Wilmington Trust, National Association v. Pacific Street Property Group LLC et al

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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WILMINGTON TRUST, NATIONAL
ASSOCIATION, AS TRUSTEE, etc.,
Plaintiff,
- against -
PACIFIC STREET PROPERTY GROUP
LLC, JOSHUA SOUFEH, et al.,
Defendants.
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MEMORANDUM DECISION AND
ORDER
25-cv-6210 (BMC)
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COGAN, District Judge.
This is a diversity mortgage foreclosure action in which plaintiff Wilmington Trust,
National Association (“Wilmington”), has moved for the appointment of a receiver for the
subject property pendente lite. Defendant-mortgagor Pacific Street Property Group LLC
(“Pacific”) and its principal, defendant Joshua Soufeh, oppose the motion on the grounds that:
(1) appointing a receiver will cause harm, not prevent it; (2) default notices sent by Wilmington’s
attorneys are insufficient under New York law; and (3) Wilmington lacks standing. None of
these defenses have merit and, accordingly, Wilmington’s motion for the appointment of a
receiver is granted.
BACKGROUND
The case arises from a $1,723,000 mortgage loan extended by Wilmington’s predecessor-
in-interest, Sabal Capital II LLC, to Pacific for the investment property located at 1442 Pacific
Street in Brooklyn. The promissory note for the loan was secured by a mortgage duly filed in the
Office of the Registrar in Kings County. The mortgage documents contain the standard language
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granting the mortgagee the right to the ex parte appointment of a receiver in the event of various
defaults, including payment defaults:
If an Event of Default has occurred and is continuing, regardless of the adequacy
of Lender’s security, without regard to Borrower’s solvency and without the
necessity of giving prior notice (oral or written) to Borrower, Lender may apply to
any court having jurisdiction for the appointment of a receiver for the Mortgaged
Property ... Borrower, by its execution of this Instrument, expressly consent to the
appointment of such receiver, including the appointment of a receiver ex parte if
permitted by applicable law.
It is undisputed that Pacific failed to make the payment due in January 2025 and has not
made any payments through at least October 2025. Wilmington sent out notice of default and a
demand to cure on August 18, 2025. With Pacific failing to cure, Wilmington accelerated the
loan and commenced this foreclosure action. As of October 31, 2025, there is principal and
accrued interest of $1,554,651.63 owing, in addition to various fees and charges provided by the
terms of the mortgage.
DISCUSSION
I. 	The Need for a Receiver
The reason why mortgage lenders insist upon the right to appoint receivers in their
lending documents for income-producing property in the event of a payment default, and why
courts routinely grant receivership motions pendente lite, is obvious. Once the property is
underwater, the mortgagor-borrower may lose the incentive to maintain the property and remit
proceeds for the benefit of the mortgagee; rather, the borrower has every incentive to retain rents
and revenues for its own benefit for as long as possible until foreclosure occurs. Recognizing
this economic reality, state courts grant receivership motions all the time, without any need for
the mortgagee to show that there is a “need” for the receiver, see, e.g., Naar v. I.J. Litwak & Co.,
Inc., 260 A.D.2d 613, 614, 688 N.Y.S.2d 698 (2nd Dep’t 1999), even on an ex parte basis. See,
e.g., HSBC Bank USA, N.A. v. Rubin, 210 A.D.3d 73, 74, 176 N.Y.S.3d 649, 652 (2nd Dep’t
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2022) (citing N.Y. Real Prop. L. § 254 (10) and N.Y. Real Prop. Actions and Procs. L. §
1325(1)).
However, this case, even though based on diversity jurisdiction, is controlled by Federal
Rule of Civil Procedure 66.1 The cases are practically uniform in holding that receivership is a
procedural right and that federal law, not state law, determines whether a receiver should be
appointed. Magistrate Judge Marutollo recently set forth the law that governs this Court’s
determination:
[R]eceivership is traditionally used to protect the value of an asset that is the
subject of litigation. Appointment of a receiver in equity pursuant to Rule 66 in a
diversity case is a remedy ancillary to the primary relief sought, the typical
example of which is a plaintiff bringing a foreclosure action and requesting
appointment of a temporary receiver pending foreclosure. Appointing a receiver
constitutes an extraordinary remedy and ... should be employed cautiously and
granted only when clearly necessary to protect plaintiff’s interests in the property.
In deciding whether in deciding whether appointment of a receiver is merited,
Courts consider the following non-exclusive factors:
[1] Fraudulent conduct on the part of defendant; [2] the imminent danger
of the property being lost, concealed, injured, diminished in value, or
squandered; [3] the inadequacy of the available legal remedies; [4] the
probability that harm to plaintiff by denial of the appointment would be
greater than the injury to the parties opposing appointment; and, in more
general terms, [5] plaintiff’s probable success in the action and [6] the
possibility of irreparable injury to his interests in the property.
Courts may also consider whether the property is inadequate security for the
outstanding debt and the financial status of the debtor, but these two factors alone
are insufficient to show that the appointment of a receiver is appropriate.
