D2 Mark LLC v. OREI VI Investments LLC

D2 Mark LLC (the borrower) (plaintiff) owned a well-known New York City hotel, the appraisal value of which was $427 million. The hotel secured two loans totaling $265 million from OREI VI Investments (the lender) (defendant). The COVID-19 pandemic of 2020 forced the hotel to close and threw the borrower into default. Due to the pandemic, New York’s governor issued a statewide emergency order temporarily staying all eviction proceedings. However, the lender issued a foreclosure notice stating that the hotel would be auctioned at a foreclosure sale 36 days after the emergency order expired. The sale was to close within 24 hours. The borrower petitioned the trial-level New York Supreme Court for a preliminary injunction postponing foreclosure proceedings and providing more time for potential buyers to emerge and offer bids more reflective of the hotel’s true value. The court heard evidence establishing that: (1) the lender’s foreclosure and foreclosure-sale terms generally accorded with accepted business practices; (2) those accepted practices did not include the lender’s initial attempt to block the borrower from participating in the foreclosure sale; (3) the pandemic essentially shut down the commercial real estate market; (4) so far, notices advertising the foreclosure sale had attracted 115 inquiries but produced only two financially qualified bidders other than the lender; (5) city officials planned to lift the citywide ban on hotel reopenings just nine days before the scheduled foreclosure sale, allowing potential bidders almost no time to inspect the hotel on site as part of their due diligence; and (6) the pandemic had dried up the commercial-credit market, making it impossible for most bidders to close on the hotel’s purchase within 24 hours. The court also heard opinion testimony from a hotel-industry expert that the lender had rigged the foreclosure terms to take advantage of the pandemic conditions and purchase the hotel for a fire-sale price.