Fannie Mae Foreclosing on Bialostozky’s South Side Loan

Fannie Mae’s move to foreclose on a nine-property portfolio on the South Side of Chicago is shedding light on real estate deals with ties to an East Coast hotspot for commercial mortgage fraud.

The government-backed mortgage company alleges in Cook County Circuit Court that the property sales are linked to investor Israel Bialostozky, and his company is in default on an $18 million loan tied to the buildings in the Chatham, Englewood, South Chicago and Brainerd neighborhoods.

The Fannie Mae foreclosure follows Bialostozky’s 2023 purchase of the underlying real estate from a Lakewood, New Jersey-based investor named Chaim Joseph Bialostozky, public records show.

Fannie’s foreclosure suit involves a total of 291 apartments across the nine-property portfolio.

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Two companies, Gray Portfolio Investment 1 and Gray Portfolio Holdings, both tied to investors with the last names of Bialostozky, were involved in the building sales in 2023 that preceded the foreclosure, records show.

The latter company is linked to Chaim Bialostozky of Lakewood, New Jersey. The firm sold the nine-building portfolio to the current owner, the company managed by Israel Bialostozky, for $24 million in 2023, according to public property records.

That sale came after Chaim Bialostozky purchased the real estate in 2022 through a series of deals. The sellers in those deals were Lakewood-based LLCs, almost all of which were managed by people (or perhaps the same person) named Avraham Levin, Yaakov Levin, or Avraham Yaakov Levin, for a total of more than $22 million, records show. (Several other Lakewood-based investors who have faced distress have interchangeably used first and middle names on Chicago property documents.)

Chaim Bialostozky’s LLC soon racked up building code violation complaints from the city of Chicago on the properties. As of July, the city of Chicago was still claiming that a Joseph Bialostozky — a name Chaim also appears to be called, according to public records showing his ties to the same Lakewood address — still owed over $34,000 for failure to pay debts owed to the city stemming from building code violation court orders. According to public records, those issues, tied to 7851 South Avalon Avenue and 1234 East 79th Street, remain unresolved.

The portfolio’s current owner, the LLC managed by Israel Bialostozky, triggered Fannie’s foreclosure lawsuit by allegedly “failing to maintain and repair the property, failing to keep the property in good repair and marketable condition, and failing to promptly repair damaged parts of the property,” the lender’s complaint said. The fact the city is pursuing code enforcement violations against the landlord constitutes another default of the loan agreement, the records show.

It’s unusual for building code violations to trigger lender foreclosure actions, though such lawsuits tend to be filed when property conditions are particularly dire. Furthermore, Israel Bialostozky has been accused of failing to deposit more than $3.8 million into a lender-controlled account meant to address “substantial deficiencies in the physical conditions of the property.” He was supposed to deposit the funds in February, the lawsuit shows.

Aside from Fannie Mae’s foreclosure lawsuit against the Gray Portfolio properties, nearly 300 additional Chicago apartments are still owned by LLCs held by Chaim Bialostozky that he purchased from Levin, property records show. Chaim Bialostozky’s portfolio once totaled nearly 600 units, before he sold the buildings now facing foreclosure to Israel Bialostozky.

Chaim Bialostozky used a $17.6 million Fannie-backed loan provided by New York-based Arbor Realty to buy the nine properties from Levin for $22 million in 2022 that are now facing foreclosure. Then the next year, Israel Bialostozky used a $17.8 million Fannie loan provided by Greystone to support his purchase of the same nine buildings from Chaim Bialostozky, which was recorded as a $24 million sale, records show.

Israel Bialostozky paid a higher price, despite building code violations also emerging at his buildings shortly after buying them, records show.

It’s unclear if the Bialostozkys are related, though public record databases show they have shared the same Lakewood address.

Israel Bialostozky didn’t return multiple emails requesting comment, and Fannie Mae didn’t return a request for comment.

Regardless, the transfers and their rising valuations, despite the emergence of city building code enforcement action — and an apparent lack of building permit and construction activity in between the sales — combine to raise concerns about the nature of the relationships between the recent buyers and sellers of these properties.

Lawsuits follow Bialostozky

Lakewood has become a nexus for investors who bought commercial properties in Chicago and throughout the Midwest, and then rapidly flipped them, sometimes between related parties, allegedly in order to load up buildings with loans well above assessed values and own real estate with no money down. Neither Bialostozky has been accused of criminal wrongdoing.

Chaim Bialostozky appears to have been in the same orbit as Mark Nussbaum — the New York real estate attorney now under indictment for suspected grand larceny tied to allegedly missing escrow funds. Deals tied to Nussbaum and his Chicago partners used rapid flips and unusual financing to extract outsized loans against modest buildings, records show.

In an alternative bankruptcy proceeding, Nussbaum recently listed a J. Bialostozky as a debtor who owes the indicted lawyer over $1.2 million (Chaim Bialostozky is also known as Joseph, according to active litigation involving the Lakewood-based investor). Other borrowers with Lakewood ties who have faced pressure from lenders — such as Shaya Prager, who has been plagued by commercial property distress across the nation, including suburban Chicago — were also listed by Nussbaum as debtors.

Earlier this year, an entity called Mount Dora sued Nussbaum’s former firm, Nussbaum Lowinger — which has since been shut down — claiming the firm executed fraudulent transfers involving Chaim Bialostozky to avoid paying a judgment.

The dispute was over a $6.15 million judgment Mount Dora was awarded in 2022 against Timothy Majors and Hobart Investments in Florida. The Mount Dora entity was seeking to collect $2.9 million. Furthermore, the lawsuit alleged that Majors was involved in the 2022 sale of properties in Bradenton and Daytona Beach, Florida, to Dr. Harry Nyanteh and an affiliate of Lakewood investor Chaim Bialostozky.

A Majors-controlled company has since filed a separate lawsuit against Chaim Bialostozky and an entity called Gray Portfolio 2 LLC over Florida real estate disputes. Bialostozky is seeking to have the case dismissed and has denied that he improperly took funds that Majors is seeking. That case is still pending in a Delaware court.

Back in Chicago, Fannie Mae is seeking to have the court appoint Matthew Tarshis of Frontline Real Estate Partners as a receiver for the nine-property portfolio. Fannie has said it doesn’t offer to accept title to the real estate to satisfy Israel Bialostozky’s firm’s debt.