A court weighing an applicant’s request for a receivership should also consider
whether there exists a contractual provision authorizing the appointment of a
1 My view is that the federal case law overstates the role of Rule 66 in diversity cases. The rule does not address the
standard for appointing a receiver. It merely states that once appointed, receivers must follow the procedures in the
other federal rules. The appointment of a receiver is a provisional remedy, and Rule 64 expressly incorporates and
defers to state law in determining the availability of provisional remedies unless expressly set forth in federal law. I
will apply the multi-factor test that federal courts generally apply to receivership motions, but I am dubitante that a
federal court should apply any different standard than would a state court. Pacific goes so far as to analogize a Rule
66 receivership to a Rule 65 preliminary injunction but cites no cases in support thereof.
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receiver. Indeed, the existence of a provision authorizing the application for a
receiver in the event of a default, strongly supports the appointment of a receiver’
when there is a default. Where such a provision exists, and the mortgag[or] has
consented to such appointment and repeatedly defaulted on conditions of the
mortgage, the mortgag[or] bears the burden of demonstrating why a receiver
should not be appointed. The existence of such a contractual provision, however,
is not dispositive, and the appointment of a receiver is within a court’s discretion.
Wells Fargo Bank National Association v. 366 Realty LLC, _ F. Supp. 3d _, 2025 WL 2923385,
at *9 (E.D.N.Y. Oct. 15, 2025) (citations and quotations omitted).
At the outset, it seems clear that despite the extraordinary nature of the receivership
remedy, Pacific “bears the burden of demonstrating why a receiver should not be appointed,”
rather than Wilmington bearing the burden of showing that it should. See Federal Nat’l Mortg.
Ass’n v. 204 Ellery St., LLC, No. 23-cv-5343, 2024 WL 2939179, at *3 (E.D.N.Y. Apr. 23,
2024) (quoting D.B. Zwirn Special Opportunities Fund v. Tama Broad., Inc., 550 F. Supp. 2d
481, 491 (S.D.N.Y. 2008), report and recommendation adopted, 2024 WL 3716031 (E.D.N.Y.
Aug. 8, 2024). This is by virtue of the undisputed payment default and the clear provision in the
mortgage granting Wilmington the right to a receiver. Although receivership may be an
“extraordinary” remedy in the context of wresting control of a business from its owner, there is
nothing extraordinary about appointing a receiver in a commercial mortgage foreclosure case
where the mortgagee can’t keep up his mortgage payments.
Indeed, I would go so far as to say that the case law seems to me to undervalue the
importance of a receivership provision in a mortgage. I recognize that because receivership is an
equitable remedy that must be authorized by the court, the court retains discretion whether to
implement the parties’ contractual agreement of what should happen when the mortgagor
defaults. But where the parties have agreed in advance, the mortgagor has to make a strong
showing why the court should disregard the parties’ agreement on a default remedy. At the very
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least, the recognition in the case law that the burden is on the mortgagor to show why a receiver
should not be appointed seems apt.
In the instant case, Pacific has submitted an affidavit from its principal that contains
mostly inadmissible argument and opinion evidence, but states the following factual averments:
[T]he property … recently endured substantial fire damage during the Christmas
holiday. I have provided pictures along with my insurance company contact
information to our attorneys: With Granada Indemnity Company, at 370 West
Park Avenue, Long Beach, New York, 11561 (516-329-9738(, [sic] this loss has
been created under claim number 2801018 and is assigned to Bryan Fitzpatrick at
bfitzpatrick@granadainsurance.com. Bryan has already assigned an independent
adjuster (Long Island Adjustment Corp) to the inspection which I believe was
already arranged. Michael Mataphati has been assigned as the adjuster . . . The
repair process is well underway.
As Wilmington points out, this vague assertion raises more questions than it answers. It
doesn’t address the cause of the fire or the extent of the damage, let alone whether the conditions
that caused the fire have been addressed. Moreover, if the fire occurred during the Christmas
season, that means that Pacific was in default for a nearly a year before the fire occurred. No
amount of insurance proceeds to address the fire damage is going to remedy that. In addition, it
is concerning that the fire occurred after nearly a year of payment defaults. Given its contractual
right to a receiver, Wilmington does not need to show any basis for suspecting poor maintenance
or worse as the cause of the fire; it can get a receiver in there before more damage occurs.
Nor has Pacific shown any economics of this building. What is the income,
notwithstanding the fire? How many tenants remain? How much rent are they paying? Are
tenants in default? Is Pacific making efforts to fill vacant apartments? Is Pacific still paying
itself or its affiliates a management fee or otherwise retaining whatever revenue there is that
rightfully, under the loan agreement, now should be paid to Wilmington?
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Wilmington, on the other hand, has submitted evidence showing that the property is, in
fact, at substantial risk. It notes that, although the mortgage provides that in the event of default,
Pacific is required to turn over rents to Wilmington, that has not occurred. Wilmington’s
valuation of the property is that it is worth “significantly less than the balance” owed on the loan,
and Pacific does not dispute that. Perhaps most concerning, Wilmington asserts that Pacific has
failed to pay waters bills and insurance premiums, which Pacific also does not dispute. This is a
building with tenants that must be properly maintained.
