Judge Hears Arguments, and Downtown Properties Remain Caught in Legal Web

Above, the "big bank building" and former Evergreen Arms apartments

Arguments were heard yesterday afternoon at Veteran’s Memorial Courthouse in Lansing regarding the vacant, foreclosed-upon, downtown East Lansing properties once known as “City Center II.” More lately they’ve been known as the part of the “Park District Project.” The properties at issue include the “big bank building” at the corner of Grand River Avenue and Abbot Road, the commercial properties between that and People’s Church, and the former Evergreen Arms, the brick-facade apartment complex just north of the church.

Yesterday’s hearing resulted in no particular movement forward, but it did make vivid the legal webs in which the properties remain caught for now. The hearing also gave a glimpse into the legal approaches used by the controversial developers who controlled the properties until recently.  After about forty minutes of complicated verbal wrangling, the judge agreed to set another hearing on the matter for next Friday, February 5, at 10 a.m.

The perceived time pressure:

The properties’ former owners—known in the legal documents as “City Center Two Project LLC” and associated with Strathmore Development Company and later Park District Investment Group, or PDIG—lost control of the properties in an Ingham County Sheriff’s foreclosure sale last summer. The major lender on the properties, an Ohio-based company known as DDR MV City Center LLC, took control of the properties at that point, because no one bid on them. (The minimum bids were set at $4 million for one block and $7 million for the other, significantly below the total liens against the properties.)

Lawyers for City Center Two Project LLC tried yesterday to get the court to issue an injunction (essentially a “stop” order) to overturn the sheriff’s foreclosure auction at which DDR MV City Center LLC obtained the properties. They were trying to get this injunction in place before next week. That’s because Michigan law allows a property owner to buy back foreclosed-upon property if, within six months of the foreclosure, the former owner can come up with the money that the property was “sold” for plus interest. That six-month redemption period is about to expire, which means the closing of one legal window.

The players:

To make things more complicated, as ELi reported on January 16, the lender DDR MV City Center LLC recently sold the sheriff’s deeds on these properties to WGR Finance LLC.  So just to be clear, before we get into the details about what happened yesterday, here are the four main players:

• the former owners, City Center Two Project LLC, connected to Strathmore Development Company and Park District Investment Group (PDIG), represented yesterday chiefly by attorney George Sumnik
• DDR MV City Center LLC, which had been a lender on these properties, and obtained the sheriff’s deeds on properties in an auction, represented yesterday chiefly by attorney James Allen
• WGR Finance LLC, which bought the sheriff’s deeds recently from DDR MV City Center LLC, and was not represented at the court yesterday
• Judge Joyce Draganchuk

The arguments made yesterday:

Attorney George Sumnik, representing City Center Two Project LLC, first asked the judge for a temporary restraining order to prevent anything from happening legally with these properties in the next several days.

Sumnik told the judge that there was confusion surrounding the situation because, as ELi reported, the properties were first offered at foreclosure auction by the Ingham County Sheriff’s office on July 30, 2015. Potential bidders had until 11 a.m. that day to meet the minimum bid with a certified check. When none had come forward that day by about 10:35 a.m., a representative for the lender DDR MV City Center LLC posted a notice of adjournment.

The properties went back up for sale the next week. On August 6, 2015, no one bid on the properties by the time the auction period ended, so the properties were transferred by sheriff’s deeds to DDR MV City Center LLC. (Read our report.)

Yesterday, attorney Sumnik told the judge that he believed the first auction had been valid because the sheriff had said “going once, going twice.” In fact, the auctioneer did not say this at the July 30 auction according to our notes and ours and others’ reports; the lender adjourned the sale before the sale period ended that day.

But Sumnik told the judge yesterday that his clients’ rights would be denied if they were not given time to bring more information to the court regarding what he said were problems with the foreclosure auction sale. He insisted repeatedly that a sale had in fact occurred on July 30—that the auction had been legally completed—and that DDR MV City Center LLC had then “somehow enticed the sheriff to post a notice of adjournment” after the auction had ended.

Sumnik further told the judge that his clients had only just learned that DDR MV City Center LLC had sold the deeds to WGR Finance. He said this was in their amended complaint.

At this, the attorney for DDR MV City Center LLC, James Allen, interrupted to ask why his side had not been given a copy of the amended complaint. He said he had asked Sumnik earlier that day if there had been one and had been told there was not. At that, the judge asked Sumnik to give his copy of the amended complaint to Allen, which he did. The complaint was about three inches thick, and Allen tried quickly to scan it to see what it said.

