On February 14, 2022, Judge Andrew Borrok of the New York County Commercial Division issued a decision in US Bank NA vs. 342 Prop. LLC2022 NY Slip Op. 30488(U), holding that in the absence of a control clause in an intercreditor agreement, a mezzanine lender had no basis to challenge the mortgage lender’s right to foreclose on the property securing the mortgage, explaining:
The mezzanine lender was structurally subordinate to the mortgage lender position. Absent an intercreditor agreement (i.e. an agreement between the mortgage lender and the mezzanine lender) to the contrary, the mezzanine lender simply has no reason to challenge the mortgage lender’s right to seize the property. It is nature to occupy the mezzanine position.
It doesn’t matter that the borrower under the mezzanine loan documents could have breached the mezzanine loan documents by consenting to the foreclosure of the mortgage. The mortgage lender is not a party to this agreement and the mezzanine lender does not assert that there is an intercreditor agreement preventing foreclosure [*3] by the mortgage lender.
In other words, while the mezzanine lender may have negotiated the right to repay the loan or conduct a UCC sale, the mezzanine lender did not negotiate the ability to prevent the mortgage lender from foreclosing the property. He only negotiated the rights set forth in the Mezzanine Band Documents and the Intercreditor Agreement, including his ability to pursue remedies against the Borrower to the extent that the Borrower may be in breach of the Mezzanine Loan [**3] documents. He can do that.