One of the nation's largest commercial banks is now trying to foreclose on two of Robert C. Morgan's apartment complexes in upstate New York – including the Raintree Island Apartments in the Town of Tonawanda – even as a federal grand jury indicted Morgan and his finance director on mortgage and insurance fraud charges.
U.S. Bank, a subsidiary of Minneapolis-based U.S. Bancorp, filed foreclosure papers in State Supreme Court in Erie County on Thursday, seeking to seize the Raintree complex just off Colvin Boulevard because it said Morgan committed fraud in obtaining the original $27.8 million loan from UBS Real Estate Securities in 2013.
Similar papers were also filed Wednesday in state court in Onondaga County, targeting the Brookwood on the Green apartments in the Syracuse suburb of Liverpool because of default on a $16 million loan from Arbor Commercial Mortgage in February 2014.
[Related: Robert Morgan's problems in Buffalo worsen as Raintree loan declared in default ]
Neither reference the indictment of Morgan on Wednesday in U.S. District Court in Buffalo on 46 counts of fraud, conspiracy and money laundering. But both list Morgan as a defendant, citing him as the guarantor of the mortgages. And both cite "false or misleading" misrepresentations that they said Morgan and his companies made to the original lenders at the time of the loan, mirroring the criminal accusations against the developer. The lawsuits also cite Morgan's failure to maintain a cash management account at an "eligible" bank – for depositing tenant rents as required by the loan agreement – because he's been "tainted" by the federal fraud investigation and subsequent indictments against his son, his nephew and his chief operating officer.
And they list his failure under the loan agreement to obtain U.S. Bank's prior consent before changing property managers or to "promptly enter into a replacement management agreement with a qualified manager." Morgan Management was acquired last June by its executive team, operating as Grand Atlas Property Management.
Both also note that U.S. Bank's attorneys had notified Morgan's companies of the three defaults, revoked their right to collect rents on the properties, directed them instead to send all such money directly to the bank, and demanded full payment on the outstanding debts. "Borrower exhibited and continues to exhibit conscious indifference," according to the lawsuits.
Raintree Island Apartments in Tonawanda. (Google)
According to the foreclosure documents, Morgan owes $25.58 million on Raintree and $15.16 million on Brookwood, not including unpaid interest at the default interest rates, late charges, prepayment premiums, advances and legal costs.
The foreclosures come as Morgan faces both the criminal charges and a separate Securities and Exchange Commission lawsuit accusing him of securities fraud for allegedly operating a Ponzi scheme. That follows a multiyear investigation by the FBI and U.S. Attorney's Office in Buffalo, along with the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.
[Related: Highlights of the federal and SEC cases against Robert Morgan ]
Morgan's finance director, Michael Tremiti, and Morgan's son, Todd, a project manager at the company, also stand accused of fraud, as does mortgage broker Frank Giacobbe.
Morgan's nephew, former company vice president Kevin Morgan, and Giacobbe's former deputy, Patrick Ogiony, pleaded guilty already, as did Morgan's former chief operating officer, Scott Cresswell.
The U.S. Bank filings also come six months after another lender, SteepRock Capital of New York City, filed its own foreclosure cases against both properties, where it had provided secondary "mezzanine" loans for Morgan. SteepRock also cited fraud following an independent audit of financial statements that showed Morgan Management and its companies "consistently overstated revenues and operating income" for the properties.
Attorneys for SteepRock even alleged that the Morgan companies "outright lied" to the lender about key financial metrics for each of the properties to convince SteepRock to make loans that it otherwise would not have.
U.S. Bank, in its filing, also sought to emphasize that its rights to the properties trump any other claims.
U.S. attorney: Morgan fraud 'strikes at very heart of the banking industry'
Story topics: bank fraud / insurance fraud / jonathan d. epstein / Morgan Communities / morgan management / mortgage fraud / Raintree Island / Robert Morgan / securities fraud