Levy ban, judgment upheld by state Supreme Court

Developer spent reserve funds at Rector Square

New York /
Aug.August 17, 2012 05:30 PM

New York Attorney General Eric Schneiderman won a major decision against developer Yair Levy, as a state Supreme Court judge upheld a 2011 decision that bans the developer from selling condos and co-ops statewide and requires him to pay $7.4 million for having raided the reserve fund at the Rector Square condominium.

Levy had sought to dismiss a June 2011 ruling by Judge Joan Lobis. Levy was found to have spent millions from the 304-unit Battery Park City condo conversion’s fund on personal and family expenses. 

After Levy defaulted on the mortgage loan with Anglo Irish Bank, the senior lender filed to foreclose on the building, and sold the debt for $82 million to Related Cos., which agreed to replenish part of the building’s reserve fund and re-launch a new luxury condo building this fall under the name 225 Rector.

“In seeking to vacate or modify the judgment, respondents argue that they are entitled to a reduction in the judgment by the amount of any money that [Related] is required to deposit into the reserve fund,” Lobis wrote in the decision released today.

Schneiderman’s office responded by saying Levy’s motion was just an attempt offset a legally enforceable judgment by the court. In New York State, a percentage of every apartment sale must be placed into a reserve fund to pay for major repairs, such as a damaged roof or broken boiler. The reserve funds are held in an escrow account, and cannot be spent on other items by the developer or any other individuals.

“With today’s decision, Yair Levy is out of business,” Schneiderman said in a statement, “and tenants and homebuyers are more secure without this predator in the marketplace.”

Lawyers for the unit owners said they were pleased that the earlier decisions were upheld.

“The unit owners are pleased that the court reaffirmed its prior decision that a developer who raids the finances of a building and fails to comply with the terms he promises to the unit owners will be held fully accountable,” said Marc Held, a partner at Lazarowitz & Manganillo, which represents the unit owners.

Levy and others involved in the Rector Square conversion were hit with a $100 million fraud suit by the unit owners, who alleged the former rental building was developed using substandard materials, and that Levy sold numerous apartments to an Italian university as student housing and allowed an extended-stay hotel firm rent out apartments for transient guests.

Levy told The Real Deal that he was in meetings and could not immediately comment. Rex Whitehorn, an attorney for Levy, was in meetings and could not immediately comment.


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