Here's what the MAve Hotel ruling – a major win for lenders – means for commercial finance
In a decision likely to influence how commercial lenders enforce financial controls, a New York appellate court has ruled that U.S. Bank may pursue claims against a hotel borrower for failing to comply with cash management provisions—even while a foreclosure action is pending.
On April 10, 2025, the Appellate Division, First Department, in U.S. Bank N.A. v. MAve Hotel Investors LLC (2025 NY Slip Op 02140), largely upheld a lower court’s denial of a motion to dismiss, allowing most of the bank’s claims to move forward. The ruling clarified that claims for breach of loan-related contractual provisions are not necessarily barred by foreclosure law, even when tied to the same loan.
The case arises from a $22 million commercial loan extended in 2013 to MAve Hotel Investors LLC, secured by a mortgage on a hotel property located at 62 Madison Avenue in Manhattan. Alongside the loan and mortgage, the borrower entered into several related agreements—an assignment of rents and leases, an assignment and subordination of the management agreement, and a deposit account agreement. Together, these are referred to as the Cash Management Agreements.
Under those agreements, the borrower and property manager, Madison Hospitality Management LLC, were required to deposit all hotel-generated rents into a clearing account held in trust for the benefit of the lender and under its sole control. Guarantors Salim Assa and Ezak Assa were also liable under a guaranty for any misapplication or misappropriation of rents or awards.
In October 2020, the hotel’s sole tenant, Acadia Network Housing Inc., vacated the premises. MAve and its manager sued Acadia for back rent. U.S. Bank, acting as trustee for the holders of COMM 2013-CCRE12 Mortgage Trust Commercial Mortgage Pass-Through Certificates, later alleged that MAve and its affiliates received a substantial settlement in that case but failed to deposit those funds into the clearing account, as required.
The borrower defaulted in January 2021 by failing to make required monthly payments. After issuing a notice of default and giving an opportunity to cure, the lender accelerated the loan. A foreclosure action was filed in December 2021.
Then in May 2023, U.S. Bank initiated a separate action against the borrower, property manager, and guarantors, alleging breach of the loan agreement and Cash Management Agreements for failure to deposit the settlement and rents into the clearing account, and breach of the guaranty. It also sought a declaratory judgment declaring the bank’s entitlement to any award the borrower might receive from the Acadia litigation.
The defendants moved to dismiss under CPLR 3211, arguing that the action violated RPAPL 1301(3), which bars simultaneous actions for mortgage debt without court permission. They also claimed the bank was not entitled to rents since it had not obtained the appointment of a receiver or taken possession of the property. Additionally, they argued the guaranty claim failed due to lack of a proper demand, and that the declaratory judgment was unsupported because the cited mortgage clause only covered government condemnation awards.
The Supreme Court denied most of the motion, dismissing only the declaratory judgment claim. The Appellate Division affirmed.
The appellate court found that RPAPL 1301(3) did not bar the action because the bank was seeking to enforce obligations “separate from defendants’ obligation to repay the mortgage debt.” These included the borrower’s failure to deposit funds as contractually required. The court explained that the action was not one to recover on “any part of the mortgage debt” but rather for breach of nonpayment obligations under independently enforceable agreements.
Importantly, the panel ruled that the bank’s failure to obtain a receiver or take possession of the property did not preclude the action. The claims were not based on the bank’s equitable lien as a mortgagee, nor did they seek a turnover of rents in the equitable sense. Instead, the bank alleged breaches of contract related to specific deposit obligations in the clearing account. As such, the usual rule—that mortgagees must either obtain a receiver or possession before collecting rents—was not applicable.
The court also upheld the breach of guaranty claim, noting that the complaint sufficiently alleged that a demand was made upon the guarantors and that they were liable for misappropriated rents. At the pleading stage, that was deemed sufficient to withstand dismissal.
However, the court dismissed the bank’s sixth cause of action, which sought a declaratory judgment concerning future proceeds from the Acadia settlement. The court agreed with the defendants that Section 1.1(i) of the mortgage—cited by U.S. Bank—only covers condemnation awards arising from government actions, not private settlements like the Acadia Action.
Justice Singh dissented in part, arguing that the action was effectively an attempt to recover mortgage debt under a different label, which RPAPL 1301(3) prohibits without court leave. He also contended that, absent a receiver, the bank had no legal right to enforce rent collection, and that the bank had suffered no damages apart from those already being pursued in the foreclosure.
The ruling provides an important precedent for commercial lenders by affirming that violations of loan provisions involving rent handling and cash flow management may be enforced independently from foreclosure proceedings. The decision allows financial institutions to pursue non-mortgage contractual remedies even when the primary debt is already the subject of foreclosure litigation.
For mortgage professionals managing distressed assets, particularly in commercial real estate, the case serves as a judicial endorsement of the enforceability of lockbox provisions and cash control agreements. It also reinforces the importance of precise drafting when delineating obligations that lenders may wish to enforce separately from mortgage debt recovery.
