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Sponsor Foreclosure of Super’s Unit Thwarted by Board’s Novel Fraud Defense

Adam Leitman Bailey, P.C. represents a board of a large Manhattan condominium that is in dispute with the condominium’s sponsor-developer over construction defects and misuse of condominium funds. Upon hiring the firm, Adam Leitman Bailey, P.C. performed a detailed review of all potential claims Adam Leitman Bailey, P.C. may have against the condominium’s sponsor-developer.

Adam Leitman Bailey, P.C. discovered that the previous sponsor-controlled board signed a mortgage and note with the sponsor with respect to conveyance of the superintendent’s apartment. The terms of the mortgage and note were outrageously usurious. Adam Leitman Bailey, P.C. advised the board to stop making payments to the sponsor on the note with the intention of seeking nullification of the note and/or combining the negotiation of the terms of the note with the global issues regarding construction defects and misuse of condominium funds.

As expected, the sponsor made a motion for summary judgment in lieu of complaint seeking foreclosure on the note. Adam Leitman Bailey, P.C. opposed arguing that the circumstances surrounding the issuance of the note establish fraud on the part of the sponsor. The court agreed with the position of Adam Leitman Bailey, P.C. and denied the sponsor’s motion for summary judgment.

The board may now combine the negotiation/nullification of the note with the negotiation regarding the construction defects and misuse of condominium funds. During the pendency of the resolution of these issues, the board need not pay debt service and will not lose use and/or title to the superintendent’s unit.

Colin E. Kaufman represented the board in this matter.

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