Convicted investor Boruch Drillman sues to stop Chicago foreclosure

An investor who pleaded guilty to real estate fraud last year, Boruch “Barry” Drillman, narrowly dodged a lender’s foreclosure of an industrial property on Chicago’s South Side Tuesday with an emergency court filing.

A New York state judge instructed an affiliate of lender Castellan Real Estate Partners to hold off on conducting a non-judicial foreclosure sale of a Drillman-backed LLC’s interest in the 308,000-square-foot warehouse campus at 5301-5323 South Western Avenue, in Chicago’s Gage Park neighborhood.

The auction would have evaporated Drillman’s equity in the property and put Castellan in position to take over its ownership. It was originally scheduled to take place in New York on Tuesday afternoon. 

However, Drillman — who pleaded guilty in December to conspiracy to commit wire fraud affecting a financial institution in a $165 million loan scheme — filed an emergency court motion Monday alleging Castellan was jumping the gun and unjustly trying to seize the property, according to New York records.

Joel Hammer, CFO of Castellan, told The Real Deal that its attempt to foreclose on a nearly $8 million loan tied to the property wasn’t triggered by Drillman’s guilty plea, but rather his failure to pay off the loan at its maturity date as well as unpaid property taxes. Castellan is seeking to be repaid a little more than $10.5 million, including additional interest and fees tacked on due to Drillman’s alleged default.

But Drillman claims the lender is erroneously applying a default interest rate to the debt, with plans to not only seize the property but also pursue a judgment of at least $10 million against Drillman for personally guaranteeing the loan to his LLC.

“Apparently, [Castellan] is retroactively using a default interest rate for which I was never billed nor asked to pay,” Drillman said in an affidavit. “This retroactivity appears to be for more than a year. That is improper.”

Drillman’s ownership entity earlier this year hired brokers with Cawley Commercial Real Estate — a local industrial specialist — to sell the property. They’re seeking a little under $11.3 million for the property, which is 53 percent leased, according to a marketing flier.

A New York judge ordered Castellan to hold off on its foreclosure to allow Drillman’s argument to be considered, and will hold a hearing next month to determine next steps for his request to prevent the lender from seizing the property. Drillman said he’s worked in good faith with the lender to extend the loan’s maturity date.

Drillman gained notoriety in recent months as his role in a mortgage scam investigated by federal officials came to light and sent shockwaves through the real estate industry.

As part of the scheme, Drillman and his co-conspirators used fake closings with inflated sales prices to obtain larger loans than they would have otherwise received. Drillman now faces up to five years in prison, though he has yet to be sentenced. The Gage Park property hasn’t been mentioned as part of the scheme.

The impacts of Drillman’s misdeeds are still being felt across the industry.

Fannie Mae closed in on title insurers, Madison Title and Riverside Abstract, that participated in the closings on Drillman’s fraudulent deals. Fannie stopped accepting delivery of multifamily loans closed with Madison and Riverside, though neither title insurer has been accused of wrongdoing.

It’s unclear whether Drillman will be able to stave off Castellan’s foreclosure forever. While his emergency motion has bought him at least a couple more weeks to market the property, another party is also taking legal action to force Drillman’s company to pay bills it’s allegedly skipped out on.

Two contractors have filed more than $300,000 in liens on the Gage Park property, according to Cook County records, and one of them, GEM Building Group, has sued to recover $292,000 from the landlord that it says it’s owed for work on the property, records show.

Attorneys for GEM, Drillman and his attorney all didn’t return requests for comment.

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