Livonia Prop. Holdings v. 12840-12976 Farmington Rd. Holdings

Decision Date14 June 2010
Docket NumberCivil No. 10-11589
Citation717 F.Supp.2d 724
PartiesLIVONIA PROPERTY HOLDINGS, L.L.C., Plaintiff, v. 12840-12976 FARMINGTON ROAD HOLDINGS, L.L.C., Defendant.
CourtU.S. District Court — Eastern District of Michigan

Andrew W. Mychalowych, Lindsay K. James, Siciliano, Mychalowych, Farmington Hills, MI, for Plaintiff.

Dennis G. Bonucchi, M. Sheila Jeffrey, Eric C. Bartley, Miller Canfield, Troy, MI, for Defendant.


JOHN FEIKENS, District Judge.


This matter is before the court on Plaintiff's Motion for Temporary Restraining Order and Preliminary Injunction. The case was initially filed in the Circuit Court for the County of Wayne, Michigan, Case No. 10-004441-NZ. Judge John H. Gillis Jr. issued a Temporary Restraining Order ("TRO") on April 15, 2010, and scheduled a hearing for April 21, 2010 to determine whether a preliminary injunction should issue. On April 20, 1010, Defendant Lender properly removed the action to this court on diversity grounds. I extended the effect of the TRO to May 14, 2010, scheduled a hearing for May 13, 2010, and requested supplemental briefing on certain questions. The matter has been fully briefed and a hearing was held on May 13, 2010.

A. The Original Mortgage And Note To Lehman Brothers

On December 2, 2004, Plaintiff Livonia Properties Holdings, L.L.C. ("Borrower") entered into a $16,300,000 Commercial Mortgage Loan (the "Loan") from Lehman Brothers Bank, FSB ("Lehman Brothers"). The Loan was secured by a Mortgage on four industrial properties in Livonia, Michigan (the "Properties"). The documents executed and delivered by Borrower in connection with the Loan include, but are not limited to, a Promissory Note (the "Note"), Mortgage, and Cash Management Agreement (collectively, the "Loan Documents").

The Loan was disbursed on December 30, 2004, leaving over $5.5 million dollars for Borrower after other disbursements.

B. The Initial Assignment(s) To The Trust

On or about January 6, 2005, effective January 11, 2005, Lehman Brothers executed an assignment of the Loan Documents (the "First Assignment"). Borrower alleges, and Lender appears to concede, that the First Assignment was actually accomplished by way of three interim transfers, occurring over approximately one month:

1. On or about January 6, 2005, effective January 11, 2005, Lehman Brothers sold the Loan to Lehman Brothers Holdings Inc. ("LBHI");
2. On or about January 31, 2005,1 LBHI transferred the Loan to Structured Asset Securities Corporation ("SASC");
3. On or about February 10, 2005,2 SASC deposited the Loan into the Trust (as defined below).

Ultimately, the Loan Documents were assigned to LaSalle Bank National Association, as Trustee for the registered holders of LB-UBS Commercial Mortgage Trust 2005-C1, Commercial Mortgage Pass-Through Certificates, Series 2005-C1 (the "Trust"). The documents executed and delivered by Lehman Brothers in connection with the First Assignment include, but are not limited to, an Allonge, an Assignment/Transfer of (Lien of) Mortgage/Deed to Secure Debt/Beneficial Interest Under Deed of Trust ("First Mortgage Assignment"), and an Assignment of Mortgage Loan Documents (collectively, the "First Assignment Documents").

It does not appear that separate assignments were executed to reflect each interim transfer. Instead, the First Assignment Documents, including the First Mortgage Assignment and the Allonge, list Lehman Brothers as Assignor and the Trust as Assignee. Lender suggests that the assignments were executed "in blank"-apparently contemplating the ultimate assignment to the Trust and later filled in to identify the Trust as the Assignee.

The First Mortgage Assignment was recorded with the Wayne County Register of Deeds on November 17,2005.

As discussed more fully below, Borrower argues that the missing interim assignments (reflecting LBHI and SASC as assignees) render the "record chain of title" fatally defective and preclude foreclosure by advertisement by any party.

C. Borrower's Payment History

Beginning in February 2005, Borrower made over $5,000,000 in payments to the Trust, until its default in October, 2009. During this time, Borrower never questioned the validity of the First Assignment.

