After years of tortuous litigation, Valley Bank can foreclose on a $120 million loan for Fortis Property Group’s Seaport Residences, a luxury condo tower that has sat unfinished and exposed to the elements for three years.
Judge Barry Ostrager on Thursday granted the bank’s motion for summary judgment at 161 Maiden Lane, allowing the bank to move forward with its foreclosure on the loan, of which $90 million has been funded.
The decision marks a new chapter for the disastrous Financial District project, which has been repeatedly delayed by lawsuits, notably over alleged design defects that have left the tower leaning a few inches to the north.
The bank can now move toward an eventual sale of the property, but it is unclear what someone might pay. Whether the tower can be salvaged is not certain, although an engineer hired by Fortis estimated in January that it would cost $106 million to complete it.
Ostrager left the door open for the parties to work out a deal, despite the bank and Fortis having repeatedly failed to do so during mediation. The decision in Valley’s favor gives the bank more leverage in any negotiations.
The judge noted that he is retiring at the end of the year and that further litigation will be the headache of a new commercial division judge.
A referee will now be appointed to decide what is owed to the bank and whether the site should be sold as one parcel. A status conference is slated for Dec. 6.
Fortis has filed a separate lawsuit against Valley Bank, and some of the developer’s counterclaims in the foreclosure action will be consolidated with it. In his order, the judge noted that the lawsuit does not bar foreclosure on the mortgage, but could entitle Fortis to monetary damages.
The developer could also appeal Thursday’s decision. A spokesperson for Fortis said the developer is “evaluating all options.”
“The court has validated our lender liability claims by preserving our lawsuit for breach of contract and fraud, for which the court previously stated the lender has significant potential liability,” the spokesperson said in a statement.
A representative for Valley declined to comment. An attorney for the bank did not immediately return messages.
Bank Leumi USA, which was acquired by Valley last year, filed its foreclosure action in December 2020. The lawsuit accused Fortis of violating the terms of its loan agreement by failing to get a temporary certificate of occupancy by June 2020 and then failing to repay the loan when it matured in December of that year.
Fortis sued the bank in October, alleging that it violated their agreement by failing to issue payments on the loan since March 2019. The project’s contractors went months without being paid, and in July 2020, workers walked off the site.
During a hearing on the motion, the judge referred to the case as “an endless war of attrition” and lamented that the project is likely worth considerably less than it was three years ago.
“The never-ending stream of discovery disputes, motions and appeals has resulted in an exponential devaluation of the collateral during the multi-year period in which construction financing was available at extremely reasonable rates,” the judge wrote in his decision.
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The bank and its co-lender Harel Insurance Company came close to selling the loans to an entity tied to developer Shelly Listokin, but he filed a bankruptcy action last month to avoid closing on the deal. If the deal had been finalized, Listokin would have taken the bank’s place in the foreclosure proceedings.
Fortis bought the property, along with an adjacent site, for $64 million in 2013. The developer planned an 80-unit condo tower with a projected sellout of $272 million. Trouble began after a construction worker fell to his death on the site, which was then shut down for several months.
More stoppages followed, culminating in an ugly court fight between Fortis and its construction manager, Pizzarotti, in which the parties blamed each other for the tower’s lean. That lawsuit is ongoing.