Investor Boruch Drillman Fights to Stop Foreclosure in Chicago

A lender is attempting to seize an industrial property after issuing a loan of nearly $8 million for a property that is 66% leased.

Boruch “Barry” Drillman, an investor who admitted to committing real estate fraud last year, narrowly avoided a lender’s foreclosure on an industrial property in Chicago’s South Side with an urgent court filing on Tuesday.

A New York judge ordered a branch of the lender Castellan Real Estate Partners to delay a non-judicial foreclosure sale of a LLC-backed stake owned by Drillman in the 308,000-square-foot warehouse complex at 5301-5323 South Western Avenue, located in Chicago’s Gage Park area. The auction, originally scheduled for Tuesday afternoon in New York, would have wiped out Drillman’s equity in the property, allowing Castellan to take ownership.

Drillman, who pleaded guilty in December to conspiracy to commit wire fraud affecting a financial institution in a $165 million loan scheme, filed an emergency court motion on Monday. He claimed Castellan was prematurely and unfairly attempting to seize the property, according to New York records.

Joel Hammer, Castellan’s CFO, told The Real Deal that the attempt to foreclose on the nearly $8 million loan was not due to Drillman’s guilty plea, but rather his failure to repay the loan by its due date and unpaid property taxes. Castellan is seeking repayment of more than $10.5 million, including interest and additional fees due to Drillman’s alleged default.

Drillman argues that the lender is improperly applying a default interest rate to the debt, intending not only to take over the property but also to seek a judgment of at least $10 million against him for personally guaranteeing the loan to his LLC. “Apparently, Castellan is retroactively applying a default interest rate that I was never billed for nor asked to pay,” Drillman stated in an affidavit. “This retroactivity seems to cover more than a year. That is inappropriate.”

Earlier this year, Drillman’s ownership entity hired brokers from Cawley Commercial Real Estate, a local industrial specialist, to sell the property. They are asking for just under $11.3 million for the property, which is 53% leased.

A New York judge ordered Castellan to pause its foreclosure to consider Drillman’s argument, and a hearing is scheduled for next month to determine the next steps for his request to prevent the lender from seizing the property. Drillman claims he has worked in good faith with the lender to extend the loan’s maturity date.

Drillman recently gained notoriety when his involvement in a mortgage scam investigated by federal officials became public, causing ripples in the real estate industry. As part of the scheme, Drillman and his accomplices used fake closings with inflated sale prices to secure larger loans than they would have otherwise received. Drillman now faces up to five years in prison, though he has not yet been sentenced. The Gage Park property has not been linked to the scheme.

The effects of Drillman’s actions are still being felt across the industry. Fannie Mae has targeted title insurers Madison Title and Riverside Abstract, who participated in the closings of Drillman’s fraudulent deals. Fannie stopped accepting delivery of multifamily loans closed with Madison and Riverside, though neither of the title insurers has been accused of wrongdoing.

It remains uncertain whether Drillman can indefinitely delay Castellan’s foreclosure. While his emergency motion has granted him at least a few more weeks to market the property, another party is also taking legal action to force Drillman’s company to pay allegedly overdue bills.

According to Cook County records, two contractors have filed liens for over $300,000 on the Gage Park property. One of them, GEM Building Group, has filed a lawsuit to recover $292,000 from the owner, claiming it is owed for work on the property.

Foreclosures Available:

• Chicago: 5

By Elias DaSilva | September 17, 2024.