Pacific has failed to make a showing that any of the factors that federal courts consider
weigh in its favor, other than to speculate that it needs to be in possession to negotiate an
insurance settlement and engage in some undefined restructuring of the property’s debt. This
Court concludes that the property is overleveraged, at risk, and that rents are not being used to
protect the property or to benefit Wilmington’s interest. Those facts, together with the
contractual right to a receiver and the undisputed and seemingly uncurable payment default, are
sufficient to warrant granting the motion.
II. 	Wilmington has Standing
The provenance of the note and mortgage at issue here is clear save for one technical
quirk, upon which Pacific has seized. The documents annexed to the complaint show that the
original mortgagee was an entity called Sabal Capital II, LLC. Through various assignments, the
note found its way to Wilmington.
Pacific’s opportunity arises from a feature in the display capacity of documents
transmitted in the .pdf format. Under that format, one can display a column with “bookmarks” to
the document. Creating bookmarks allows a reviewer to click on the particular bookmark and go
right to the particular page, rather than scrolling through each page to find the particular page
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sought. The titles to the bookmarks are usually page numbers by default or are inserted by the
reviewer.
Pacific is relying on the title of two bookmarks, which are sub-bookmarks of another
bookmark titled “01-05.” The pages to which the bookmarks refer is entitled “ALLONGE TO
NOTE.” It recites the loan from Sabal Capital II, LLC to Pacific and then shows the assignment
from Sabal Capital II, LLC to Wilmington. Significantly, however, at least for Pacific’s
argument, the sub-bookmarks are titled:
Exhibit C – Note
(NEEDS ALLONGE)…
Pacific – Allonge
(Correct)
According to Pacific, the phrase “NEEDS ALLONGE” is “a tacit admission by the plaintiff that
the Note was not properly endorsed at the time of filing” and thus, ostensibly, a tacit admission
by Wilmington that it has no standing.
No, it is not. “New York courts have repeatedly held that proof of physical possession –
such as the affidavits of [a party’s] corporate representative and counsel [–] is sufficient on its
own to prove a plaintiff’s standing to foreclose on the mortgage associated with the note.”).
OneWest Bank, N.A. v. Melina, 827 F.3d 214, 223 (2d Cir. 2016); see also CIT Bank, N.A. v.
Howard, No. 14-cv-7470, 2018 WL 3014815, at *7 (E.D.N.Y. June 15, 2018) (“Plaintiff [had]
standing to foreclose [even if] various indorsements and allonges . . . were less clear (or absent
entirely)” because of the “unrebutted affidavit testimony”).
The bookmark is not part of the allonge. It is simply a note from someone who was
putting together the documents that the person needed to complete the package. Nothing Pacific
points to is an admission to any break in the assignment process of the loan to Wilmington. Nor
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does Pacific do anything to rebut the affidavit testimony by Wilmington’s real estate analyst that
it “is the owner and holder of” the note at issue. Accordingly, Wilmington has standing.
III. 	Notice of Default and Acceleration was Unnecessary but Nonetheless Proper
Relying on Siegel v. Kentucky Fried Chicken of Long Island, Inc., 67 N.Y.2d 792, 793,
501 N.Y.S.2d 317, 318 (1986), Pacific argues that the notice of default that Wilmington sent was
legally insufficient because it was signed and sent only by Wilmington’s attorneys, not
Wilmington itself. However, all Siegel holds is that the form of default notices must conform to
the parties’ contract. The lease at issue in Siegel required that the notice come from the
“landlord,” which was defined as “only the owner, or mortgagee in possession … .” Id. at 794,
501 N.Y.S.2d at 318.
The mortgage agreement here has nothing in common with Siegel. First, it expressly
waives notice of default and acceleration. Second, the New York courts have severely limited
Siegel to those situations where the language of the document expressly permits only the owner
to send notice. See Equator Int’l, Inc. v. NH St. Invs., Inc., 43 Misc. 2d 251, 262, 978 N.Y.S.2d
817, 826 (N.Y. Cnty. Sup. Ct. 2014) (lease was “distinguishable from the language of the notice
provision in Siegel, in that Section 2.02 does not require notice to be given by a specific person
or entity.”); cf. Kwong v. Eng, 183 A.D.2d 558, 583 N.Y.S.2d 457 (1st Dep’t 1992) (Sullivan, J.,
concurring) (“the Court of Appeals’ affirmance in Siegel was on such narrow grounds – a
contract interpretation based on the factual peculiarities of the particular lease – as to place in
doubt the vitality of the broad so-called Siegel rule[.]”). Finally, even if the notice was
inadequate, it is clear under New York law that the commencement of a foreclosure action is
sufficient to accelerate the debt. See CIT Bank, N.A. v. Zisman, No. 17-cv-02126, 2020 WL
8081939, at *4 (E.D.N.Y. Apr. 8, 2020).
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CONCLUSION
Wilmington’s motion for a receiver is granted. The receiver will be appointed by
separate order.
SO ORDERED.
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U.S.D.J.
Dated: Brooklyn, New York
January 19, 2026
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