Sumnik told the judge again that the property had been legally sold at the auction on July 30 and then the foreclosure had been adjourned, which was not legally allowed. (Again, our records and reports very clearly indicate this did not happen—that, in fact, the adjournment occurred before the auction period ended.)

Sumnik said the new owners of the sheriff’s deeds, WGR Finance, needed to be given notice of what was going on with Sumnik’s request to the court. But he claimed his office had learned too late of the deed transfer to notify WGR Finance of what they were asking of the court. So, Sumnik said, the judge had to give them more time so WGR Finance could get legal notice of the court’s hearing.

Allen, lawyer for DDR MV City Center LLC, told the judge (with visible frustration) that in fact the lawyers for City Center Two Project LLC knew that the deed had been transferred to WGR Finance. He said it was a matter of public record and also that in fact legal documents sent by attorneys for City Center Two Project LLC to attorneys for DDR MV City Center LLC included copies of the deeds they claimed not to know about.

The clear implication in Allen’s comments to the judge was that the lawyers for City Center Two Project LLC had been merely pretending not to know about the sale to WGR Finance so that they could claim they needed more time to follow the law, when in fact they had skirted the law by failing to give notice to WGR Finance about the request they made to the court.

Allen referred to “deception” by the other side. He told the judge the lawyers on the other side had violated court rules and due process of law in their attempts essentially to cause delays that might work in their favor. He suggested they should not be rewarded for this.

Sumnik responded to Allen’s evidence by telling the judge he was willing to work on a short timeframe if she would allow them a further hearing. He offered to come back on Monday next week, which he claimed would mark the end of the redemption period, because, he argued, the July 30 (first foreclosure auction) apparently resulted in a valid transfer.

The judge told him she would not hear this matter on Monday. She told him he had not followed the court rules about serving notice to WGR Finance. Sumnik then acknowledged he had not served notice to WGR Finance, but said he was at court trying to prevent the “irreversible effect” of having the redemption period on the foreclosure end without his clients having a chance to get their properties back.

Still visibly frustrated, attorney Allen responded by telling the judge that he’d seen this kind of maneuvering before with the plaintiffs. He said they file motions on foreclosure sales, they lose, then they try in a different court with a different judge, and they create legal confusion and delays.

To this, Sumnik answered again that he was just trying to preserve his clients’ rights.

The judge said that because the court rules had not been met in terms of giving notice to an interested party—namely WGR Finance—she could not act on the matter. She said that if the failure to serve notice to WGR Finance by Sumnik had been inadvertent, then she “would move heaven and earth to preserve the plaintiff’s ability” to be heard. But, she said, Allen had said Sumnik knew of WGR Finance’s buying the deeds. She said this whole situation was “not the court’s emergency” and that she would not therefore schedule an emergency hearing. She said the situation was “the plaintiff’s own doing.”

She then officially denied the request by Sumnik for an injunction.

But then Sumnik changed his tactic, saying that if the claim was that the second foreclosure sale auction, on August 6, was really the valid one, then there was more time to have another hearing. He then asked the judge for a hearing next Wednesday. He said that would give him enough time to serve notice to WGR Finance, the new owners of the sherrif’s deeds, so they could show up and be heard.

Allen told the judge he could not do Wednesday because he would be in New York City on Wednesday and Thursday next week, and he reminded her there was another case related to all of this also coming up on her docket. Sumnik said that other case was about agreements regarding confidentiality and nondisclosure, and had nothing to do with the foreclosures.

At this point, the judge relented to Sumnik’s request and scheduled another hearing on this matter for next Friday, February 5. She said she was going to move up the other legal matter on these properties before her, and (try to) deal with them all on February 5 at 10 a.m. At Allen’s request, she then held a muted discussion at the bench with the attorneys which was inaudible to those of us in the gallery.

The bottom line:

What’s happened, essentially, is that the judge has decided to put off decision-making on these properties until next week. Sumnik will likely attempt, next week, to obtain some kind of legal foothold on these properties for his clients, and lawyers for DDR MV City Center LLC as well as WGR Finance will be there, fighting back.

If the judge decides Sumnik and his clients (known variously along the way as City Center Two/PDIG/Strathmore) have a case, this could prolong the question of who owns the properties at issue. If the judge decides they don’t have a case, then it appears that WGR Finance will control the properties.

What WGR Finance will want and be able to do with the properties is another set of questions altogether. According to a Lansing State Journal article, WGR Finance paid $8 million in cash for the properties. As ELli reported when we broke the story of the sheriff’s deeds changing hands, WGR Finance shares an office with DRW, which is said to do financing for Core Campus. Core Campus is a developer of upscale student apartments.