Failed California lender IndyMac is working on a familiar task, but in an unusual location: It’s cleaning up the pieces of a soured development project, blocks from Fenway Park.
OneWest Bank, the organization that plucked IndyMac from FDIC receivership, has scheduled a late April foreclosure auction at the Audubon Park condominiums. The bank is also locked in a months-long legal battle with the project’s developer and investor, claiming the pair is personally on the hook for as much as $11.8 million.
Developer Robert Fox brought the 53-unit project to Miner Street in Boston’s Fenway neighborhood in January 2008, just as the state’s condominium market was beginning its precipitous fall. He financed the development with a $23.6 million construction loan from IndyMac.
Failed development bets in California doomed IndyMac, which folded in July 2008. The bank did minimal building business in Massachusetts, though. The Audubon Park construction loan was the only mortgage north of $5 million IndyMac ever wrote in Suffolk County, according to The Warren Group, publisher of Banker & Tradesman. It was one of just two IndyMac loans of more than $5 million in all of Massachusetts.
The developer sold 10 units before IndyMac’s failure, at prices ranging from $400,000 to $725,000.
However, the bank’s implosion coincided with a cash shortfall on Fox Development’s part, and with the condo market’s unraveling. Unit sales dried up. Fox was unable to pay off his contractor, Columbia Construction. Instead, Fox granted Columbia an unusual second mortgage on the project for the balance of the firm’s unpaid work, $350,000.
An LLC controlled by OneWest sued Fox and his investor, Jonathan Sherwin, last July. The complaint said after the Audubon Park construction loan matured in December 2008, Fox had converted the unsold condo units to rentals. Such conversion was prohibited by the construction loan’s terms, the complaint said.
OneWest also alleged that it found the development’s financial documents "in disarray," with scant accounting for the deposits residents had put down on 23 rental units. The bank said that, while condo sales had taken $7.33 million off the construction loan’s outstanding balance, rental income was not flowing to the lender.
A OneWest workout officer said in an affidavit that the bank wouldn’t be able to foreclose while residents were living in the building on rental leases.
The lender has scheduled a late April foreclosure, putting the 41 unsold residences on the auction block as a unit.
An auction is unlikely to recover the nearly $20 million OneWest says it’s owed, though, so the bank is trying to collect on a personal guaranty and a non-recourse carve-out guaranty that Fox signed. That guaranty puts Fox on the hook for up to $11.8 million, OneWest says.
Fox has argued in court filings that the auction proceeds, when added to the construction loan’s partial repayment, should put enough money on the table to shield him from any personal liability.
Fox could not be reached through his attorney. Corporation papers on file with the Secretary of State show Fox Development legally dissolved last year. OneWest declined comment citing the pending suit.
