|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
Nov. 13, 2012--A missing letter may spare the Sagamore hotel from foreclosure.
The trendy South Beach property appeared to win a significant victory when a bankruptcy judge ruled a three-year foreclosure effort by the hotel's lender was improper, since there was no proof the Sagamore's New York law firm ever received official notice of the defaulted mortgage.
The decision should give Sagamore owner Marty Taplin what he has been fighting for in the court battle: the chance to resume making interest payments and keep the $32 million loan current. His lender, LNR Partners, maintains the Sagamore defaulted on its commercial mortgage when Taplin stopped making payments in 2009, and now the lender -- also headquartered in South Beach -- is pushing to foreclose on the property.
Judge A. Jay Cristol's Friday ruling was reported on Monday by The South Florida Business Journal. The decision does not go to the heart of either side's argument, but instead focuses on procedural errors LNR may have made in the early days of the default. Cristol accepted the Sagamore's contention that LNR was required to send a default notice to the New York office of Greenberg Traurig, the hotel's representatives on the loan, and that LNR could not prove the documents ever arrived. A "sufficient 'notice of default' has not yet been given," Cristol wrote.
An LNR representative could not be reached Monday, and Sagamore lawyer Peter Russin of Miami's Meland Russin Budwick declined to comment.
The dispute began in the dark days of the financial crisis, and has stretched well into the ongoing rebound by South Florida hotels. With revenues up and hotel values climbing, the Sagamore is in a better position to stay current on mortgage payments and pay off the original loan when it comes due.
The 93-room oceanfront Sagamore is awaiting court approval to emerge from the bankruptcy protection it filed for a year ago. The default came when Taplin and partners stopped making payments on the LNR loan in late 2009.
At the time, hotels across the country were scrambling to renegotiate loans to lower monthly payments and have lenders forgive debt in an effort to survive a sharp drop in room bookings and corporate travel.
In past statements, Taplin's lawyers said LNR encouraged the Sagamore to halt loan payments as the first step in working out new loan terms, and that hotel executives were shocked when they instead faced a foreclosure notice. LNR denied acting improperly.
LNR is one of the country's top servicers of securitized commercial loans -- mortgages taken out by businesses, and then sold worldwide as part of larger investment packages. The loans became controversial during the credit meltdown of 2008, in part because workouts were complicated with hundreds of investors holdings stakes in the loans.
In his decision, Cristol knocked both sides of the fight for hauling boxes upon boxes of documents to the courthouse without any real need for them.
"Each side brought about 65 boxes to the trial and did not use more than two -- maybe three, at the most. Wasteful!" Cristol wrote. "The court believes the planting of 65 trees for each party may be an appropriate sanction, but it will decline to order the sanction at this time."
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