Sheffield57 developer Kent Swig is facing a lawsuit by two condominium unit owners who allege that he failed to pay $5.4 million in common charges on hundreds of unsold apartments, over a period dating back to August 2007.
The suit, filed May 1 in state Supreme Court in Manhattan, seeks an order to slap liens on the unsold units, so that Swig will have to pay the common charges he owes before he refinances the building’s debt or sells additional apartments.
The suit says that Swig has more than $30 million on a senior mortgage and hundreds of millions of dollars in mezzanine loans coming due, and is actively seeking to refinance those loans.
Attorney Robert Braverman, who represents the plaintiffs and about 70 other owners, argues in the suit that if Swig is allowed to refinance his loans before paying the past due common charges, the building and the homeowners would suffer “irreparable harm.”
“If a refinancing occurs, which contemplates further encumbering the unsold units with additional debt, any future liens on behalf of the condo with regard to the unpaid common charges would be junior and subordinate to the refinanced debt,” Braverman wrote, “thereby impairing the condo’s ability to collect the unpaid common charges.”
Sheffield57 officials were not immediately available for comment.
In addition to the outstanding mezzanine and mortgage loans, Swig has been hit by millions of dollars in mechanic’s liens by contractors who have not been paid since late 2008.
As The Real Deal previously reported, hundreds of owners at Sheffield57 have had liens placed on their individual apartments due to unpaid renovation work, including window installation, and owners recently told The Real Deal that they cannot get title insurance on their units due to the large number of liens on the building. Without title insurance, banks will often refuse to sell or refinance apartments, according to legal experts.
The lead plaintiffs, owners Larry Wagner and Ju Rhyu, allege that Swig maintains control over 445 unsold units in the 576-unit building. Because he has failed to sell more than half of the building, he still controls the building’s board of managers.
Swig, president of Swig Equities, acquired the 845-unit Sheffield for a record $418 million in 2005, along with investors Yair Levy, president of YL Real Estate, and Serge Hoyda, president of S & H Equities. Levy holds the largest stake in the Sheffield, but Swig Equities has been the managing agent of the building since the acquisition, and has overseen the conversion, during which the apartments were combined to create a condo of less than 600 apartments.
The suit, filed under a so-called Article 78 petition, would allow the court to force the board to file liens against the unsold units. The 70 owners recently formed their own group, the Sheffield Owners Association.
Braverman said that Judge Peter Sherwood rejected a motion for a temporary restraining order that would block Swig from using the unsold apartments as a security interest to either refinance his loans or pay off contractor liens. However, the court gave Swig 30 days to respond to the petition.
Braverman and several condo owners in the group recently met with officials from the New York State Attorney General’s office, which regulates condo conversions, regarding their concerns about the high number of mechanic’s liens and the construction delays at the building.
At the meeting, the homeowners said that an amendment to the Sheffield57 offering plan has not been filed since September 2008. That amendment expired after six months, and legal experts say that condos cannot actively market or sell apartments without a valid offering plan.