D. The Prenegotiation Agreement

On December 22, 2009, Borrower entered into a Prenegotiation Agreement with the Trust. In the Agreement Borrower expressly acknowledged that (a) the Trust was the Holder of the Loan Documents; (b) the Loan Documents "are in full force and effect and are binding on the Borrower in accordance with their terms"; (c) "the Loan Documents continue to constitute Borrower's legal and enforceable obligations"; and (d) Borrower "currently holds no claim against Holder ... by virtue of any action(s) or inaction(s) of Holder or any of its predecessors-in-interest, if any." 3

E. The Loan Acceleration

On January 14, 2010, due to Borrower's default, the Trust accelerated the maturity of the Note and invoked the default rate of interest, effective as of October 12, 2009. As of January 10, 2010, the amount due and owing on the Loan was $17,846,855.93, including principal, interest, prepayment consideration and late charges.

F. The Assignment To Defendant Lender

On February 17, 2010, the Trust created the Defendant entity ("Lender"). The Loan Documents were assigned to Lender on or about March 3, 2010 by way of, among other documents, a Second Allonge, an Assignment of Mortgage, a General Assignment, and an Assignment of Claims (collectively, the "Second Assignment Documents").

The Assignment of Mortgage (the "Second Mortgage Assignment"), listing the Trust as Assignor and Lender as Assignee, was recorded with the Register of Deeds on March 4, 2010.

Before the hearing on this matter, Lender produced the originals of the LoanDocuments, the First Assignment Documents, and the Second Assignment Documents.

G. The Cash Management Agreement

Under the terms of the Cash Management Agreement, Borrower pledged substantial cash reserves to be held so long as a certain judgment remained unpaid. The agreement was to terminate upon notice to Lender that the judgment was deemed satisfied by a court of competent jurisdiction.

On March 1, 2010, a judge ordered that the judgment was satisfied. On March 4, 2010, Borrower provided notice of satisfaction to Lehman Brothers "and counsel for [Lender]" 4 and requested that the remaining cash reserves be immediately released to Borrower.

Borrower claims that "in excess of $400,000" has been wrongfully withheld. Borrower also contends that, if the funds had been released, it "could have paid those monies toward the debt obligation on the Promissory Note, so that the Note would not be in alleged default, thereby not causing any alleged default on the Mortgage." According to Borrower, then, Lender would have no right to foreclose the Mortgage, by advertisement or judicial process.

Lender notes that, upon an event of default of the Mortgage (which occurred in October 2009), "Lender may apply the Collateral to the payment of the Debt in any order in its sole discretion or for such other purposes as may be authorized under the Loan Documents." Lender argues that because Borrower defaulted seven months before the judgment was satisfied, Lender was within its rights to apply the funds "in any order in its sole discretion."

H. The Foreclosure

As required by the applicable statutes, on March 24, March 31, April 7, and April 14, 2010, Lender published notices that the Properties would be foreclosed by public auction on April 22, 2010. A notice of foreclosure was also posted on each of the Properties. Borrower makes no allegations of any defect in the notice procedure.

On April 12, 2010, Borrower's counsel notified Lender's counsel that it was challenging certain aspects of Lender's right to foreclose and requesting that Lender "cease and desist from all efforts attempting to sell or convey the properties, by advertisement or otherwise." Borrower's challenges include:

1. The Assignment from Lehman Brothers to the Trust is invalid because:
a. there is no assignee on the face of the document 5;
b. the person who executed the Assignment for Lehman Brothers lacked present intent to convey the documents to the Trust because the ink stamp defining the assignee was likely affixed after the assignment was executed; 6
c. the assignor also lacked present intent to convey the documents because Exhibit A to the assignment identifies the original mortgage recording date as January 24, 2005, eighteen days after the assignment was executed (on January 6, 2005).
2. The Assignment from the Trust to Lender is invalid because:
a. Borrower has no indication that the person executing this assignment had property authority to do so.
3. The Assignment to Lender references only an assignment of the Mortgage, not the Note. Borrower demanded evidence that the Note was also assigned, and physically transferred, to Lender.

Borrower also demanded evidence that the Cash Management Agreement was assigned to Lender, an accounting history regarding the loan, and a copy of the loan application.

On April 13, 2010, Lender responded by disputing Borrower's "validity" arguments. It also offered to make "the original Note, Mortgage, Assignment of Rents, and the necessary assignments" available at the office of Lender's counsel for "the limited purpose of confirming the documents contain the appropriate original signatures." Rather than take Lender up on its offer, Plaintiff filed the instant action.

Borrower now questions the validity of the First and Second Mortgage Assignments in this proceeding. As noted above, in addition to the challenges raised in Borrower's April 12, 2010 letter, Borrower claims that the failure to record interim assignments reflecting LBHI...

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