L+M sues Santander for rejecting $12.25M Harlem deed-in-lieu

L+M Development Partners alleges Santander Bank refuses to accept a deed-in-lieu of foreclosure with a very limited guaranty for two properties in Harlem that secure a $12.25 million loan originally provided by Signature Bank and that is now controlled by Santander Bank as part of a rent-stabilized loan portfolio it bought in December 2023.

The complaint says L+M borrowed the funds in February 2019 with the intention, in part, of splitting four rent-regulated units at 320 Saint Nicholas Avenue into eight rent-regulated units and then leasing them out. However, in October 2023, the state revised its guidelines to the 2019 rent regulation law, and that amendment reduced the income of a unit that was split by the amount of space removed, thereby making the plan to split the units financially untenable, so instead L+M abandoned the plans and took the units off the market. Subsequently, last year, L+M offered to tender a deed-in-lieu but the bank responded that there were substantial, not limited, guarantees, and L+M rejected those assertions, leading to the lawsuit intended to resolve the disputes. The owner is seeking at least $5 million, the case says.

Case LINK

Court filings represent the position of one party and are not necessarily accurate or complete.

L+M in the complaint says the Housing Stability and Tenant Protection Act of June 2019 negatively impacted the underwriting for rent-regulated buildings generally, since owners had been able to increase income over time with conversions from rent-regulated status to free market. Now many of those options are off the table. In addition, the complaint says, expenses for buildings have surged.

According to the complaint, “As a result of the new DHCR regulations it became illegal for the Plaintiff to continue with its planned renovation of the four (4) apartments, and notwithstanding that the work was properly permitted by the City of New York, it could not continue because of the new regulations. To comply with the law, the Plaintiff stopped said work and locked the apartments which were then not rentable.”

In June 2024, the bank notified L+M that the loan was in default, and in September 2024, the property owner offered the deed-in-lieu. Instead of accepting it with a very limited recourse, the bank alleged the loan was potentially full recourse. The bank also suggested it was not required to accept the deed-in-lieu in any case, even if handed over by the borrower.

The complaint quotes a Santander representative as writing, “You have suggested that the Borrower can tender a deed in lieu of foreclosure under certain terms of the Loan Documents. … I may have missed it, but I did not see a term obligating the Bank to accept a deed in lieu.”
To which L+M’s attorneys responded: “I was referring to Section 17 of the note, which, as you pointed out, clearly contemplates a deed in lieu of foreclosure, and in connection with such a deed it requires the Borrower to pay the transfer taxes. And while there may not be any provision that says the ‘Lender will accept the Deed in Lieu when delivered by the Borrower,’ by virtue of the fact that the Note expressly provides that the Borrower may deliver to the Lender a deed in lieu, provided it pays the transfer taxes, pursuant to Section 17, it is implicit that the Lender will accept it, just like there is no express provision in the Note that says that ‘Lender will accept each monthly payment of interest and principal when delivered by the Borrower'”.

The property at 320 Saint Nicholas Avenue with 47 residential units in Harlem has 59,464 square feet of built space according to a PincusCo analysis of city data. The parcel has frontage of 68 feet and is 100 feet deep with a total lot size of 9,010 square feet. The lot is irregular. The zoning is C4-4D which allows for up to 3.4 times floor area ratio (FAR) for commercial and up to 6.02 times FAR for residential with inclusionary housing. The city-designated market value for the property in 2022 is $2.5 million.
On May 5, 2021 under job number M00504189, L+M submitted a major alteration application for a $150,000.00 rehab of the then-46-unit residential (RES) building at 320 St Nicholas Avenue in Harlem, Manhattan. That filing is no longer visible on DOB records. It called for a rehab of the seven-story building. The project was described in the filing as: “Change in layout in apartments 1d, 3d, 4d, 3e and basement level to incorporate new units to the building. There is no change in bulk, or height or area of the bldg; there is a change in units counts, from 46 apartments to 52; there is no change in use,rc.”

The other property securing the loan is the walkup building at 445 West 125th Street with 22 residential units in Harlem has 18,977 square feet of built space and 240 square feet of additional air rights for a total buildable of 19,200 square feet according to a PincusCo analysis of city data. The parcel has frontage of 42 feet and is 100 feet deep with a total lot size of 4,800 square feet. The lot is irregular. The zoning is R7A which allows for up to 4 times floor area ratio (FAR) for residential with inclusionary housing. The city-designated market value for the property in 2022 is $1.1 million.

Direct link to the property’s ACRIS page and link to DOB NOW portal.