September 4, 2025

A recent foreclosure involving the Hilton Inns property in Monroe County, New York, offers a cautionary tale for lenders about the importance of knowing who sits ahead of them in the lien stack. In this matter, the foreclosing plaintiff purchased the senior mortgage from a credit union in spring 2025 and filed foreclosure shortly thereafter. A junior creditor, holding millions of dollars in subordinate liens, alleges that: (1) the new mortgage holder is an alter ego of the original borrower and (2) the foreclosure is a scheme to wipe out subordinate claims. No court has ruled on these allegations, but the dispute highlights the risks that can arise when borrower affiliates appear in the senior position and proceed to foreclose.

A takeaway for lenders can be the following: junior creditors are most vulnerable when lienholder succession shifts to entities tied to the borrower. These scenarios can draw allegations of collusion and spark claims for equitable subordination which, in turn, exposes the transaction to costly delay and litigation. To avoid finding themselves in a similar position, lenders should: (1) monitor senior lien assignments closely, (2) confirm who controls those positions, and (3) assess whether the optics of a transfer could later be challenged as insider-driven.