As first reported at on FAA News, a series of unfortunately wrong business moves by a Lakewood based company has led to a massive ponzi scheme affecting numerous Lakewood area residents, as well as investors from across New York, New Jersey, and Ohio.

The scheme continues to unfold, as at the very same time that the Lakewood company notified Iowa State officials that they could no longer afford the nursing homes they purchased 2 months prior, they also stopped paying the monthly mortgage for an apartment building they purchased for $9 million just several months prior, FAA News has learned.

The apartment building property is now under foreclosure.

According to a lawsuit filed in Camden County Superior Court, Chancery Division:

The Lakewood based company, under the names Cornell Manor LLC, Five Star Store It Mason LLC, Five Star It Ohio I LLC, purchased an 82 unit multi-family apartment complex in Stratford Borough known as the Cornell Manor Apartments.

The property owners took out a $9,183,000 mortgage for their purchase of the property on July 18, 2022. Greystone Servicing Company LLC was the original lender for this mortgage.

The Mortgage Note provides that the property owners are to pay interest only payments in monthly installments beginning on September 1, 2022 and continuing every month 24 months until August 1, 2024 when the balance of principal and interest would be due and payable.

The Mortgage Note provides for interest at a variable rate based on 30-day SOFR, plus a margin of 4.75% (the “Variable Interest Rate”), at an initial rate of 6.11438% per annum, subject to adjustment on a monthly basis commencing on October 1, 2022 pursuant to the terms of the Mortgage Note.

The Mortgage includes a security agreement in the form of collateral creating a security interest to the lender in, among other things and without limitation, all fixtures, fittings, appliances, apparatus, equipment, machinery, furnishings, furniture, carpets, chattels and articles of personal property of every kind and nature whatsoever then owned or later acquired by defendant Mortgagors, as well as all proceeds and products of the same.

On or about July 18, 2022, the original lender transferred the mortgage holding rights to NWL Company, LLC.

The trouble began when the property owners failed to make the full monthly installment payments due as of January 1, 2023. No payment was made in February either, or in any month since then.

Pursuant to the terms of the Mortgage Note, if the property owners do not pay the full amount of each payment on the date it is due, they will be in default. If they continue to be in default, the entire unpaid principal amount of the Loan, any accrued interest, any Prepayment Charge, and all other amounts payable under the Mortgage Note and any other Loan Document will become due and payable, at the option of Plaintiff, without the need for any prior notice.

As still no mortgage payment has been submitted, the mortgage company, represented by Newark Attorney Matthew J. Schiller, Esq., has now filed legal action to foreclose on the property.

The foreclosure lawsuit seeks for the Court to fix the amount due pursuant to the Mortgage Note and Mortgage (i.e. the mortgage holder is seeking for the Court to calculate the appropriate interest amount due), as well as judgement barring and foreclosing the defendants from all equity of redemption in and to the Mortgaged Property, and judgement that the Mortgaged Property be sold according to law to satisfy the amounts due to Plaintiff.

Pursuant to the terms of the Mortgage, the mortgage company reserves the right to pay taxes, insurance premiums, maintenance and security costs, the costs of repairs, water charges, sewer charges, attorneys’ fees, as necessary to secure the property, with the right that such amount be added to the claim and be repaid from the proceeds of the sale of the Mortgaged Property.

The lawsuit seeks for judgment directing that the mortgage company be repaid for these expenses as well.

In addition to seeking for a sale of the property, the mortgage holder is also seeking for the collateral located on the property sold by the sheriff together with the property at a single public sale.

Finally, the lawsuit seeks judgement appointing a receiver of the rent, income and profits of the property.

The Mortgage provides that Plaintiff, upon default by the defendant Mortgagors, shall be entitled to apply for the appointment of a receiver without regard to the adequacy of security for the sums due or to become due under the Mortgage Note and Mortgage and that Mortgagors’ consent to the appointment of such receiver shall be deemed granted during the occurrence and continuation of any event of default.

Plaintiff is also entitled to collect the rent, income and profits of the Mortgaged Property by virtue of the Assignment of Rents.

Writing that "the appointment of a rent receiver is necessary to protect and preserve the value of Plaintiff’s security," Plaintiff demands judgment against the defendants appointing a receiver of the rent, income and profits of the property; directing all tenants to pay the receiver all rent, income and profits; directing defendants, their agents and employees, or any other party in possession of the property to immediately turn over to the receiver (i) all of the monies now on deposit with them as rent security for the property, (ii) any monies now on deposit in any operating accounts for the property, (iii) all papers, documents and other things affecting the rental and operation of the property that they may have in their possession; authorizing the receiver to, among other things, rent or lease any party of the property for a term not exceeding one year (unless otherwise authorized by the Court); keep the property insured against loss or damage; pay taxes, municipal assessments, and water and sewer charges due on the property; file a tax appeal for the property; market the property for sale; and otherwise do all things necessary for the due care and proper management of the property.

The lawsuit also seeks for costs of suit and attorneys’ fees; and such other relief as is equitable and just.

The provisions of New Jersey’s Fair Foreclosure Act do not apply in this case because  the property consists of a commercial property.

The Plaintiff is not seeking a Writ of Possession to evict any occupant protected by the New Jersey Anti-Eviction Act.

Public apartment rental searches indicate that the monthly rent of a 1 bedroom apartment in this building is $1,400. At that rate, 82 such apartments would generate $114,800 of monthly income. If there are any apartments with more bedrooms, the rent would be even higher. This building is either completely rented out or very nearly fully rented.

The scandal highlights why it's important to be very careful prior to investing money, or entering into a partnership with another party.

It also highlights why it's imperative not to jump to buy a great deal when previous buyers jumped ship.

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Anonymous said...

Why is this a ponzi, maybe the owner couldn't keep up with the floating interest rate.
The investors knew there was a risk of interest rate increases when they invested.

Anonymous said...

I agree. They just defaulted, not a ponzi scheme.

At this point ax a lender after 1 month of non payment, better start moving to collect before it snowballs into months of lost income.