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What happens when your Co-Op Corporation is foreclosed on?

Posted by Frank Bello on October 07, 1997 at 15:13:19:

Here is a true story of what happened to me and my co-op in Brooklyn.
If anyone out there can offer advice, counseling, or relative experiences,
please share them with me.

In October 1988 my wife and I purchased a co-op apartment at 2301 Ocean
Avenue, Brooklyn, NY 11229. Twenty-six other individuals and families
purchased apartments around the same time. We all became shareholders of
the 2301 Ocean Ave. Owners Corporation. All was fine for about four
years. In 1993 the Co-op's non-sponsor board of directors began to
discover irregularities in both the financial records and management of
the corporation. They brought these issues to the attention of the
Office of the Attorney General. On April 21, 1994, after several years
of investigations and negotiations, the AG filed a summons against the
sponsors (Ira Epstein, Jack Hercman, Sunshine Realty Co, Forman&Ziff,
LLP, et al, were all named in the suit). As indicated in the petition,
the AG based his action on "..illegal and fraudulent conduct in the
offer and sale of security interests in the premises located at 2301
Ocean Avenue, Brooklyn, New York.

On September 21, 1995, the AG and sponsors reached a consent agreement;
that included various penalties against the sponsors. As it turns out,
the sponsors got off easy. However, the shareholder stakes in the
corporation grew dim. The mortgage had not been paid by the sponsors and
we were in arrears. No one would help us. Some of the shareholders,
including myself, felt that the non-sponsor related Board of Directors
were incapable of managing our problems. They hired an attorney Steven
Wurtzell who further botched things up for us.

On August 15, 1996, Apple Bank, the mortgagor of the building, held a
public auction and sold the building to the 6820 Ridge Realty Associates
(Robert and David Guttman). In essence, on that date, we lost all of our
shares. The building was reverted to a rent stabilized premises. The
personal mortgages for each of the shareholders became unsecured debt. I
consulted with an attorney and, to protect my family's financial future,
we filed for bankruptcy. On May 19, 1997, my wife and I were discharged
from our debt.

The new landlords (6820 Ridge Realty) formally became owners in November
1996. We received notice from them, in November, telling us what our
rent would be. The rent they requested was much higher than what we
expected. We were informed that the State DHRC would set the rent rates
and it was not up to the landlord to determine what the rent is. Past
Court opinions have stipulated that in the event of a co-op corporation
foreclosure, the former co-op apartments are reverted to rent
stabilization units. The rent is then calculated on the basis of
previous rent roles plus set annual rent increase percentages set by the
DHRC. Collectively, we told the new landlord that we would not pay the
rent he requested unless it was supported by law. We proceeded to send,
in good faith, rent based on our formulas, to the new landlord. For
several months he did not cash the checks. In May 1997, he returned the
checks (un-cashed) to us saying he could not accept them. We heard
nothing from them until this month. We received a letter from his
attorney (Burton Gelfand) threatening us with eviction by October 13,
1997. The notice we received states that "...(s)aid licensees were
former co-op owners and occupants at the time the premises were sold in
a foreclosure action and failed to vacate after title had changed hands
and as such remained as Licensees. No landlord and tenant relationship
exists between said licensees and the current owner."

Many of the former co-op owners have, by now, moved out. There remains
only about ten former co-op owners still living in the building. It
seems as though the in-sider co-op owners (those that lived in their
apartments before they became owners) have been able to settle their
matters with the landlord. That leaves about five of us (considered
out-side buyers) that have no lease and no settlement with the new

We are in the process of collectively hiring an attorney to represent us
with the eviction issues.

However, we are seeking legal representation on a pro-bono or
contingency basis to explore the possibility of a class action suit
against the former sponsors, their attorneys, our board of directors and
its attorney, and/or Apple Bank.

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