In Atlas MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder LLC, 2019 NY Slip On 04495, decided on June 6, 2019, the Appeals Division, First Department, dismissed the grounds for a claim for annulment of a foreclosure sale of a mezzanine loan , including allegations that the lender violated the duty of good faith and fair dealing by failing to make a “commercially reasonable” UCC sale and that the transferee did not act in good faith in the sale.According to the Appellate Division, “…if UCC sales could be settled, it would only serve to cloud the waters around non-court sales conducted in accordance with Section 9 of the UCC, and to deter potential buyers.” from bidding on out-of-court sales, which, in turn, damages the debtor and secured party attempting to collect after a default.” This decision has been posted on:

http://www.nycourts.gov/reporter/3dseries/2019/2019_04495.htm.

The Permanent Editorial Board (“PEB”) for the Uniform Commercial Code, acting under the authority of the American Law Institute and the Uniform Law Commission (also known as the National Conference of Commissioners on Uniform State Laws), has issued a commentary that it disagrees with the decision in Atlas MF Mezzanine Borrower, LLC. According to the editorial board’s “Commentary”, “a transferee who has not acted in good faith asserts, among the debtor’s other rights over the collateral, the debtor’s right to repayment.”

“While the debtor is indeed entitled to claim monetary damages for a decision not in accordance with [UCC] Section 9-610 [citations omitted], the debtor is also entitled to the debtor’s right of repurchase and other rights to the collateral where the acquirer has not acted in good faith. An acquirer acting in bad faith may not invoke the ‘take free’ rule. Any policy based on commercial certainty is secondary to a policy not to reward those who act in good faith.”

PEB Comment No. 22, “Status of a Decision Under Section 9-610 of the Uniform Commercial Code if the Purchaser is Not Acting in Good Faith,” dated August 24, 2020, can be obtained at

https://www.ali.org/about-ali/governance/committees/joint-committees/.

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