Bronx Supreme Court Judge Holds Mortgage Holder Responsible for Repairs to Distressed Buildings

Groundbreaking Victory for Legal Services NYC-Bronx Clients Could Have Citywide Implications

September 29, 2010, Bronx, NY— In a precedent-setting decision, Judge Stanley Green of Bronx Supreme Court today ordered the mortgage holder for ten dilapidated Bronx buildings to advance $2.5 million to the court appointed receiver for the repair of catastrophic conditions at the properties, known as the Milbank Portfolio. Thousands of housing code violations, including hundreds of immediately hazardous class “C” violations have gone unrepaired during the 18 months the mortgage foreclosure proceeding has been pending in Supreme Court.

(Click the following links for coverage in Crain's (9/29), and the Bronx News Network (9/30)) 

“Today’s decision shows that the courts will no longer allow irresponsible lenders to walk away from the human tragedies their lending practices create,” said Jonathan Levy, Housing Unit Deputy Director for Legal Services NYC—Bronx, lead counsel for the tenants.  “Tenants can use this decision to hold lenders accountable throughout the city as thgirle crisis in multifamily lending continues to unfold.”

The ten distressed apartment buildings, which house more than 500 families, have been in a steady state of decline since their owner, a private equity firm known as Milbank Real Estate, defaulted on its $35 million mortgage. Milbank had purchased the rent stabilized properties in 2007 at a grossly inflated price financed by Deutsche Bank. Deutsche Bank then sold the loans as securities, ultimately resulting in the same type of financial collapse seen in the single family mortgage market. At the time, advocates questioned the financial sustainability of the $35 million mortgage debt, and placed the portfolio on their “watch list” of potentially troubled buildings.

In March of 2009, the mortgage holder, a $3 billion commercial mortgage-backed security trust controlled by Wells Fargo and serviced by LNR Partners, Inc., initiated foreclosure proceedings.  The foreclosure judge appointed a receiver who was charged with collecting rents and managing the properties, but due to the high number of vacancies in the buildings, along with the already severely distressed conditions in most of the units, the income from rent collection has not been adequate to properly maintain the portfolio. As a result the tenants have endured horrible living conditions since Milbank over-leveraged their buildings.  Water leaks, hazardous molds, cracked and peeling lead paint, collapsing ceilings, broken locks on entrance doors, useless intercoms, rat and roach infestations, busted boilers, and electrical fires are commonplace throughout the portfolio.

For months LNR has resisted the tenants’ demands that it help remedy the disastrous conditions that were the inevitable result of irresponsible lending practices.  Most recently, the mortgage-holder has sought to sell the buildings to an undisclosed purchaser, but the sale has not yet closed. 

“Today’s decision is a small victory for tenants living in the Milbank building portfolio, but it is one that makes me hopeful that irresponsible banks and landlords will be held accountable in the future,” said City Council Speaker Christine C. Quinn. “Judge Green's ruling today forces special servicer LNR, which represents all the investors, to pay $2.5 million to repair the building, and it is a decision that should be applauded. It recognizes the horrible conditions these tenants have endured for months, and is a step forward for all distressed and overleveraged buildings suffering from predatory equity loans. This decision sets the precedent that those responsible will have to pay to keep properties maintained and livable. I want to thank Legal Services NYC, the Urban Homesteading Assistance Board, and North West Bronx Community and Clergy Coalition and the tenants themselves for working on bringing this situation to the attention of the court.”

“The courts have ruled in favor of the tenants to assist in making our buildings somewhat livable. This sets an example for buildings. If landlords and banks don’t take care of their buildings, tenants with the help of attorneys and the courts will,” said Alvin Horton, a tenant in one of the buildings.

“This is a huge victory for the Milbank tenants, and a very important precedent for other distressed buildings in similar situations,” said Dina Levy, director of organizing and policy at the Urban Homesteading Assistance Board, a housing advocacy group. “UHAB estimates that there are more than 5000 units like the Milbank portfolio that are in foreclosure across NYC—not including Stuyvesant Town. Today, tenants in all of those buildings have a reason to celebrate.”

For more on Legal Services NYC-Bronx's ongoing work on this case, click on the links below.

New Developments in Bronx Milbank Case (August 4, 2010)

LS-NYC Bronx Files Motion Arguing Banks Are Responsible When Building Conditions Go Bad (April 21, 2010) 

 

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