Hello Living Nostrand Developer Allowed to Move Forward With Lawsuit

by Max Parrott, amNY

A Brooklyn appellate court allowed the developer of a troubled East Flatbush real estate project to move forward with a suit accusing its financier of predatory lending practices, overruling the defendant’s attempt to dismiss.

Private equity firm Madison Realty Capital purchased the Flatbush-located Hello Living Nostrand site at 1580 Nostrand Avenue out of bankruptcy from developer Eli Karp, according to the court documents.

Karp had once planned a large apartment complex on the site, but only finished one rental building at 21 East 29th Street. Madison Realty Capital took control of the property last year.

Eli Karp and his Hello Nostrand development entity claimed in a complaint they filed in 2021 that Madison Realty Capital ran a “loan-to-own” scheme, arguing the lenders set them up to default so they could take over the real estate project.

Karp sued for fraud, breach of contract, and bad faith dealing. He blamed the lender for fraudulently declaring a default on the Nostrand Avenue building loans after buying the debt on the project and charging default interest, creating a glut of debt that he couldn’t pay down, according to his complaint. Madison replied in court filings that Karp defaulted because he had failed to pay his original loan.

A Brooklyn Supreme Court judge dismissed Karp’s case in 2023, before it had a chance to go to trial, finding that Karp had waived his right to sue as a part of a forbearance agreement he had previously reached with Madison.

But New York’s Appellate Division, Second Judicial Department, disagreed. It was decided on Wednesday that the Supreme Court should have denied Madison’s attempt to dismiss the Karps’ attempt to recover damages for fraud because releases like the one in the forbearance agreement can be invalidated in cases that involve fraud.

The judges wrote that Karp had made detailed allegations that Madison Capital had made false representations about providing funding, with the intent of causing Hello Nostrand to default.

“These allegations were sufficient to state a cause of action to recover damages for fraud,” the Appellate Court judges wrote in a decision by associate justices Cheryl E. Chambers, Deborah Dowling, James P. McCormack and Susan Quirk.

Madison Capital Realty and its attorneys did not respond to a request for comment.

Editor’s note: A version of this story originally ran in amNY. Click here to see the original story.

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