By Brendan Browne
Residents of a deteriorating Rego Park apartment complex are waging a legal war against the company that converted it into a co-operative and its mortgage bank, claiming that years of financial mismanagement and fraud could cause their apartments to be condemned.
The $40 million suit that residents filed in 1999 claims that Visutton Associates, which sponsored Anita Terrace when it became a co-op, illegally used the complex’s funds while failing to perform necessary maintenance and repairs. Visutton also is accused of colluding with River Bank, its mortgage bank, to inflate the complex’s mortgage by nearly $4 million, the suit says.
A lawyer for Peter Mesos, a Visutton official named in the suit, denied the charges against the sponsor. A spokesman at HSBC Bank, which now owns River Bank, declined to comment. The suit, which names Visutton, several of its current and former employees, HSBC and RB Assets, River Bank’s new name, will be heard in Brooklyn federal court.
The 559-unit complex, which sits at the corner of 63rd Road and 99th Street, was converted into cooperative apartments in 1991.
The controversy dates back about five years when 2,000 residents, upset about the condition of Anita Terrace, voted to take control of the complex’s seven-member board of directors. Bayside-based Visutton, which still holds about 43 percent of the shares in the co-op, refused to acknowledge the vote and only after a lengthy court battle did residents finally win control of the board in 1999.
Shortly after that, the board began investigating the sponsor’s financial management of the co-op and filed for bankruptcy protection because the members said it would cost several million dollars to get the buildings back into shape. Under federal bankruptcy laws, a trustee was appointed to take control of Anita Terrace.
The complex has serious plumbing problems, a dangerous elevator system, and an excessive amount of mold among the many inadequacies cited in recent engineering reports commissioned by the board.
“Obviously there are major, major problems that exist,” said Howard Schwartz, the president of the board of directors of the co-op. “All the major systems are falling apart.”
Abram Gin, a real estate developer and Anita Terrace tenant, has been leading the battle against Visutton armed with a slew of documents that he contends prove the sponsor’s actions have left the complex in ruin.
Gin said the $15 million mortgage Visutton took to convert Anita Terrace into a co-op was too large and the interest payments on it depleted the co-op’s cash flow. That prompted Visutton to illegally use a complex fund meant for only major improvements to pay taxes and other operating expenses, he alleged.
That money could have been used for projects like renovating the complex’s 100,000-square-foot garage, which was condemned in 1999 due to its poor condition, Gin said.
“The sponsor defendants engaged in a decade of uninterrupted, pervasive and systematic financial malfeasance… committing the cooperative to a commercially unreasonable and economically-oppressive purchase mortgage loan during the conversion process,” the suit states. Visutton caused the co-op “to assume millions of dollars in personal sponsor debt unrelated to the conversion,” it says.
Gin, citing accounting reports commissioned by the board, also alleged the mortgage holder, River Bank, and Visutton conspired to place an additional $3.96 million on Anita Terrace’s mortgage.
The suit says Visutton entered in a refinancing transaction and forced Anita Terrace to assume $3.96 million “in indebtness unrelated to the conversion.”
According to the suit, an unrelated $26 million mortgage loan that River Bank made to Visutton was not performing. To remedy the situation, the $3.96 million from that loan was transferred onto Anita Terrace’s mortgage, the suit claims.
In order to prevent Anita Terrace’s monthly interest payment from changing significantly, River Bank reduced the interest rate on the co-op’s mortgage, the suit contends.
Gin and the board now worry that Anita Terrace is continuing to fall apart while the suit and settlement talks with HSBC and Visutton move slowly under the bankruptcy trustee’s care. Previous attempts at reaching a deal with the bank and sponsor have failed.
When the three parties agreed to use a mediator to try to resolve differences in 2000, no progress was made. Milton Mollen, a retired judge who was hired as a mediator in private negotiations, failed to move the talks ahead, Gin said. After the unproductive negotiations, he was hired by the law firm representing River Bank , Gin said.
Contacted by phone, Mollen said as a mediator he could not discuss the negotiations.
The Department of Health has not backed the claims of Anita Terrace shareholders. Though a 2001 investigation by the department concluded that some of the Anita Terrace apartments were uninhabitable, another report issued less than six months later said the buildings were fine.
Anita Terrace and its trustees are awaiting the conclusions of another engineering report, which they hope will help their legal case, said Schwartz.
Reach reporter Brendan Browne by e-mail at TimesLedger@aol.com or by phone at 229-0300, Ext. 155.
