The Real Deal New York

Judge orders dismissal of predatory lending suit against Madison Realty Capital

SMK had sought $150M in case over defaulted Greenpoint mortgages

September 15, 2016 01:50PM
By Mark Maurer

3 and 5 Sutton Street in Greenpoint (inset from top: Sylvester Smolarczyk and Josh Zegen)

3 and 5 Sutton Street in Greenpoint (inset from top: Sylvester Smolarczyk and Josh Zegen)

A Kings County Supreme Court judge granted a motion to dismiss a lawsuit against Madison Realty Capital accusing the firm of predatory lending practices.

Brooklyn-based SMK Property Management filed a $150 million suit in September 2015 over seven defaulted mortgages on several of its Greenpoint properties for which Madison was the lender. SMK, led by Sylvester Smolarczyk, claimed in the suit that it seemed “odd that a lender/investor who had purchased such distressed/defaulted mortgage notes and obviously knew about the plaintiff’s ‘borrower’s’ history of default would agree to fund a multimillion dollar loan.”

In a court decision filed Tuesday Justice David Vaughan wrote that the motion to dismiss and for costs is granted and that the action is dismissed with prejudice.

In a statement, a spokesperson for Madison said, “Sylvester Smolarczyk brought a frivolous lawsuit against Madison Realty Capital, raising causes of action which had no merit.”

At the time the suit was filed, Josh Zegen, co-founder of Madison, denied the allegations, saying SMK owed the firm $15 million in debt payments.

Blodnick, Fazio & Associates’ Edward K. Blodnick, a lawyer for SMK, could not be reached for comment. In an interview with The Real Deal in August, Blodnick said SMK had plans to appeal.

New York Community Bank, which was also named as a defendant, had provided the original loans to SMK and later sold them to Madison, according to the lawsuit. The addresses include 657, 661, 667, 669 and 673 Meeker Avenue and 3 and 5 Sutton Street.

In a September profile of Madison’s lending operation, TRD found that LLCs affiliated with the hybrid lender-investor filed at least 50 foreclosure proceedings on more than 70 New York City properties since 2012. The Greenpoint buildings were among those properties. Nearly half of the proceedings were filed between January 2015 and August 2016.

Since Madison was formed in 2004, the firm has provided $3.5 billion in debt and invested close to $2 billion in equity in more than 460 deals, the firm said.