LAW LESSONS, PART 4: THE CASE OF THE INCOMPLETE CONDO

Most of the building's 14 condo apartments are occupied by twenty- and thirtysomething professionals — lawyers, accountants, doctors and hedge-fund managers who can afford to pay $1.6 million for a two-bedroom apartment and more than double that for a three-bedroom penthouse. The building's most senior citizen, a well-known actor, is a relatively ancient 60 years old. The unit-owners' inexperience, coupled with some unforeseeable and unpleasant surprises, led the residents to the brink of a nasty legal battle with the sponsor — before they were rescued by an unforeseeable but pleasant surprise.

Josh Katzman is a 30-year-old attorney who moved into the building in the summer of 2007. He was the first person to spend the night there, and he was greeted by some unsettling surprises.

KO'd by a Punch-List

"There were certain things promised in the offering plan that were not in place when we moved in," says the boyish-looking Katzman, who is now president of the condo's board of directors. "For instance, [the floors] were 'engineered wood' [a thin wood veneer placed over particle board]. Other than that, there were punch-list items that were never completed and the [noisy] exhaust fans made it difficult for people to sleep. We were supposed to have a security system, but it wasn't in place in the elevators and it wasn't working when we first moved in."

For a building that went up during the peak of the city's recent construction frenzy, such problems do not qualify as true horror stories. In fact, one resident described most of the problems as "minor." Still, when you're paying well over $1 million for something, you want to get what you were told you were buying.

"One of the problems was that most of the people in the building are young and they had been renting," says Manoj Gupta, a 32-year-old hedge-fund manager who owns a two-bedroom apartment in the building. "They had no experience dealing with sponsors, and they didn't know what to expect."

Mess and Violence

But not even a seasoned real estate speculator could have anticipated the spiraling problems that bedeviled this building. The sponsor, a small, family-owned business called Ciao-Di Restaurant Corp., signed up Paxton 350 as a development partner. Paxton then subcontracted the construction work. During construction, the general contractor, Ameribuild Construction Management, went bankrupt, forcing the sponsor to scramble to finish the job. To top it off, the sponsor terminated the development partner over the management of the project, which led to a lawsuit still wending their way through the courts. The infighting grew so acrimonious that Al Noe, a Paxton partner, said in an affidavit that when he wanted to pull out, fellow partner Alan Friedberg — a member of the city's Economic Development Corporation and a former MTA board member — "reacted by grabbing my throat in a choke hold and literally threw me off the property."

"It ended up being a complete mess," says Gupta. "After we moved in, if there were things that weren't done, they didn't get done. For months, no money was moving and nothing was getting done."

The building's woes didn't stop there. The original managing agent, installed by the sponsor, was failing to pay bills, overcharging for services, and making unauthorized withdrawals from the reserve fund. When the building's first board was elected in October 2007 — consisting of five residents and two sponsor representatives — it hired attorney Geoffrey Mazel, a partner at Hankin & Mazel, and began the arduous process of firing the management company and replacing it with Cooper Square Realty. An independent auditor is now trying to untangle the building's finances.

"They had to get organized very fast and figure out what to do and where to turn," says Mazel. "The big wild card on this is that the attorney general is supposed to be policing offering plans, but it's extremely difficult to get any sort of action."

In fact, it's virtually impossible. In 2005, the wing of the attorney general's office that handles real estate matters was folded into the investor protection bureau, which focuses on cases against securities firms. The New York Times reported in February 2008 that the attorney general's office has not investigated complaints from condo buyers since 2005. ( Archive subscribers: See also "Journey into the Unknown: Checking in on the construction quality of new residential developments," Habitat September 2007) With that unpleasant fact in mind, the residents of 88 Washington Place concluded that the attorney general's office was not the place to air their grievances.

They then began mulling over an equally distasteful option — taking the sponsor to court. But a lucky break kept that from happening.