RECOVERING FROM ECONOMIC CATASTROPHE, P.2

The only way to cover the $14.5 million price tag would be to refinance the mortgage. But Chase, despite the recent wave of foreclosures brought on by the credit crunch, kept insisting that the co-op pay the outstanding $15.5 million on the loan and the $5 million penalty.

"They're taking advantage of our position," says the co-op's general counsel, Abbey Goldstein, a partner at Goldstein & Greenlaw. "Because they know we're desperate to refinance, they're trying to skin us."

Attorney Samson was brought in to negotiate with Chase while exploring options with other lenders. He worked out an agreement for a $39 million, 10-year mortgage with the National Cooperative Bank (NCB) at 6.4 percent interest.

The board's minority faction was not pleased. "They chose the most expensive, invasive heating system that was proposed," says Susan Emmi, a math teacher who has served on and off the board since 2004 and is a member of a dissident group Explore Your Options. "We've been told that if that [the mortgage] goes through, maintenance could go up another 10 percent, plus another assessment. This is a middle-class co-op. It cannot afford that mortgage."

A Solution at Last?

Overshadowing this maze of problems was the prospect of federal criminal charges. "We needed to get the [criminal] complaint resolved before we could get the new financing," says Bentz-Letts. "So in April we asked our criminal lawyer, Richard Finkel, to approach the government and say we needed to reach a settlement, and we needed it urgently."

A meeting was held in June 2008. Taryn Merkel, the government attorney handling the criminal complaint, adopted a "hard line," according to Bentz-Letts. When the government proposed a settlement in mid-July, Finkel advised the board not to sign. He then went back to the feds seeking a compromise.

Finally, on August 5, the board accepted what's known as a "deferred prosecution agreement." The co-op agreed to pay the EPA $490,000 to cover the expenses it incurred while excavating the property and removing asbestos, and to publish newspaper ads acknowledging the co-op had disposed of asbestos improperly. Criminal charges would remain in abeyance for three years while the heating system is repaired and asbestos removed from basements and crawl spaces. If the co-op complies with the conditions of the agreement, the charges will be dropped after three years.

During this time, the two disgruntled minority board members announced they were quitting. "We were ignored," Emmi says. "After nine months, there was no reason for us to be on the board." They hired an attorney, Eliot Zuckerman, and began circulating a petition calling for a new board election. After claiming to have secured the signatures of 25 percent of the shareholders, as required by the bylaws, the group presented the petition to the board on July 7.

Zuckerman declined to comment, but Goldstein, the board's general counsel, says it's unlikely the board will schedule an election before the next regularly scheduled vote on November 12. "They want a new board that would stop the refinancing," Goldstein says. "But the existing board has taken the position that, with all that's going on, we can't in good faith hold an election. It would be irresponsible."

Fannie Mae Flops

After the NCB signed off on the deferred prosecution agreement, the new mortgage was signed. Only one hurdle remained: Fannie Mae had to guarantee the mortgage. Everyone thought it was a formality, and so work on removing exposed asbestos began in late summer. Another crew got ready to install new boilers.

Then on September 7, the federal government announced it was placing the troubled mortgage giants Fannie Mae and Freddie Mac in a conservatorship. The next day, the Parkway Village board learned that Fannie Mae had declined to guarantee the mortgage.

Bentz-Letts vows to find a way to secure a mortgage that will enable Parkway Village to stay afloat. "We're going to keep fighting and try to find our way out of this," he says, "either without Fannie Mae or with some other bank."

"We're going to go to other lenders who deal with non-Fannie Mae loans," says Samson. There's got to be financing out there. I'll find it."
As Bentz-Letts sees it, Parkway Village should serve as a cautionary tale for the many co-op and condo complexes in the city that have asbestos time-bombs ticking on their property. Samson agrees, saying, "A lot of times these very complicated problems don't get solved until a board is pushed to the brink. … We had to do very radical surgery — and the patient may not survive."

"We had a clear platform of what we were going to do," Bentz-Letts says of his majority faction. "The four of us kept our unity, we met every week, sometimes twice a week. It was hard work, but we kept our eye on the platform. We hired good professionals and good consultants, and a strong sense of mission kept us going. We knew we had to do the work this year, so our backs were to the wall. We knew we couldn't use the old solutions because if we did, we were going to lose our homes. Old boards didn't have the gumption to make the tough decisions."

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