Lender Can't Sidestep Foreclosure At Garment District Condo

The long-running legal dispute over a failed Garment District condo conversion continues after a judge ruled that the lender will have to foreclose on the property the old-fashioned way.

State Supreme Court Justice Andrea Masley reversed an earlier ruling that would have allowed Shanghai Commercial Bank to take over the title to 335 West 35th Street from the family of Taiwanese artist Dr. Tsing-Fang Chen, ruling that a deed-in-lieu of foreclosure agreement was legally a mortgage.

The dispute stems from a loan the bank made to an entity tied to the Chen family, which bought the vacant, 12-story building near Penn Station for $50 million in 2016, planning to redevelop it. The plan was for condo units, to be sold for a collective $99 million, and space for the family foundation’s T.F. Chen Cultural Center.

Shanghai Commercial Bank provided a $34 million loan in 2017 and refinanced the condo project in November 2020 for $60.6 million. After the Chens defaulted in 2022, both sides entered into a forbearance agreement under which Shanghai Commercial Bank agreed to give the family more time to repay the loan in exchange for a deed-in-lieu, per court documents.

But the agreement expired and the Chens allegedly failed to repay the full principle. The Chen family put the entity that owns the property into bankruptcy in 2024 as it sought funding to complete the project. A few months later, the bank sued the family, seeking to take over the property.

Masley ordered the transfer of the property earlier this year. But the Chens filed a motion to reargue the case, claiming that New York state property law treats any deed intended as security for a loan as a mortgage, regardless of how the parties characterize the agreement. Masley agreed.

“If you take the deed in exchange for security of a payment of debt, you must foreclose, and the bank did not do that here,” said Leo Jacobs, an attorney for the Chen family.

A lawyer for the bank did not immediately respond to a request for comment.

The ruling comes after Shanghai Commercial Bank offloaded the distressed debt to Empire Capital Holdings and Hakimian Organization for roughly $15 million, Bloomberg reported in April. The note sale gives the note buyers a potential path to ownership, though the latest court decision means any transfer of title would have to come through a foreclosure process.

Meanwhile, the Chen family’s $3 billion lawsuit against Shanghai Commercial Bank for fraud and negligence is winding through the State Supreme Court after being moved from bankruptcy court.