505 developers warned buyers against suits, documents show, but still face revolt

By David Jones | August 31, 2009 02:45PM

Lev Parkview investor Mati Weiderpass and the 505 Condominium at 505 West 47th Street

Just weeks before closings began at the 505 Condominium in Hell’s Kitchen, Lev Parkview Developers sent letters to dozens of buyers at the building, threatening to forfeit their deposits if they failed to close on their contracts and move forward with a federal lawsuit, according to documents obtained by The Real Deal.

The 108-unit condo, located at 505 West 47th Street, is facing litigation from dozens of buyers who want to get their deposits back, amid a lawsuit alleging that Lev Parkview failed to provide property reports to buyers and submit a so-called statement of record with the federal department of Housing and Urban Development.

The financial statement is required under the Interstate Land Sales Full Disclosure Act, a federal statute originally used to protect buyers from scam swampland purchases in Florida. The act has been used in a number of condo suits in New York and other states, and applies to buildings with 100 units or more.

Lev Parkview, led by investors Ian Reisner and Mati Weiderpass, claimed in the letter that it was exempt under the act after state Attorney General Andrew Cuomo approved the building’s 11th amendment, in which the developer disclosed plans to delay the completion of the final eight units until two years after those apartments were sold.

“It is important to understand that those that pursue this course of action and purchasers who default in their obligation to close title will lose their deposits and be liable to reimburse the developer for all fees, including all of the legal fees expended in connection with the default,” the developer wrote in a July 24 letter. “Perhaps worse, they will lose an opportunity to be part of an exciting development that is at the forefront of the industry.”

They also denied the allegations in a statement to The Real Deal, claiming that some buyers are dropping out of the suit.

The purchasers, however, claim that Lev Parkview only realized that it was subject to the law in October 2008 after it had signed dozens of apartment contracts and then tried to get the amendment issued in April 2009, in order to protect itself from buyers who wanted to back out.

Closings at the 505 began Aug. 14, with an 832-square-foot one-bedroom unit going for $855,000. The developer claims that 93 percent of the building is sold out, but sources familiar with the case told The Real Deal that up to half of the buyers are seeking to exit their contracts through litigation.

The case is not the only legal problem for the 505 developers, a partnership including Reisner’s Parkview 47. Lev Development Group, representing several of the 505’s original investors, filed suit in February 2008 against Parkview 47 claiming he distributed 421-a certificates to certain investors that resulted in a loan default; and retained certain “sponsor units” that were to be used exclusively for the benefit of the sponsor. He also allegedly allowed certain subcontractors to continue working on the building against the wishes of the construction manager, resulting in an additional $1 million payment to hire a new construction manager, according to court filings.

Martin Jackson, a buyer and attorney at Sidley & Austin, alleged in a separate lawsuit that Reisner engaged in a scheme to reduce the profits shared with other investors at the project through an elaborate series of buybacks and assignments. Jackson, in the suit, put down a 10 percent deposit for a $1.42 million penthouse in early 2008, and then was told that the apartment had been sold to Reisner and could be “assigned” to Jackson for a $145,000 “assignment fee” and he would then lower the purchase price.

Lev Parkview officials have denied the allegations by Jackson in court records, and told The Real Deal that the Lev Development lawsuit is in mediation. Lawyers for the buyers declined to comment.