7-1-20 As seen in The Daily Record - Court reverses its own ruling in foreclosure case involving Masaschi
Posted on July 01, 2020
By: Kevin Oklobzija June 26, 2020
An unusual ruling recently happened on the way to a default judgment in a high-profile foreclosure case involving Rochester developer Thomas Masaschi:
State Supreme Court Justice Deborah A. Chimes decided she had erred in her decision surrounding the foreclosure on Monarch 716, a student housing facility near Buffalo State that was built by Masaschi and partner Jason Teller.
She initially ruled in February that the plaintiff, Acres Capital, LLC, could not recoup any alleged deficiency from Masaschi, Teller and their LLC, Buffalo State Ventures, following the sale of the property at an April 2019 foreclosure auction for $14 million.
But John McAndrew, the lawyer representing Acres Capital and a partner in the Secured Lending and Financial Recovery Department at Woods Oviatt Gilman, requested the opportunity to represent his case in state Supreme Court in Erie County.
Justice Chimes obliged and, following his argument, reversed course in May and declared that Acres Capital was still owed $3,665,183.56, plus interest, as a deficiency judgment.
“Judges don’t normally say, ‘I was wrong,’ ” McAndrew said. In this instance, however, Justice Chimes agreed that Acres Capital should collect what now totals just over $4 million from the defendants. “Obviously the property is worth more than $14 million,” McAndrew said.
That’s why, following the foreclosure sale on April 8, 2019, McAndrew sought a deficiency judgment to make up the difference between the property’s value and the sale price at auction (Acres Capital submitted the high bid of $14 million). A total of $47.665 million was owed on the project when foreclosure proceedings began in May of 2018.
Acres Capital submitted documentation that the property had an appraised value of $21.5 million. Buffalo State Ventures, through attorney Nicholas B. Davis of Davidson Fink LLP, submitted an appraisal of $44 million.
Under New York law, any deficiency judgment following a foreclosure sale is not simply based on the amount owed to the lender (in this case $47.665 million) minus the sale price at foreclosure (in this case $14 million). It must be determined based on the appraisal price of the property.
In February, the court accepted the defendants’ valuation of $44 million and ruled Acres Capital was not entitled to a deficiency judgment.
“We were scratching our heads,” McAndrew said. “Even with their number, we’re still owed money.”
He argued that point again, saying that “matters of fact were overlooked by the Court and matters of law were misapprehended by the Court on the prior motion,” court papers say.
In a May 12 ruling, Justice Chimes agreed, saying “that matters of fact were overlooked by the court in its prior decision and order,” according to court papers.
Justice Chimes said that in making her original ruling, she found the fair market value ($44 million) presented by the defendant’s valuation expert to be “more credible” than the appraisal presented by the plaintiff ($21.5 million).
Both appraisal experts used the same valuation methodologies, court papers show, but each side argued against the adjustments and capitalization rates that each side applied to determine “fair market value.”
Even in accepting the defendants’ appraisal, Justice Chimes said she failed to take into account the total amount owed on the loan of $47.665 million.
“As such, the court should have granted plaintiff’s motion for a deficiency judgment,” Justice Chimes wrote, saying Acres Capital is owed the $3.665 million, plus interest.
Masaschi and Teller filed appeal papers earlier this month. When a ruling is made on that motion, Acres Capital will then attempt to collect the deficiency judgment.
“He (Masaschi) has interest in a lot of different LLCs and corporations so maybe there’s some value there,” McAndrew said. “We’ll look at what they have. Maybe they will work something out.”
Monarch 716 is, according to McAndrew, “a beautiful property. It just got off on the wrong foot with the original property manager they hired. They were offering no deposit, no credit check and the first month free. That didn’t work.”
He said Acres Capital intends to sell the property.