It turns out that there may well be plenty you haven’t discovered about the absolute auction of five unsold condos plus the penthouse (subject to the seller’s confirmation) at 127 Madison Avenue, dubbed m127.
One thing the developer hasn’t volunteered in connection with the sale on June 27 at the Roosevelt Hotel is that the company, Cardinal Investments, is facing foreclosure on the building. A foreclosure motion filed by the Bank of Smithtown is due for a court hearing two days before the auction, according to an attorney quoted by Josh Barbanel in the Wall Street Journal.
Alan C. Polacek, an attorney for the bank, which is based on Long Island, told Barbanel that a court-appointed referee recently put the debt owed by the developer at nearly $9 million.
The newly revealed information – together with an amendment to the developer’s offering plan, financial statements and the purchase contract – suggests a potentially confusing, even financially hazardous, situation for any winning bidders.
What if the total of the bids doesn’t satisfy the bank?
Although the developer maintains that the bank will do better with whatever is received from the auction than what it would collect through foreclosure, the possibility exists that the institution will remain unsatisfied.
I took a look at the documents, and, learned, among other things that:
- The sale is to be all cash within 30 days of the contract’s execution;
- If the purchaser is not ready to close by that deadline, that bidder loses the 10 percent deposit;
- If the seller is not ready, there is no penalty;
- In other words, only the purchaser is bound by a “time is of the essence” clause, meaning that the purchaser has to meet contractual deadlines even if the seller must not;
- The purchaser may not market the apartment prior to closing or assign the contract to another buyer;
- The seller is obligated to satisfy all mortgages or obtain release of any lien related to them;
- If the seller is unable to deliver clear title, the purchaser has a choice of accepting the apartment with encumbered title and no change in the price or of walking away with the deposit in hand;
- The seller doesn’t have to spend a nickle to obtain good title but may postpone the closing to cure any title defects;
- The seller has 30 days to sign the contract and, failing to do so, thereby nullify the contract, which doesn’t sound so absolute to me and appears to contradict the 10th amendment to the offering plan: “The Sponsor shall sell all of the unsold Residential Units except for Unit PH-B, ‘without reserve,’ which means that the Sponsor is obligated to sell these Units to the highest bidder, regardless of the price;”
- The developer has the right to sell any of the units prior to the auction;
- The building’s current operating budget of $145,580 shows a deficit of $20,756;
- I find no evidence of a reserve fund or any allocation to such a fund in the operating budget.
As always when purchasing anything, especially in the price range of the apartments on the block, it always is wise to read the fine print. The fine print for the m127 auction obviously should loom large for any prospective purchaser.
Anyone seeking a bargain in the sale of the condos who delves into the details may not be buying a pig in a poke. Instead, the successful purchaser may be stuck with a white elephant.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022