U.C.C. Foreclosure Sale Held During December Holiday Season Not Commercially Unreasonable

On December 8, 2021, Justice Leon Ruchelsman of the Kings County Commercial Division issued a decision in Lincoln Street Mezz II, LLC v. One Lincoln Mezz 2 LLC, Index No. 530492/2021, denying a mezz borrower's motion for a preliminary injunction staying a U.C.C. foreclosure sale scheduled for December 20, 2021, and rejecting the mezz borrower's arguments that the sale was commercially unreasonable because, among other things, it was "scheduled to take place right before and indeed during the holiday season," and thus gave prospective buyers "insufficient time" to "obtain the necessary financing," explaining:

In New York a disposition of collateral is commercially reasonable if made "in the usual matter on any recognized market . . . at the price current in any recognized market at the time of the disposition . . . or otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition" (see, NY UCC § 9-627(b)). Further, pursuant to NY UCC § 9-610 (b) "every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable" (id).

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Concerning the argument the date of the hearing occurs during the holiday season, there are cases that hold service during the holiday season raises questions whether the notice was commercially reasonable. In Commercial Credit Group Inc., v. Barber, 682 SE2d 760, 199 N.C.App 731 [Court of Appeals of North Carolina, 1999] the court held that scheduling an auction two days after Christmas and providing notices a mere two days beforehand was not commercially reasonable. However, the court specifically noted the collateral in that case was a "highly specialized and expensive piece of inoperable machinery" that had a "narrow commercial use" and the notices therefore did not "enhance competitive bidding" (id). Further, in Highland COO Opportunity Master Fund LP v. Citibank N.A., 2016 WL 1267781 [S.D.N.Y. 2016] a party introduced an expert affidavit that opined that bids due on December 31 was commercially unreasonable because on the last day of the year "'most broker-dealers and investors are only partially staffed,' '[m]any or most of the senior personnel take the day off, and typically a skeleton crew is in place to conduct any minor business that may come up'; moreover, 'most buy-side (investment) firms close their books well before Christmas, year after year' and thus 'most potential bidders for an auction held on the last day of the year would not have been able to participate'" (id). The court held this raised questions of fact whether the notice was commercially reasonable.

In this case, however, the notices were publicized on November 11, 2021, well before any holiday season. The mere fact the actual sale is a few days before a holiday and might interfere with an overarching and extended holiday season does not mean the sale is commercially unreasonable as a matter of law. Thus, detailed information about vacation habits, flight availability and reduced work hours do not have any bearing on notices sent in early November. To argue otherwise would virtually eliminate most of the year as appropriate for scheduling a sale, after all, holidays and vacations are always approaching and can interfere with a steady and uninterrupted work flow. That is precisely why the few courts that have found such unreasonable notice dates as noted above, were instances where the dates were literally within a day or two of a holiday, objectively commercially unreasonable dates. Lastly, the agreement between the parties does not dictate certain periods of time where the scheduling of any foreclose [sic] sale may not occur. Surely, in this case there is no likelihood of success that such schedule is unreasonable as a matter of law.

The attorneys at Schlam Stone & Dolan LLP frequently handle disputes between commercial property owners and their lenders. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning a U.C.C. foreclosure sale or other mezz-lender remedies.