By Joyce Miles<br><a href="mailto:milesj@gnnewspaper.com">E-mail Joyce</a>
An existing order by a state Supreme Court justice says the mortgage-holder on Victorian Village condominiums should have first dibs on the proceeds of any foreclosure sale.
State Supreme Court Justice Ralph A. Boniello III already ruled that Graham O. Jones, who loaned $500,000 to Lockport Condominium Development LLC for an 80-condo project at 501 Park Lane Circle, should not have to get in line with private contractors who also are owed money by the LLC.
Jones, a prominent attorney in Hackensack, N.J., and a director of New York Stock Exchange-listed Valley National Bancorp, last month initiated foreclosure proceedings on the project.
Meanwhile, 18 private contractors who helped build and outfit the first — and only — four-unit building were never paid for their work. Together they are owed more than $224,000; two Lockport-based contractors account for $32,000 of that.
Boniello’s July ruling came as a result of American Paving & Excavating Inc. of Clarence Center challenging the validity of the Jones mortgage. That company is the single largest lienor against the LLC, with claims of unpaid work nearing $59,000.
Thanks to Boniello’s order and Jones’ subsequent move to foreclose his mortgage, American Paving attorney Eric Bloom said Monday, it’s possible none of the contractors will be paid.
Bloom had asked Supreme Court to “subordinate” Jones’ mortgage to American Paving’s lien on the basis the mortgage was questionable. Boniello rejected the argument and, according to Bloom, issued a ruling that applies across the board if other contractors/owed parties try to argue the same in opposing Jones’ foreclosure bid.
“Judge Boniello turned his back on the subcontractors and ruled the mortgage would not be subordinated,” Bloom said. “All in all, the subcontractors have gotten a royal you-know-what.”
Mortgage or building loan?
American Paving did not want to invest in a legal appeal of the ruling, which Bloom said he had strongly recommended.
The core of Bloom’s argument is that the mortgage was in fact a building loan and therefore did not deserve superiority over the claims of contractors — who, in effect, also loaned money to project manager/LLC managing partner Ed Lewis when they built the condo building and he did not pay them.
Among the issues Bloom had raised to Boniello:
n The mortgage by Jones to the LLC was dated Oct. 15, 2005, five days before the LLC acquired the deed to 501 Park Lane Circle. Normally, Bloom said, title acquisition precedes the mortgage. Also unusual, he said: the mortgage was not filed with the Niagara County clerk’s office until June 2006. Up to that point, in public records, the project appeared to be debt-free.
n Lewis, under questioning by Bloom in the American Paving suit, furnished two copies of the promissory note referred to in the mortgage agreement. Both were dated Oct. 15, 2005; one was on a standard, American Bar Association-prepared form signed by Lewis in Buffalo and the other was a non-standard form signed by both Lewis and Jones in New York City. Bloom said he never got an explanation why Lewis signed two different forms on the same day from opposite ends of the state.
n The mortgage money was not disbursed to the LLC exclusively. Bloom said documents introduced in court proceedings showed $100,000 went to the prior owner of 501 Park Lane Circle and another $100,000 went to Clifford Raab as a consultant to the LLC. Raab previously identified himself to public officials and members of the press as a “spokesman” for the project investor, whom he had refused to identify. Bloom said the remainder of Jones’ money, $300,000, wasn’t enough to get one building built, let alone the three originally called for in the first phase of an 18-month project, so Lewis’ prior claims to the contractors that he had financing in place were false.
n Documents and testimony showed two financial advisers to Jones, Carl Bronstein and Mark Pallack, approved all disbursements of Jones’ money before Raab signed the checks.
Altogether, Bloom argued, the evidence suggested Jones’ money was really a building loan, not a mortgage, and did not deserve greater protection in the event the LLC defaulted on it.
The timing of the mortgage filing in mid-2006, around the same time contractors began filing mechanic’s liens against the LLC, seemed aimed at discouraging liens because the law gives greater standing to mortgages, he said.
“The whole thing smells to high heaven, given that Mr. Raab got $100,000 and did what?” Bloom said. “I know on a building loan you’re not supposed to have those kinds of disbursements, but they’re not calling it a ‘building loan.’ They put a fake mustache and glasses on it and called it a mortgage. ... And they knew from the get-go that they would play these games with the subcontractors.”
Lewis has not returned several US&J; calls seeking his comment on the status of Victorian Village.
‘Condo’ project now apartment house
The building at 501 Park Lane Circle is classified as an apartment complex on the city assessment roll. Assessor Peter Galarneau said his office has never received paperwork from the state declaring it a condominium. The property on 1.3 acres is assessed at $500,100. Three adjacent, vacant lots on 6 acres have a combined assessment of $24,000.
The LLC currently owes the City of Lockport and Lockport City School District a combined $41,772 in back taxes dating to 2006. Tax Enforcement Officer Laurie Garlock said city tax foreclosure proceedings are set to begin in January. County taxes of $5,427 are owed across the lots for 2008.
Unlike the contractors, the city — one of 26 owed entities listed in Jones’ foreclosure motion — can recoup its losses, City Attorney John Ottaviano said. Back taxes are not wiped out by foreclosure, so if Jones is awarded the property or proceeds of an auction, the city can sue him for what it’s owed, Ottaviano said.
Other defendants, he said, “would have to hope a property sale nets a surplus” amount above and beyond the $500,000, plus interest and attorney fees, that Jones wants back.
