I.Background

This action arises out of a $29 million nonrecourse loan made by UBS Real Estate Securities Inc. (UBS) to defendant NMP-Group, LLC (Borrower). The loan was secured by a mortgage on the property at 172 Madison Avenue in New York City, and repayment of all or part of the loan was guaranteed under certain circumstances by Borrower's sole member, an individual named Natalia Pirogova (affidavit of Charles Leonard, sworn to July 16, 2013, exhibit A [Guaranty]; affirmation of John Doherty, July 16, 2013, exhibit 6). In particular, Pirogova [*2]promised that she would be liable for the full amount of the Debt ^[FN1] "in the event that . . . Borrower file[d] a voluntary petition under the Bankruptcy code" (Guaranty § 1.1).

The instant action was commenced on February 5, 2010, by plaintiff's predecessor-in-interest, Stabfund (USA) Inc. (Stabfund), the noteholder at that time (together with (i) UBS, (ii) Stabfund's assignee, Garrison Commercial Funding IV REO, LLC, and (iii) plaintiff itself, referred to as Lender). Claiming that Borrower had defaulted on the loan, Lender sought to foreclose on the mortgaged property and to be reimbursed for any costs it incurred in doing so (complaint, ¶¶ 38—58, 70—73). By a decision and order entered February 24, 2011, this court granted Lender summary judgment on its fourth cause of action, holding that Borrower was liable to Lender for Lender's attorney's fees (172 Madison (NY) LLC v NMP-Group LLC, Sup Ct, NY County, Feb. 24, 2011, Kornreich, J., index No. 650087/2010). Some months later, the court granted Lender summary judgment on its first cause of action, ruling that Lender's mortgage was superior to any interest held by any of the defendants herein, and appointing a referee to compute the amount owed (id., order entered Sept. 26, 2011). Upon the report of the referee, the court then issued a judgment of foreclosure, directing the referee to sell the property at public auction (id., order entered June 10, 2013). The auction was scheduled for July 10, 2013 (Doherty affirmation, ¶ 9). That very day, however, Borrower filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York (Doherty affirmation, exhibit 6). The auction was not held.

Lender now moves for summary judgment against Pirogova, arguing that Borrower's filing of the bankruptcy petition triggers Pirogova's liability under the Guaranty for the entire amount owed on the loan under the foreclosure judgment. Pirogova, who had been represented by the law firm Cole, Schotz, Meisel, Forman & Leonard, P.A. (Cole Schotz), initially failed to oppose this motion; however, about a week after the motion was fully submitted, new counsel for Pirogova appeared, blamed Cole Schotz for the default and sought an extension of time to oppose.^[FN2] The court granted the request (172 Madison (NY) LLC, order entered Aug 13, 2013), and opposition and reply papers were duly filed.

II.The Guaranty and the Complaint

Recourse carve-out guaranties are primarily created to deal with situations such as the one that has arisen here. In exchange for agreeing to look only to the mortgaged property in the event of default, lenders typically require that the borrower or its guarantor promise to pay the entire debt if they impede foreclosure by filing for bankruptcy. It can be said without exaggeration that the Guaranty was intended to apply to the exact circumstance currently confronting Lender. The agreement, therefore, will be enforced as written. Contrary to Pirogova's arguments (Pirogova brief, 14—20), the fact that the first paragraph of Section 1.1. of the Guaranty holds her liable for [*3]the "Guaranteed Obligations" does not mean that she could not also be liable for other amounts enumerated within the Guaranty, such as the entirety of the Debt. In any event, the term "Guaranteed Obligations" is defined to mean "the obligations or liabilities of Borrower to Lender under Section 11.22 of the Loan Agreement" (Guaranty § 1.1), which includes the Borrower's obligation to repay the entire Debt should it file for bankruptcy (complaint, exhibit A, § 11.22).^[FN3] Pirogova's liability under the Guaranty for the entirety of the debt is unambiguous.

