Frustrated Tenants Hold Bank and Predatory Loan Servicer Responsible for Deplorable Conditions

Monday, December 10th, 2012, Brooklyn, NY—Tenants at 1507 St. Johns Place, represented by South Brooklyn Legal Services and Bedford-Stuyvesant Community Legal Services (programs of Legal Services NYC) have filed a motion demanding that Wells Fargo and its servicer Lone Star Funds advance the funds necessary to repair deplorable conditions in their building. The property, in foreclosure since 2010, has a current total of 105 city code violations on 21 units, leaving the frustrated tenants no choice but to ask the court to intervene on their behalf.

 The rent-regulated building, home to nearly twenty low-income families, was purchased by S&Z Capital and Development in May 2006. S&Z has a history of mismanagement throughout Brooklyn and has lost several of its buildings through foreclosure—a pattern that was repeated at the St. Johns property when Citibank began foreclosure proceedings in March 2010. Lone Star Capital, a private-equity investment group based in Texas, purchased the delinquent mortgage in January 2011. Lone Star sold the note to Wells Fargo a short time later, but continues to service the mortgage and has taken over the foreclosure case.

Lone Star drew recent local scrutiny following their purchase of several distressed mortgages portfolios in Manhattan, when it was accused by tenants, elected officials and HPD of attempting to profit from a speculative sale of the properties. Although Lone Star has not yet attempted to sell the St. Johns property, conditions have seriously declined since the firm took over the mortgage—leaving the tenants to deal with pervasive mold, leaks, peeling paint, falling and cracked ceilings and inconsistent hot water. Some tenants are even experiencing health issues as a result of dangerous conditions in their apartments. With this legal motion, the tenants are demanding that Lone Star advance the funds necessary to repair these hazardous defects.

“Shelter is a basic human right that many New Yorkers have too often been denied. The tenants of 1507 St. Johns Place deserve to live and raise their families in a safe environment,” said Representative Yvette D. Clarke. “I wholeheartedly support these tenants in their fight to improve the conditions in their building and preserve affordability. We cannot allow these housing units in Brooklyn to be lost to speculative investment schemes that drive tenants out of their homes.”

“It is important that Lone Star be held accountable and take full responsibility for the deplorable living conditions under which these 20 families live on a daily basis,” said State Senator Eric Adams. “The irresponsible mismanagement of 1507 St. John’s Place is a clear reflection of Lone Star’s disregard for its tenants and the community at large. We will not tolerate exploitation by investors whose only concern is their profit margin!”

“Lone Star must bring relief to tenants and immediately release funds to make much needed repairs in this building,” said City Council Speaker Christine C. Quinn. “The courts have confirmed that lenders can be held responsible for conditions at buildings like these, but Lone Star shouldn’t wait for tenants to file actions or judges to make decisions. They should fix the building now.”

“Our clients are living in squalor because of the outrageous investment schemes of Lone Star Funds and Wells Fargo,” said Rachel Hannaford, Staff Attorney at South Brooklyn Legal Services. “Many tenants have been living in the building for decades and have never witnessed such unhealthy and unsanitary conditions. Tenants have developed rashes because of pervasive mold and have to contend with intermittent heat and hot water. Repairs are simply not being done. We have filed this motion so that the Court understands the seriousness of the situation and exercises its power to ensure that the tenants do not suffer at the hands of irresponsible and callous speculators.”

“Lone Star has made a practice of purchasing debt some of New York City’s most vulnerable buildings because they, like other investors before them, feel they can make a profit off of exploiting affordable housing” said Kerri White, Co-Director at the Urban Homesteading Assistance Board. “This business plan is destined for failure as recent history has already taught us. Lone Star must take responsibility for the deteriorating conditions tenants face under their control as well as the impact their financial decisions have on the residents and communities where these buildings reside.”

Contact: Rachel Hannaford, 718-237-5513 Kerri White, 520-507-5863

###