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A Foreclosure Crisis For A Company in Charge of Dozens of Hartford Properties

A fiscal house of cards could involve more than 800 Hartford rental units

by Dan D’Ambrosio

August 31, 2010

Martin Carlin — the Connecticut real estate investor — has big problems on his hands. Dozens of properties consisting of more than 800 rental units of residential real estate owned by Carlin in Hartford are in a tangled mess of multi-million-dollar foreclosures.

Carlin is at the center of a scandal surrounding Bushnell on the Park, where he’s been accused of manipulating the finances of the condominium association for his own benefit.

Carlin, who formed Bushnell Regency LLC to buy 129 of the 180 condo units at Bushnell on the Park, is also the majority owner of Surrey Group LLC, another of the many limited liability corporations he owns. On May 17, a judgment of strict foreclosure against Carlin and Surrey Group placed control of 23 properties in Hartford purchased for $40 million in the hands of Wells Fargo Bank, acting as trustee for Bank of America and the investors who made it possible for Carlin to buy the properties.

Combined with the foreclosure action against Bushnell on the Park, also being brought by Wells Fargo, Hartford has some $60 million worth of residential rental property under foreclosure from Carlin’s actions alone.

The properties involved in the Surrey Group foreclosure total 679 apartment units, but sources close to the case say there is no imminent danger of tenants being evicted as long as they pay their rents. Responsibility for the properties has been taken over by White & Katzman Property Management, which manages thousands of rentals in the Hartford area.

Hartford’s chief operating officer, David Panagore, says the city’s chief concern regarding properties owned by Carlin are the 226 apartments where tenants use Section 8 vouchers from the city to pay a portion of their rent. Under the Section 8 program the city is responsible for ensuring the apartments are maintained in “decent condition,” says Panagore, and that when issues do arise they are dealt with in a “timely fashion.” So far Carlin’s various LLCs, including The Marks Group LLC, The Surrey Group LLC and The Alphabet Group LLC, have met those requirements, according to Panagore.

In the Bushnell Regency case, Carlin testified he owned some 3,000 apartments in the city, which would add up to about 15 percent of the total number of approximately 21,000 rental units in Hartford.

Although he was unaware of the foreclosure action against The Surrey Group until made aware of it by the Advocate, Panagore says the city will now “double check” the Section 8 units involved in the foreclosure to make sure circumstances for the tenants haven’t changed.

“We’re interested in making sure no property in the city if it goes into foreclosure gets boarded up and that folks are not out on the street,” says Panagore.

Wells Fargo, acting as trustee for Bank of America, sued Carlin and Surrey Group to foreclose on the 23 properties after they missed their mortgage payments in January, February and March of 2009. Wells Fargo also accused Carlin of fraud and intentional misrepresentations, saying he pumped up the value of the deal to buy the properties from $35 million to $45 million by transferring the sale contract from one LLC to another.

Carlin entered into the original agreement to buy the properties for $35 million from a group of limited liability corporations known collectively as the “Coolidge Entities” in September 2006. What happened next, according to court documents, is that “on some unknown date and by some unknown legal document,” Carlin assigned the contract to buy the Coolidge properties to EZ Building LLC. EZ Building LLC consisted of Carlin and Nelly Mendez, his secretary and former girlfriend, described as his “paramour” in a motion filed by Carlin’s own attorneys.

EZ Building LLC then assigned the contract to The Surrey Group LLC, which comprises Carlin, his son Shawn and his son-in-law Robert Sandell, for the purchase price of $45 million in October 2006. Carlin controls 52 percent of The Surrey Group LLC, while his son and son-in-law each control 24 percent. The Surrey Group, Carlin and EZ Building are all represented by the same law firm, Altman Schochet LLP.

In December 2006, Bank of America authorized a loan on the Coolidge properties not to exceed $40 million. Later that month a New York appraisal firm placed the value of the properties at $48.2 million and a final loan was approved for The Surrey Group of $39,977,571, just under the limit set by Bank of America. At the closing, The Surrey Group took $2.5 million in cash as part of the transaction.

It was that $10 million bump in the purchase price, from $35 million to $45 million when EZ Building transferred the contract to buy the properties to Surrey Group, that Wells Fargo alleged was fraudulent.

“Carlin instructed Mendez to sign on behalf of EZ Building LLC to conceal his membership interest,” charges the lawsuit. “Mendez was at all relevant times Carlin’s secretary and former girlfriend.”

Wells Fargo wanted to make Carlin personally liable for the debt owed by The Surrey Group LLC because of the fraud it was alleging. But in his reply, Carlin’s attorney, Richard Weinstein of Weinstein & Wisser in Hartford, maintains that Bank of America was always aware of the underlying contract of $35 million between EZ Building and the Coolidge Entities.

Weinstein also addresses the “unknown” status of the date and nature of the legal document that transferred the 23 properties from Carlin to EZ Building by putting the onus on Bank of America to have known what they were doing when they entered into the nearly $40 million loan.

“While a written assignment of the contract has not been produced, there is no question such a contract had to be acknowledged or the loan never would have closed,” argues Weinstein.

Carlin, who has addresses in both Stamford and Newtown, did not return a call for comment. Weinstein was out of the office on vacation until after Labor Day. A source close to the case says the allegations of fraud against Carlin were resolved by a settlement but couldn’t give the terms of the settlement.

While the $40 million foreclosure action against Carlin and The Surrey Group is the most spectacular of his troubles, the foreclosure action against Bushnell Regency, also being brought by Wells Fargo Bank, continues to move forward. As the Advocate reported last month, Carlin has managed to forestall that foreclosure for 15 months by asking for extensions from the court.

But Wells Fargo, owed about $15 million by Bushnell Regency, has a court date next week to reset the so-called “law days,” which mark the end of the foreclosure and transfer of the property to the bank unless Carlin can come up with the money he owes.

Wells Fargo is also asking for a receiver of rents to be appointed, which means the income from the 129 units that Carlin owns through Bushnell Regency would start going to a neutral third party that would manage the units.

Attorney Jonathan Starble has already succeeded in having a receiver appointed for the condominium association, which he accuses Carlin of using as his own personal “piggy bank,” essentially stealing $275,000 from the independent condominium owners who were paying dues into the association but had no access to its books to find out what was happening to their money.

Carlin controlled the association because he controlled the majority of the condo units in the building, renting them out to tenants.

Carlin’s troubles don’t end there. Connecticut Natural Gas has taken action against more than a dozen buildings owned by Marks Group LLC for non-payment of some $70,000 in gas bills, having a receiver appointed who will take over collection of rents unless Carlin works out an agreement with CNG.

Connecticut Light & Power is after The Alphabet Group LLC — another of Carlin’s LLCs — for unpaid power bills from five different properties.

And finally, in June 2009 TD Bank filed suit against Northern Expansion LLC — again, Carlin, his son and his son-in-law — for defaulting on a $1.4 million first mortgage and $200,000 second mortgage on properties in Waterbury. In April, the court ruled in TD Bank’s favor, granting the foreclosure and including $11,336 in the bank’s attorney’s fees to be paid by Northern Expansion.