FORT CRE 2022-FL3 ISSUER LLC, et al. v. Mark Karasick, et al.
Attorneys and Parties
Brief Summary
Whether a New York action to enforce absolute and unconditional payment guaranties must be stayed under New York Civil Practice Law and Rules (CPLR) 2201 [authorizing courts to grant a stay of proceedings in a proper case] pending resolution of a related out-of-state foreclosure action.
Granted a CPLR 2201 stay of the New York guaranty action until the Minnesota foreclosure action concluded.
The order granting the stay; the motion for a stay was denied and the stay vacated.
The guaranties are absolute and unconditional guaranties of payment (not collection) with broad waivers eliminating defenses tied to the borrower, collateral, and even post-execution lender misconduct; defenses in the Minnesota foreclosure are irrelevant to enforcement of these guaranties. The "actual losses, actual damages" phrasing in § 1.2 does not convert the payment guaranty into a conditional collection guaranty and, in any event, applies to § 1.2(b), not § 1.2(a) relied upon here.
Background
Plaintiffs sued in New York to enforce payment guaranties executed by defendants in connection with a loan that is the subject of a pending Minnesota foreclosure action against the borrower. Defendants sought—and the trial court granted—a stay under New York Civil Practice Law and Rules (CPLR) 2201 [authorizing courts to grant a stay of proceedings in a proper case], arguing the New York guaranty enforcement should await resolution of defenses and issues in the Minnesota case. Plaintiffs appealed, also raising arguments about party identity, prejudice, and Real Property Actions and Proceedings Law (RPAPL) § 1301(3) [election-of-remedies provision limiting multiple actions on the same mortgage debt].
Lower Court Decision
The Supreme Court, New York County, granted defendants' motion to stay the New York guaranty action under CPLR 2201 pending the outcome of the related Minnesota foreclosure action.
Appellate Division Reversal
The Appellate Division unanimously reversed, denied the stay motion, and vacated the stay. The court held that the guaranties expressly: (1) are guaranties of payment, not collection; (2) do not require exhaustion of remedies against the borrower or collateral; (3) keep guarantors liable even if the borrower is found not liable for any reason; and (4) waive any offset, claim, or defense the borrower might have against the lender, including challenges based on post-execution misconduct. The court further held that the 'actual losses, actual damages' language in a separate paragraph of § 1.2 does not transform the guaranty into a conditional collection guaranty and, in any event, applies to § 1.2(b) rather than § 1.2(a), which plaintiffs invoke. Because the guaranties foreclose the defenses raised, there was no basis to delay enforcement pending the foreclosure action. The court did not reach arguments concerning party identity, prejudice, or RPAPL § 1301(3).
Legal Significance
Reaffirms that New York courts will enforce absolute and unconditional guaranties of payment according to their terms without requiring lenders to await borrower litigation or exhaust remedies in related foreclosure proceedings. Broad waiver clauses can bar guarantors from invoking borrower defenses and even allegations of post-execution lender misconduct. Language referencing 'actual losses' does not, without more, convert a payment guaranty into a conditional guaranty of collection.
In New York, absolute and unconditional payment guaranties with comprehensive waivers are immediately enforceable against guarantors, and courts will not stay such actions under CPLR 2201 based on defenses being litigated in related foreclosure cases.