WHEN SPONSORS REFUSE TO SELL, P.2

According to Stovel, the sponsor also sent letters to shareholders telling them not to attend Stovel's meeting. Meanwhile, Frankel, of Daejan, held his own election at his offices and declared his board elected. The filings go on to say that the sponsor's refusal to sell apartments puts it in violation of the law and voids its right to constitute a legal board. The filing also note that the building's manager, Residential Management, is controlled by Daejan, which shares the same address.

Daejan, says Stovel, profits in at least four ways. First, the sponsor circumvents rent control/ stabilization laws, which don't apply to a co-op apartment after the original renter moves out. Second, by creating a wraparound mortgage for the building, the sponsor gains an investment vehicle with tax advantages that is partially paid for by tenant-shareholders. Third, the sponsor remains a landlord in the lucrative New York City rental market. Fourth, the sponsor can make loans to the co-op on his terms and call them in at will, profiting from investments made by the other shareholders.

Tenant-shareholders' desire to bring up building values by upgrading amenities and building systems is at cross purposes with the sponsor's desire to put profit first. Says Stovel, "The sponsor's interest is in running the building down to save money as much as possible — as long as it doesn't go under — because it's just a rental to him."

In line with the landmark Jennifer Realty case, the Stovel group contends that the sponsor is not selling apartments, is "openly and notoriously" renting them, and has used its management company to obtain negative information on tenant-shareholders, which it then allegedly uses to seek evictions. In addition, the suit contends Daejan refinanced the building's underlying mortgage without board approval and has affixed signatures to legal documents which were not actually signed by duly elected board members.

Stovel says that Daejan's allied company, Arasta Finances USA, is servicing a loan for $100,000 made to the co-op, which the shareholders did not approve and for which "there is no stated reason." Stovel says his board cannot find any record of where the money went.

"The more we looked into it," Stovel notes, "the more we started to realize that Arasta, Daejan and another firm called Dirot Reaty are all closely related." Stovel and others have filed a complaint with the attorney general's office.

Telephone calls to Daejan's Labe Twerski for comment were not returned.

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Adapted from Habitat December 2008. For the complete article and more, join our Archive >>