The Real Deal New York

One Madison Park told to offer buyers refunds

By David Jones | March 11, 2010 04:17PM

State Attorney General Andrew Cuomo’s office, which regulates the sale of condominiums in New York, has told the developers of the financially-troubled One Madison Park condominium to offer refunds to any buyers that have not closed on their apartments, The Real Deal has learned.

Cuomo’s office forced the rescission offers after senior lender iStar Financial filed last month to foreclose on developers Ira Shapiro and Marc Jacobs for allegedly defaulting on five months of interest payments, pledging apartments without the bank’s permission and allowing the building loan to fall out of balance by $63.6 million, according to court documents and legal sources.  

Such a move would require the developers to refund deposits on more than 40 percent of the 69-unit tower at 23 East 22nd Street, as half of the units are under contract and a dozen of those contracts have closed, according to Department of Finance records.
“[The AG stated its] position to the sponsor that it should offer rescission to those in contract,” said a NYS regulatory source familiar with the case.

Burton Dorfman, a Nyack, N.Y.-based attorney who represents the developers in the foreclosure case, confirmed that it was his “understanding” that the attorney general forced the rescission offers.

Rosenberg and Estis attorney Lisa Radetsky, who is also representing the developers, would not comment on the attorney general move specifically, but confirmed that the rescission of contracts is required after “material” events such as the foreclosure. 

“There’s a regulation that states if there is a material adverse event there will be rescission,” she said. “The law is what the law is.”

The One Madison Park case appears to be taking a new turn based on an apparent rift between the partners. The Rockland County district attorney is investigating allegations by Jacobs that he and his wife’s signatures were forged on promissory notes, according to a recent story by the New York Observer. A spokesperson for the DA’s office said the office does not comment on investigations.

The Real Deal obtained an affidavit by Jacobs in a lawsuit by Flatiron Gramercy Realty, where Jacobs alleges that personal guarantees and a notarized signature on a $2.27 million promissory note were not his.

“The signature on page 5 of this document is not my signature and I had no knowledge that said personal guarantee was tended to plaintiff,” Jacobs said in the affidavit.

The Real Deal previously reported that more than half a dozen lawsuits were filed against Shapiro and Jacobs alleging they borrowed money from various people in the New York area and pledged apartments at One Madison Park as collateral against the loans.
Jacobs also said he dropped Dorfman as his counsel, saying the signatures present a potential conflict of interest with the lawyer, and hired attorney Lawrence McCarron of Rogers, McCarron and Habas to replace him.

Dorfman denied the allegations, saying he didn’t know what Jacobs was talking about.

Three lawyers contacted by The Real Deal said they had not been notified of any rescission offers, however other sources said that at least two other attorneys have been notified. In addition, two other lawyers, including Dorfman, said that a number of buyers still want to close on their contracts and move into the building.

Dorfman maintained that his client will prevail against iStar. He says that the court has twice turned down a request to appoint a receiver to take over the building.

“I think my client will be successful with the lender,” Dorfman said.

Sources said that Cuomo’s office forced the rescission offer over the objection of iStar officials, who wanted to continue selling units in the building, which is mainly completed. The developers owe more than $199 million in loans to Istar, and the lender has filed suit to foreclose on several commercial and residential projects around the city.

Shapiro, Jacobs and McCarron were not immediately available for comment. IStar officials did not respond to requests for comment.

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