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 the 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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