Sept. 17 (Bloomberg) -- As Yom Kippur, the holiest of Jewish holidays begins, the congregants of a Florida synagogue face the loss of their building and its Torahs in a bank foreclosure action.
A bankruptcy judge will schedule a hearing to determine whether to allow the bank to foreclose on the synagogue’s assets over the failure to make payments on a $3.8 million loan, according to court papers in West Palm Beach, Florida.
Congregation Chabad-Lubavitch of Greater Boynton Beach filed for Chapter 11 bankruptcy protection in June after Stonegate Bank sued to foreclose on the assets. The synagogue cited “the recession, real estate values and finance issues.” Its lawyer also said in a telephone interview that Stonegate failed to make good on a refinancing promise.
“It’s not that they couldn’t make the payments,” Philip Landau, the synagogue’s attorney, said. “The mortgage was made with the understanding of bond financing to take out the loan.
“That bond financing never happened.” said Landau, of Shraiberg, Ferrara & Landau PA in Boca Raton, Florida. “The bank did not fulfill their promise.”
David Hardin, a lawyer for Fort Lauderdale-based Stonegate Bank, said in a telephone interview, “There was no promise of a bond financing. We made the loan we agreed to make. This was a refinancing of an existing debt.”
The hearing on the bank’s motion to continue with the foreclosure was scheduled for Sept. 24. Because that is the Jewish holiday Sukkot, the bankruptcy judge agreed to pick another date, Landau said.
Bankruptcy law automatically freezes lawsuits against the party filing, a stay that can be lifted by a judge. The bank asked the judge to let it proceed with the suit it filed last October in which it could seize the synagogue’s assets.
“The bank has a lien on all their property, so the Torahs are within their property,” Landau said in the interview.
Chabad-Lubavitch sued the bank in Florida state court last September charging it with fraud and misrepresentation in promising that the loan transaction would be “the first of three which would result in a bond offering.”
The synagogue used the loan to pay off a previous mortgage and loan and planned to raise funds to expand on a vacant parcel next to the temple. When the real estate market in South Florida “entered into a tailspin,” according to the synagogue’s amended complaint in March, the bank “unilaterally decided to alter the second and third phases” of the deal.
Seeking a Meeting
Landau said he’s seeking a meeting with lawyers for the bank to try to reach a compromise.
“We’re hopeful in the next few weeks we can sit with the banks,” Landau said. “The term of the loan and the amount of the loan need to be restructured.”
The original loan agreement was signed in October 2007, with a 7.4 percent interest rate and a maturity date 18 months later. An amended agreement in April 2009 extended the maturity to October and lowered the interest rate to 5.5 percent.
Hardin, the bank’s lawyer, said it was “in the process of negotiating a second extension” on the terms of the loan when it learned from an article that the synagogue had filed a lawsuit against it.
The last payment received by the bank was in July 2009, according to a court filing. Stonegate said it is owed $4.56 million, including interest and fees.
Stonegate asked the judge for permission to contact the synagogue’s members to determine whether they planned to donate as much as they pledged since its income “seems to be largely dependent upon receipt of pledges.” Landau said the judge denied the motion. The decision hasn’t been filed on the docket.
The synagogue listed its total assets at $9 million and its debts at $4.15 million at the time of the Chapter 11 filing.
The case is In re Congregation Chabad-Lubavitch of Greater Boynton Beach Inc., 10-26372, U.S. Bankruptcy Court, Southern District of Florida (West Palm Beach).
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