Bronx Supreme Court Orders Mortgage-Holder to Immediately Pay for Repairs to Distressed Buildings

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

December 10, 2010, Bronx, NY— In a precedent-setting decision, Justice
Stanley Green of Bronx Supreme Court today lifted a stay and ordered the
mortgage-holder for ten dilapidated apartment buildings to immediately
advance $2.5 million for the repair of emergency conditions threatening
the health and safety of the 400 Bronx tenants who live there.  The
mortgage is held by a $3 billion investment trust, which had initiated
an appeal of the court’s September 29 ruling that it was responsible for
these repairs, and obtained a stay of enforcement by posting the money
with the appeals court pending the outcome of the appeal.  But today,
Justice Green recognized the urgency of the repair problems in the
buildings and vacated that stay, requiring that the funds be delivered
— while the appeal is still pending — to the court-appointed receiver
managing the properties.

UPDATE: December 13th—The city's Department of Housing Preservation and Development said Monday
that it has issued a subpoena demanding that the owner of the buildings—plus the properties' receiver
and special servicer—appear at the agency's headquarters next month to answer
questions. They are expected to be quizzed about ownership, management and
maintenance of the buildings. Read more in the December 13th Crain's. Additional coverage: December 13th City Limits, December 14th Wall Street Journal,  December 15th New York Daily News.

“The Milbank tenants have endured years of horrible living conditions, and should not have to wait one day more for the desperately needed funds ordered by  the court,” said James Jantarasami, Housing Unit Staff Attorney at Legal Services NYC—Bronx, who argued the motion for the tenants.  “The court today signaled  that it will not allow the Trust to use its appeal as a stalling tactic, while it pays millions of dollars to its investors each month.”

"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 New York 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.”

"Finally a decision that puts tenants in the Bronx before Wall Street and the investors who have been ruining our lives and neighborhood," said Sergio Cuevas, Milbank Tenant Leader from the Northwest Bronx Community and Clergy Coalition. "We can now celebrate the holidays without worrying about whether we’re going to have heat."
 
The ten distressed apartment buildings 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 made the loans to be included in the securities trust that now owns them.    Such Commercial Mortgage Backed Securities Trusts are suffering 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, LNR Partners, Inc., the special servicer for the trust, initiated foreclosure proceedings against the ten buildings.  The foreclosure judge appointed a receiver who was charged with collecting rents and managing the properties. However, 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. 

“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.”

Read coverage in the December 10th Crain's New York Business.

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