ("Debtor Pet."), Ex. C, Motion of Federal National Mortgage Association for Entry of an Order (A) Dismissing Chapter 11 Case; or Alternatively, (B) Modifying Automatic Stay (the "Lift Stay Motion"), at ¶ 9.) Debtor's sole asset is a multi-apartment property with two commercial units in Brooklyn, New York. (ECF No. 9, [Fannie Mae's] Memorandum of Law in Opposition to Appellant's Emergency Application for a Stay of the Bankruptcy Court's Orders Granting Relief from Stay and Dismissing the Chapter 11 Bankruptcy Case and a Stay of the Foreclosure Sale for Property Known as 347 Linden Street, Brooklyn, New York ("Fannie Mae Opp.") at 5.)

On or about August 12, 2005, debtor executed a note to Greystone Servicing Corporation, Inc. ("Greystone") in the aggregate principal amount of $1,364,000.00, which was secured by, inter alia, a Mortgage, Security Agreement, Assignment of Leases and Rents, and Fixture Filing (the "Mortgage"). (Lift Stay Motion at ¶ 10.) In addition, Abraham Hoffman (the "Guarantor"), a principal of 347 Linden, executed a guaranty of the Note in favor of Greystone. (Id.) Also on August 12, 2005, Greystone entered into an "Assignment of Multifamily Mortgage, Assignment of Rents and Security Agreement Loan" with Fannie Mae in which it assigned to Fannie Mae all of its rights, title, and interest in the Note, Mortgage and all other documents that evidenced or secured the obligations under the Note. (Id. at ¶ 11.) Under the terms of the Mortgage, debtor granted to Fannie Mae a security interest "under the Uniform Commercial Code for any of the Mortgaged Property which, under applicable law, may be subject to a security interest under the Uniform Commercial Code, whether acquired now or in the future, and all products and cash and non-cash proceeds thereof . . . ." (Id. at ¶ 12.)

The debtor failed to make timely monthly mortgage payments, which resulted in the assessment of default interest and late charges. (Lift Stay Motion at ¶ 13.) According to Fannie Mae, the debtor further breached the terms of the mortgage by, inter alia, granting a mortgage on the Property, dated June 8, 2005, to Investor Mortgage Corporation, to secure indebtedness in the amount of $3,434,065.05. (Id. at ¶ 14.)

On July 31, 2008, Fannie Mae initiated a foreclosure action in New York state court against the debtor and Mr. Hoffman, seeking to foreclose on the Property. (Lift Stay Motion at ¶ 15; Fannie Mae Opp. at 4-5.) Fannie Mae filed a motion for summary judgment in state court, but in March 2009, debtor entered into a forbearance agreement with Fannie Mae, pursuant to which Fannie Mae agreed to discharge a court-appointed receiver and reinstate the loan in exchange for debtor's resumption of mortgage payments. (Fannie Mae Opp. at 5.) In exchange, debtor agreed to consent to summary judgment in the foreclosure action and to the appointment of a referee, as well as to stipulate to the entry of judgment of foreclosure based upon the report of the referee. (Lift Stay Motion at ¶ 16.) The state court granted Fannie Mae's summary judgment motion on March 18, 2009, on the condition that an order appointing a referee be settled on notice. (Id. at ¶ 19.) On May 14, 2009, the state court entered an order appointing a referee to compute the amount due to Fannie Mae under the loan and to examine and report whether the Property could be sold in parcels. (Id. at ¶ 20.)

On July 1 and August 1, 2009, debtor failed to make the payments required under the loan. (Fannie Mae Opp. at 5; Lift Stay Motion at ¶ 21.) On October 29, 2009, the referee issued his report, indicating that a sum of $1,402,336.97 was due as of October 29, 2009, and that the Property should be sold in one parcel. (Lift Stay Motion at ¶ 23.)

On September 28, 2010, the state court entered a judgment of foreclosure and sale against the debtor. (Fannie Mae Opp. at 5; Lift Stay Motion at ¶ 24.) Pursuant to the judgment, the referee was ordered to hold an auction to sell the Property to the highest bidder. (Lift Stay Motion at ¶ 24.) On October 6, 2010, Fannie Mae informed debtor that the referee would be holding the auction on November 4, 2010 at 3:00 p.m. (Lift Stay Motion at ¶ 25.)

II.Procedural History

On November 3, 2010, the day before the scheduled sale of the Property, debtor filed a petition for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. § 101 et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of New York. (Fannie Mae Opp. at 5; Debtor Pet. at ¶ 24.)

On January 14, 2011, Fannie Mae filed a motion for entry of an order (a) dismissing the Chapter 11 petition; or (b) modifying the automatic stay. (Fannie Mae Opp. at 5; Debtor Pet. at ¶ 35.)*fn1 Debtor objected to the motion on February 16, 2011 and filed an Amended Disclosure Statement and Amended Plan of Reorganization on March 7, 2011. (Fannie Mae Opp. at 5; Debtor Pet. at ¶¶ 43, 57.)

On March 8, 2011, the bankruptcy court heard argument on Fannie Mae's motion. (Fannie Mae Opp. at 5; Debtor Pet. at ¶ 61.) Debtor did not request to call any witnesses to testify. (Fannie Mae Opp. at 11.) On the same day, the bankruptcy court granted Fannie Mae's motion requesting relief from the automatic stay, based on the court's findings that there was cause for lifting the stay, that there was no equity in the property, and that an effective reorganization plan was not possible. (Fannie Mae Opp. at 11-13; Debtor Pet. at ¶¶ 71, 72.) The bankruptcy court also dismissed the petition sua sponte, on the ground that debtor had failed to comply with the U.S. Trustee's requests for information and documents, and because there was no reasonable prospect of ...


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