Judge Dismisses Foreclosure Disputes Between Michael Shah and Jack Terzi
Michael Shah failed to foreclose on two of Jack Terzi’s Manhattan properties, after a judge dismissed the two identical cases this week.
Shah, of Delshah Capital, who holds the notes on the properties, claimed that Terzi’s JTRE Holdings defaulted when it failed to keep enough cash in reserves as required by the loan agreement. Terzi countered that it was a manufactured default, as he had never been late on a payment—a matter that was not disputed by Shah—and did not receive notice in time to replenish the account.
After close to two years in court, the judge ruled in Terzi’s favor Tuesday, ruling that although JTRE had violated the cash collateral obligation, the lender at the time, Signature Bank, did not provide the company with the necessary notice to cure it.
Although these cases are now resolved, the dispute is not. JTRE is now suing Shah for the allegedly predatory practices he used.
The background for the case is that in July 2017, Shah bought three notes totaling $10 million on two JTRE properties, the commercial condominiums at 31 East 28th Street and 27 West 72nd Street. By the time Shah bought the notes from Signature Bank, the lender had accelerated the loans, claiming that JTRE was in default because of the low balance on its cash collateral account.
In the case of the East 28th Street property, which had two mortgages totaling $3 million, JTRE had agreed to keep $100,000 in a cash collateral account, and replenish it if it fell below $25,000.
In May 2017, Signature sent JTRE a notice of default since the account had roughly $350 in it, and gave the company ten days to fix it. On May 30th, Signature sent a letter informing JTRE that it had accelerated the loans because JTRE had not cured the default.
Terzi was still trying to work things out with Signature, which had frozen the account, when Shah bought the notes and sued to foreclose.
In a response filed with the court, JTRE claimed that the firm did not receive either of Signature’s notices until June, when it was too late to fix the alleged default. JTRE also claimed that previously, when the cash balance was low, Signature would inform JTRE and they would add funds. Signature’s deviance from their past behavior indicated that they were working with Shah, who had access to the property’s loan agreement because the properties were on the market, according to JTRE’s counterclaims.
The judge did not offer any resolution as to the motivations for Shah’s or Terzi’s behavior, or even as to whether or not Terzi received the letter in time. The decision came down to the fact that the event of default that precipitated the whole thing, the low cash balance, required a 30-day notice of default, not the 10-day notice Signature provided.
“The judge’s decision ignored the numerous other payment defaults since; real estate taxes haven’t been paid at the properties,” Shah told CO. “It is unfortunate that the judge has decided to take a hyper-technical approach to this.”
According to tax records, JTRE has an unpaid balance of $729,987 for both properties.
Jack Terzi of JTRE said that he was pleased with the outcome. “We are now able to move forward with our plans for both properties and look forward towards successfully executing our business plan,” he said.
Counsel for JTRE, Darren Oved, said the case illustrated the importance of reading the underlying loan documents.
“It was precisely that exhaustive analysis which made the difference between victory and defeat for our client in this case,” he said.