Independent Enforcement of Cash Management Provisions Not Barred by RPAPL 1301(3)

Introduction

U.S. Bank N.A. v. MAve Hotel Investors LLC (2025 NYSlipOp 02140) clarifies that a lender may bring a separate contract action to enforce cash management and rent‐assignment provisions in loan documents—even while a foreclosure is pending—because such claims are distinct from an effort “to recover on any part of the mortgage debt” under Real Property Actions and Proceedings Law (RPAPL) 1301(3). The dispute arose when borrower MAve Hotel Investors LLC and manager Madison Hospitality Management LLC failed to deposit tenant rents and a settlement award from a private lawsuit into a lender‐controlled “clearing account” after default. U.S. Bank, as trustee for a CMBS trust, sued for specific performance, breach of contract, breach of guaranty and declaratory relief, while simultaneously pursuing foreclosure.

Summary of the Judgment

The Appellate Division, First Department, affirmed in part and modified in part. Key holdings were:

The lender’s claims under the loan agreement and related Cash Management Agreements (assignment of rents, deposit account agreement) are not barred by RPAPL 1301(3) because they seek damages for breaches of contractual non‐payment obligations separate from repayment of the principal mortgage debt.
Appointment of a receiver or actual possession of the mortgaged property is not a prerequisite to enforcing contractual cash management provisions between “sophisticated parties.”
The breach of guaranty cause of action was properly pleaded, including the requisite demand on guarantors and the triggering language covering “misapplication, misappropriation or conversion” of awards or rents.
The declaratory judgment claim under the “Condemnation Awards” provision of the mortgage was dismissed, since that clause applies only to governmental takings, not private settlements.

Analysis

Precedents Cited

Dollar Dry Dock Bank v. Piping Rock Builders, 181 A.D.2d 709 (2d Dep’t 1992): Statutes in derogation of the common law must be strictly construed.
Shaw Funding, L.P. v. Grauer, 98 A.D.3d 660 (2d Dep’t 2012): RPAPL 1301(3) bars separate actions to recover on the mortgage debt when no leave of court is obtained.
Chemical Bank v. Evans & Hughes Realty, L.P., 205 A.D.2d 573 (2d Dep’t 1994): Differentiates between enforcement of equitable rent assignments and contract‐based claims to deposit funds.
New York Life Ins. Co. v. Fulton Development Corp., 265 N.Y. 348 (1934): A mortgagee’s equitable lien on rents only arises upon default and appointment of a receiver or actual possession.
Chase Manhattan Bank v. Brown & East Ridge Partners, 243 A.D.2d 81 (4th Dep’t 1998): Confirms that a receiver may not collect rents already received by the owner before appointment.

Legal Reasoning

1. Distinct “Non‐Payment” Obligations. The court looked beyond the label “assignment of rents” and recognized that the borrower’s covenants to deposit all rents and settlement proceeds into a lender‐controlled account are contractual obligations separate from the borrower’s core duty to repay principal and interest. Since RPAPL 1301(3) only bars “other actions to recover on any part of the mortgage debt,” this is a distinct contract action.

2. No Receiver Required for Contract Remedies. While a mortgagee’s equitable lien on rents traditionally demands a receiver or possession before collecting income, the court held that sophisticated parties may contract for immediate turnover of funds without such prerequisites. This contractual remedy is enforced in law rather than in equity.

3. Guaranty Liability and Demand. Under the guaranty’s plain terms, guarantors undertook liability for “misapplication, misappropriation or conversion” of rents or awards once the lender made a demand. The complaint adequately alleged such a demand, satisfying the condition precedent and supporting a breach of guaranty claim.

4. Limits of “Condemnation Awards” Clause. The court emphasized that mortgage provisions addressing government condemnations do not encompass private‐party settlements (here, the Acadia Action settlement), thus defeating the declaratory relief claim.

Impact

Lenders may enforce cash management, lockbox and rent‐assignment provisions contractually—even if a foreclosure is already pending—without seeking leave of court under RPAPL 1301(3).
Parties should clearly draft cash management agreements and guaranties to specify turnover rights, demand obligations and the scope of covered “awards,” minimizing disputes over remedies and procedures.
Borrowers and managers must recognize that failure to follow cash management protocols can spawn parallel contract claims alongside foreclosure, increasing litigation risk and potential exposure.
Counsel should distinguish between equitable remedies (requiring receivership or possession) and contractual remedies (enforceable at law), tailoring relief strategies accordingly.

Complex Concepts Simplified

RPAPL 1301(3): A statute that prevents a lender from bringing any separate lawsuit to collect on a mortgage debt once a foreclosure action is pending, unless the lender obtains court permission.
Clearing Account / Lockbox: A bank account into which borrowers and tenants must deposit all rents, giving the lender control over cashflow upon default.
Equitable Lien vs. Contract Right: An equitable lien on rents arises only after default and appointment of a receiver; by contrast, contractual turnover rights can be enforced immediately if parties agree.
Guaranty Conditions Precedent: Many guaranties require the holder to make a formal demand on guarantors before liability attaches.
Condemnation Award Clause: A mortgage provision that entitles the lender to governmental takings proceeds, but not to private settlement awards.

Conclusion

U.S. Bank N.A. v. MAve Hotel Investors LLC establishes that enforcement of cash management and rent‐assignment covenants in mortgage‐related documents is a standalone contract remedy, not subject to the statutory bar on separate actions to collect mortgage debt (RPAPL 1301(3)), nor to equitable prerequisites like receivership. Sophisticated parties may structure and enforce detailed payment protocols at law, and lenders can pursue those remedies in parallel with foreclosure. This decision underscores the importance of careful drafting and strategic selection of law‐based versus equity‐based remedies in commercial real estate financing.