Foreclosure Resumes Against Convicted Investor Barry Drillman

Boruch Drillman, the real estate investor who pleaded guilty in a brazen mortgage fraud scheme last year, is facing more legal trouble in Chicago.

After trying to stave off a lender’s foreclosure of a Southwest Side industrial property with a last-second court filing in August, Drillman has surrendered the fight, court filings show.

He and entities he manages that owned a 308,000-square-foot warehouse campus at 5301-5323 South Western Avenue in the Gage Park neighborhood withdrew an emergency lawsuit filed in New York that temporarily halted the foreclosure sale of the property driven by its lender, New York-based Castellan Real Estate Partners.

Drillman and his LLCs agreed to settle their emergency complaint this month and allow Castellan to proceed with a takeaway, after the property’s ownership failed to pay off a nearly $8 million loan. Castellan now claims that it’s owed nearly $10.8 million, after accounting for interest and fees stemming from Drillman’s alleged default, after failing to pay the loan off at its January maturity date and neglecting to pay property taxes.

It’s unclear if Castellan will also be able to recoup the additional $3 million in interest and fees that it alleges are owed by Drillman — who personally guaranteed the loan and faced the prospect of having to repay the debt even after losing his equity in the property. Drillman filed the emergency motion to stop the earlier foreclosure attempt, because Castellan was erroneously attempting to charge a default interest rate after the loan maturity was blown, he told the court.

It’s unknown whether Drillman could still have to pay a portion of the debt due to his personal guarantee; such guarantees often contain clauses that trigger an obligation to repay the debt in full out of pocket if the guarantor is convicted of a crime.

Julian Blumenthal, an attorney for Drillman, declined to comment beyond public court filings. Paul Silab and Joel Hammer, respectively a co-founder and CFO for Castellan, didn’t return requests for comment, and neither did an attorney for the debt servicer assigned to the Castellan loan.

Drillman in December pleaded guilty to conspiracy to commit wire fraud affecting a financial institution in a $165 million loan scheme, in a case that has reverberated through the real estate industry. The ploy involved he and his co-conspirators faking real estate closings and inflating sale prices to secure larger loans. While he awaits sentencing, Drillman could face up to five years in prison. The Gage Park property so far hasn’t been implicated in this case.

The ripple effects remain in force, with Fannie Mae having halted multifamily loan transactions closed by Madison Title and Riverside Abstract, the title insurers involved in Drillman’s deals, though they haven’t been accused of any misconduct.

At the Gage Park property, Drillman has filed multiple lawsuits to evict a tenant, and also faced liens of more than $300,000 that two contractors filed against the property, alleging they have gone unpaid for their work. Their claims could be resolved by Castellan taking over the property. The property was just more than 50 percent leased when it was listed for sale at little over $11 million earlier this year.

After the New York lawsuit’s settlement advanced Castellan’s foreclosure process, a debt servicer tied to the loan made to Drillman filed a Cook County suit earlier this month to initiate the final steps of the takeaway process. An auction that could transfer the property to the mortgage lender and strip the Drillman-managed entities of their equity hasn’t yet been scheduled.