Buyers ask for interest penalty in ongoing Rushmore escrow dispute
Developers have held onto buyers’ money for more than two years despite a ruling by the AG
A group of 40 purchasers are demanding that Carlyle Realty Partners and Extell Development post another $5 million bond to cover interest payments, until a state appeals court resolves the ongoing $16 million escrow dispute at the Rushmore condominium on Manhattan’s Upper West Side.
The purchasers, in a Feb. 28 court filing, asked the New York State Supreme Court to impose a 9 percent interest penalty on the developers, who are appealing a January ruling in favor of former Attorney General Andrew Cuomo. In April 2010, Cuomo ordered the refund of $16 million in escrow deposits at the luxury tower at 80 Riverside Boulevard, before the developers filed and lost multiple appeals.
Jon Coleman, attorney for 33 of the 40 purchasers, noted that the developers have held onto the disputed escrow funds for more than two years despite an order by the AG to return the money pending the outcome of the case.
“New York law provides for statutory interest to compensate people for the time they are without use of their money,” Coleman told The Real Deal in a statement. “Due to the extended time that the purchasers have been without the use of their money, statutory interest is appropriate and should be paid to them, along with the return of their down payments.”
About 41 purchasers originally filed disputes with the AG’s office alleging Carlyle and Extell, operating under the name CRP/Extell, missed a Sept. 1, 2008 deadline to close its first apartment sale at the 289-unit building. The purchasers were under contract to buy about $110 million worth of apartments, but the condo’s offering plan called for the developers to refund the deposits if the deadline was missed.
Following the April 2010 order by Cuomo, the developers filed suit in U.S. District Court, alleging the date was a “scrivenor’s error” and that the true and obvious intent of the developers was to set a September 2009 deadline, which would have given them up to a year for construction delays.
The developers have been rejected multiple times in federal court, but have refused previous orders to return the deposits, arguing that an automatic stay applies to the case, which allows them to keep the money in escrow until the appeals are exhausted.
The developers then went back to New York State Court in October 2010, and filed an Article 78, which is used to challenge rulings in administrative hearings like escrow disputes or rent increases by state agencies. The court allowed the developers to keep the deposits, but ordered them to post $1 million, reflecting 9 percent interest.
If the court rules in favor of the buyers on the additional bond, the developers would have to post another $5 million in interest payments, dating back to the original Sept. 1, 2008 closing deadline, resulting in a total of $6 million in interest payments. The appeal by the developers is not expected to be heard until September 2012 at the earliest, which could delay the final ruling until 2013
According to court records, about 90 percent of the building’s units are sold, and most of the apartment contracts involved in this escrow dispute were canceled and sold by the developer to other buyers.
Extell and Carlyle officials declined to comment and a spokesperson for current AG Eric Schneiderman’s office, which is handling the case, did not return calls seeking comment.