Pirogova further argues against summary judgment because the complaint, filed in 2010, does not contain a cause of action seeking to hold her liable for the entirety of the debt. The liability, however, arose in July 2013 when Borrower filed for bankruptcy. Though the events giving rise to her liability obviously occurred after the filing of the complaint and are not alleged therein, "summary judgment may be awarded on an unpleaded cause of action if the proof supports such cause and if the opposing party has not been misled to its prejudice" (Weinstock v Handler, 254 AD2d 165, 166 [1st Dept 1998]). The complaint does seek to hold Pirogova liable for certain other damages allegedly arising out of the breach of the Guaranty (complaint ¶¶ 65—69), and the validity or existence of the Guaranty has never been in dispute. This is sufficient for the court to presume that Pirogova was aware of the Guaranty, her obligations thereunder and the possible consequences of causing Borrower to file for bankruptcy. The court will not allow the guarantor to put off her day of reckoning by insisting on a pointless supplemental pleading to formally bring the complaint up to date where there is no surprise and the underlying facts are not in dispute (see Rizzo v Kay, 79 AD3d 1001, 1002 [2d Dept 2010] [court has broad discretion to conform pleadings to facts presented in absence of prejudice or surprise]; CPLR 3025 [c])

III.Election of Remedies

On the other hand, it is indeed true that, generally speaking, the election to foreclose a mortgage bars an action on the debt, absent leave of court (RPAPL 1301 [3]; Rainbow Ventures Assocs. v Parc Vendome Assocs., 221 AD2d 164, 164 [1st Dept 1995]). Similarly, a lender who neglects to reserve its rights to pursue a deficiency judgment cannot seek to do so after the foreclosure judgment has been entered (RPAPL 1371; TBS Enters. Inc. v Grobe, 114 AD2d 445 [2d Dept 1985]). Nonetheless, "[t]he election of remedies doctrine only operates when there was a choice of remedies available at the time the prior actions were undertaken" (Gameways, Inc. v Dept. of Consumer Affairs, 101 AD2d 888, 888 [2d Dept 1984]). Where, as here, a loan is nonrecourse, the fundamental bargain between the lender and the borrower is that the lender agrees to conditionally forego his right to seek money damages, provided that the borrower respects certain covenants. To hold that in the context of a nonrecourse loan the election of remedies bars an action on the debt even when the springing recourse event occurred after the commencement of the foreclosure proceeding would effectively transform the lender's conditional waiver into an absolute one, contrary to the intent of the parties. Here, when the [*4]election to foreclose was made, Borrower had not yet filed for bankruptcy, and Lender, thus, had no right to sue for the whole debt or to seek a deficiency judgment at that time (see complaint, exhibit A, § 11.22 [barring Lender from pursuing deficiency judgment absent certain circumstances]). Manufacturers Hanover Trust Co. v 400 Garden City Associates, 150 Misc 2d 247 (Nassau County 1991), on which Pirogova relies, is distinguishable as there is no indication that the mortgage loans at issue in that case were nonrecourse and that the mortgagee there could not have originally moved against the guarantor.

Consequently, where, as here, a lender has conditionally agreed to limit its remedies to foreclosure, subject to the borrowing parties' compliance with certain loan covenants, and the borrowing parties breach those covenants only after the commencement of foreclosure proceedings, RPAPL 1301 does not preclude the lender from seeking alternative relief at that point, since such relief was unavailable at the time the foreclosure action was commenced (see Gameways, Inc., 101 AD2d at 888 [holding that commencement of suit did not bar pursuit of previously unavailable administrative remedy]). To hold otherwise would undermine the widespread and settled use of nonrecourse loans subject to guaranties triggered by certain springing recourse events. The court is unwilling to upend the universe of real estate finance for Pirogova's sake.

In sum, as a result of Borrower's voluntary bankruptcy filing (accomplished, of course, with Pirogova's full knowledge and consent [see Doherty affirmation, exhibit 6, "Written Consent of the Sole Member"]) Pirogova is liable for the entirety of all sums due to Lender with respect to the loan. However, though the prior commencement of foreclosure proceedings in these circumstances does not prevent plaintiff from now seeking a money judgment, a choice between the two remedies must ultimately be made. A money judgment against Pirogova is inconsistent with a foreclosure judgment directing the sale of the property. Hence, if Lender wishes to proceed against Pirogova, it must submit a new order and judgment, either amending the existing judgment so as to allow for a deficiency judgment against Pirogova, or vacating the foreclosure judgment and substituting in its stead a money judgment against Pirogova. Any proposed action, of course, must not violate the bankruptcy stay. As Lender also seeks (and is entitled to) "all costs and expenses (including court costs and attorneys' fees) incurred by it in the enforcement [of the Guaranty]" (Guaranty § 1.7), plaintiff's proposed judgment should also provide that these claims be severed and continued by reference to a Special Referee to hear and determine damages. Accordingly it is

ORDERED that the motion of plaintiff 172 Madison (NY) LLC for summary judgment against defendant Natalia Pirogova is granted, and it is further

ORDERED that plaintiff shall submit an order and judgment in accordance with this decision.

Dated: October 3, 2013ENTER:

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J.S.C.