On June 6, 2019, the Appellate Division, First Department issued an important decision in Atlas MF Mezzanine Borrower v. Macquarie Texas Loan Holder LLC, 2019 N.Y. App. LEXIS 4484 (1st Dept. 2019), that will reassure the real estate lending community of the finality of foreclosure sales pursuant to the Uniform Commercial Code (UCC). In Atlas MF, the court addressed the ability of a borrower to unwind a closed foreclosure sale conducted pursuant to the UCC. The First Department reversed the Supreme Court’s decision and dismissed Atlas MF’s declaratory judgment claiming that a closed UCC foreclosure sale was invalid due to purported collusion between the lender and successful bidder, because that remedy was not provided in the UCC. Atlas MF, 2019 N.Y. App. LEXIS 4484, at *20-21.

This decision reaffirms that a borrower needs to seek injunctive relief prior to the sale of the collateral, and that after closing, the borrower’s remedy is limited to damages. In reaffirming those principles, the decision reinforces commercial certainty concerning the repossession of collateral through a UCC sale. However, in ruling that the issue of the commercial reasonableness of a UCC auction is “generally an issue of fact,” the First Department left the door open to borrowers to raise damages claims that will not be dismissed at the pleadings stage, exposing lenders to potentially expensive and protracted litigation as to whether the borrower suffered any damages.

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