Madison Realty Capital slapped with $150m fraud lawsuit

A family-run New York real estate development company has accused Madison Realty Capital (MRC) of fraud in a $150 million lawsuit.

A family-run New York real estate development company has accused Madison Realty Capital (MRC) of fraud in a $150 million lawsuit.

Sylvester and Jozef Smolarczyk, the father-son duo who run SMK Property Management, allege that MRC secretly engaged a third party to provide them with a bridge loan in order to repay debts owed to an MRC affiliate; but in actuality the loan came from MRC, according to court documents filed with the New York State Supreme Court.

NYS Supreme Court
NYS Supreme Court

The plaintiffs claim MRC and its co-founder and managing principal, Joshua Zegen, intentionally pulled the “classic bait-and-switch” by arranging an introduction to “Mr. Jefforey Bell of CLS, who presented [himself] as a commercial lender… when in fact Madison and Zegan were the actual lenders.”

SMK Property Management sought the bridge loan to pay off seven distressed mortgage notes on Smolarczyk-owned properties that the MRC affiliate had purchased in December of 2011, according to the court documents. The loans were backed by seven buildings in Greenpoint, Brooklyn: 3 Sutton Street, 5 Sutton Street, 657 Meeker Avenue, 661 Meeker Avenue, 667 Meeker Avenue, 669 Meeker Avenue and 673 Meeker Avenue.

Zegen admitted in a written affidavit that MRC was the lender of the bridge loan, as the Smolarczyks claim, but he argued that this complied with settlement agreements concerning the 2011 mortgage loans that the Smolarczyks allegedly signed in 2013. That agreement resolved the foreclosure by releasing MRC and all of its affiliates from “any and all claims” relating to the 2011 loans, he claimed.

Zegen’s defense attorney, Jerold Feuerstein, added that at no time during the closing of the bridge loan did the Smolarczyks voice any objections as to the contents of the loan and closing documents.

The defendants submitted a motion to dismiss the lawsuit in December 2015. The court is set to decide on the motion in early March.

The Smolarczyks and MRC did not respond to requests for comment.