Two and a half years later, Covid is still spitting real estate losses.
The latest are Brooklyn-based investor Allen Stein and his lender, Customers Bank.
Late last week, clients sued Stein and his co-guarantor Leopold Schwimmer exclude on two Upper Manhattan rental properties, claiming their nearly $12 million mortgage was in default.
Borrowers on mortgages at 517 West 180th Street and 570 West 182nd Street had tried to beat the Pennsylvania-based bank punchasking six weeks early for a judge to declare the default claims settled.
The dispute, both parties agree, stems from Covid.
In the original costume, 517 Properties West and 570 Properties West, two limited liability companies affiliated with Schwimmer, acknowledged that the pandemic had impacted the rents of the two buildings. Tenants left town in droves in 2020 and early 2021, and moratoriums prevented landlords from evicting tenants who had stopped paying.
But “diminished revenue” aside, Schwimmer’s filing claims he and Stein have met their debt service obligations.
What homeowners have struggled with are property taxes. Their lawsuit says the LLCs fell behind on payments but “promptly and efficiently” settled the tax debts by entering into two settlements with the city.
While borrowers praised “diligence, good management and good faith in weathering the storms brought on by the Covid-19 pandemic”, clients were unimpressed, declaring default in August 2021 .
The bank claimed the borrowers were behind on property taxes and water bills, fell below the required debt service coverage ratio, and failed to provide necessary financial documents. The borrowers argue that the bank did not specify the documents it needed.
The default has pushed homeowners’ interest rates to 24% from 3.5%, plunging building budgets into the red.
But according to the LLC’s filing, Stein and Schwimmer quickly straightened things out.
The borrowers explained that they had received nearly $150,000 in emergency rent relief, bringing their debt service coverage ratio within the limits required by the loan, and that in August 2021 they had made lump sum tax payments over $100,000.
Last November, Stein and Schwimmer asked the bank to restore the interest rate to 3.5% because they had remedied all the alleged defaults. And in mid-December, the bank released a monthly statement confirming that it had done so, according to the owners’ lawsuit.
The borrowers said they continued to make payments on the loan from January through March, and the bank issued statements “confirming the application of these monthly payments at the ordinary rate of interest”.
But in April, the bank dropped a bombshell on borrowers. He sent a notice that their loan remained in default, the full accelerated balance was due, and default interest had accrued on the balance since August 2021.
The clients’ lawsuit details his side of the story.
The bank alleges that in the 28 months between May 2020 and August 2022, Stein and Schwimmer made 22 late payments, incurring more than $58,000 in penalties. Additionally, investors failed to pay property taxes and water bills on time and fell below the minimum debt service coverage ratio stipulated by the mortgage agreement.
The court documents add that Stein and Schwimmer missed the three-month window to send in financial statements for 2020 that disclosed income and expenses from their mortgaged properties.
And customers allege they sent notices of default to borrowers in August, October and November 2021, each time giving them another chance to “remedy the defaults”. But they didn’t.
As a result, Customers attempted to exercise its right to collect rents from the buildings, which total $1.1 million each year. But Stein refused, triggering another default, according to the bank.
After the last notice of default in November, the bank says it gave Stein one last chance to repay the loan, either by refinancing with another lender or selling the buildings.
But Stein did neither, instead making “sporadic partial payments on accelerated debt for the next five months,” the Customers lawsuit read.
As it stands, the clients claim that Stein and Schwimmer owe $224,000 in property taxes and water charges on the two buildings, and the bank has never accepted their tax refund plan as a remedy or has waived any event of default.
For good measure, the bank also alleges that Stein neglected maintenance and repair issues in both buildings, which resulted in leaks, faulty self-closing doors, uncorrected lead-based paint hazards. , broken radiators and over $18,000 in environmental control panel violations.
In total, the bank says Stein and Schwimmer owe more than $13.6 million, including default interest and attorney’s fees.
Schwimmer and Stein, meanwhile, are asking the court to confirm that they are not in default and are not subject to default interest.
Neither the bank’s attorneys nor the LLCs immediately responded to a request for comment.