Saga Of The Worthless Condo

Sara Monestime has learned more about real estate, politics and New York City's byzantine housing code than she ever bargained for. Sitting recently in the kitchen of her Brooklyn condo as her two-year-old daughter napped, she talked in the jargon of "zoning lot mergers" and "variances" and mentioned obscure bureaucrats she knows by first name. Monestime has made the country's most complicated development code "her life," as one friend put it. Knowing the nomenclature and the players hasn't rescued her, though, from a legal limbo and potential financial ruin.

"When you deal with these city agencies, I'm learning, logic goes out the friggin' window," Monestime said. "They make the rules. They make no sense to anybody else and they can change the rules when they want."

Monestime's was one of 72 families, most of them first-time home buyers, who in 2004 bought into the Spencer Street condominiums in Bedford-Stuyvesant only to find a year later that their investments were worthless because the developer, Mendel Brach, failed to comply with zoning rules when he constructed four nine-story buildings in a neighborhood typically capped at five stories.

When Brach submitted the plan for the four Spencer Street buildings to the Department of Buildings (DOB) in 2002, he said that the apartments would be reserved for faculty members of the Beth Chana School for Girls, a yeshiva based in Williamsburg. Under the zoning code's community facilities exemption, this allowed him to give each structure an extra four stories.

But a year later he submitted a plan to the state attorney general's office, then run by Eliot Spitzer, to sell the units on the open market, and made no mention of faculty housing. He claimed instead that he would overcome the height restriction through a "zoning lot development agreement," a technical process whereby a building can rise higher than normal if an adjacent property remains low-rise.

Brach never went through with that zoning lot development agreement. Because the buildings were rife with defects and building code violations, in 2005 the city revoked each building's temporary certificate of occupancy--the document that entitles owners to legally occupy, refinance or sell their property.

Had the DOB caught these problems before Monestime closed on the property, the sale never would have gone through. But during the time between the building's construction and the decision to revoke its certificate of occupancy, city inspectors approved a temporary certificate of occupancy three times, just long enough for the sales to be completed and the residents to move in. Those building inspectors apparently did not realize the apartments were not going to faculty members, even though an anonymous complaint was filed with the DOB two months before Monestime closed her purchase, warning that the buildings "were filed as faculty residences but are being sold as apartments."

Whatever the reason for the inspectors' lapses, events left buyers like Monestine owning properties that have no legal right to exist. With no certificate of occupancy, the residents have been forced to keep up on mortgage payments on properties they cannot legally sell or refinance. They worry that their money is going into a black hole.

After years of false starts in negotiation with Brach, Andrew Cuomo's office sued the developer in September 2009, alleging six counts of fraud. Brach settled the suit by consenting to a judgment of $10.9 million to be awarded to the Spencer Street residents. He also agreed not to sell condos for five years. The agreement did not require him to admit fault.

But so far the residents, who paid between $280,000 and $445,000 for their condos, have received little money and are struggling to come up with the millions of dollars needed for building repairs to make their homes conform to DOB regulations. Nor has Brach transferred the air rights from the adjacent lot to bring the building's height into compliance with the zoning law. (Brach has said that the zoning lot development agreement never came to fruition because the original owner of the lots reneged on a business deal that delayed the transfer of air rights, a dispute that was settled in a rabbinical court ruling that is not publicly available, according to people with knowledge of the case.)

Brach has claimed that he never intended to pull a bait-and-switch with the faculty housing, but rather that after the Department of City Planning had articulated its view that the community facilities clause could no longer be interpreted to include faculty housing, he decided to go with plan B, using the zoning lot development agreement to sell the condos to Monestime and the other middle-class home buyers. Residents find this hard to believe, given the convenient timing and the fact that the architect of Spencer Street, Henry Radusky of Brooklyn-based Bricolage Architecture & Designs, had gained a reputation for exploiting the faculty housing exemption. In its complaint against Brach, the attorney general alleged that Brach's failure to reveal the faculty housing exemption along with leaving the building with defects and never securing a permanent certificate of occupancy, amounted to fraud.