Chicago condo owners file lawsuit to stop deconversion ‘fraud’

By Deborah Goonan, Independent American Communities

Updated October 9, 2018

Note: the updated version of this post corrects the record about Micheline Magharious. Based upon news sources cited at the time of the original post, a previous version of this article mistakenly stated that Magharious was a principal of Marc Realty. I have been informed by Kelly Elmore, Esq. of KSN that Magharious has never served as a principal at Marc Realty.

Fourteen owners of twenty units at River City Condominiums in Chicago are suing their condo association and five board members involved in what they call a “fraudulent” deconversion deal.

The lawsuit alleges that River City Condo Association conspired with buyer Marc Realty and equity partner Wolcott Group, in order to negotiate lucrative “side deals” with a handful of unit owners, in exchange for changing their “no” votes to “yes” votes on the Purchase and Sale Agreement (PSA) for River City property.

David Bloomberg, an attorney with Chicago firm Chuhak & Tecson, represents the Plaintiff condo unit owners.

Kelly Elmore, an attorney at Chicago law firm Kovitz Shifrin Nesbit represents River City’s homeowners association.

Micheline Magharious served as the condo board’s president during the period of time that unit owners were voting on whether or not to approve the PSA.

Vote  button green

Reading through the heavily redacted complaint filed in Cook County Circuit Court on October, 2018, I’ve outlined below a summary of the events, as alleged by the Plaintiffs.

River City Condo Association’s bylaws require a 20% quorum of unit owners, in person or by proxy, for the purposes of holding a meeting for voting on important matters such as the sale and/or termination of the condominium.

Illinois statute requires that unit owners representing a 75% interest in the association must affirmatively approve a PSA or termination agreement. Otherwise, such agreement is invalid.

According to the Plaintiffs, the condo board, influenced by Magharious and Marc Realty, presented a PSA and proxy forms to unit owners, setting a deadline date for a meeting to count the votes received.

However, the meeting date was delayed several times, because, the board claimed, they had not received enough proxies to meet quorum. Plaintiffs contend that the association had received more than enough proxies to meet the 20% quorum, but the board was holding out for enough “yes” votes on the PSA to exceed the 75% statutory requirement.

Although a third party had been hired to collect the proxies, information was shared with the board, who subsequently shared ongoing vote tallies with members and Marc Realty.

During the voting process, the condo association and Marc Realty amended the original PSA nine times, but did not share information about those amendments with all unit owners.

While the meeting date was repeatedly delayed, Plaintiffs also allege that Marc Realty was negotiating with several unit owners, offering them premium prices for their condo units, in exchange for cancelling their “no” proxies and executing a “yes” vote at the time of the meeting.

When the meeting was finally held on August 28, 2018, the votes were tallied and counted. The Defendants proclaimed that they had achieved more than 77% of voting interests in favor of the sale agreement, with nearly 95% of unit owners voting.

However, unit owner Dan Pepper — one of the Plaintiffs — requested access to proxies and ballots, and hired a third party to audit the votes. The independent audit discovered that only 72% of the total voting interests are in favor of the ninth amendment of the PSA, with 89% of unit owners voting.

Since the Plaintiffs contend that the 75% statutory threshold has not been met, and since some owners were apparently “bribed” for their “yes” votes, the Plaintiffs are asking the court to halt the sale.

Ballot box

River City condo owners sue to halt ‘fraudulent’ sale to developer

The saga of an attempt to turn the South Loop icon from condos into rentals took another nasty turn.

DENNIS RODKIN, Crains Chicago

October 04, 2018 12:51 PM

The years-long saga of an attempt to turn the South Loop’s River City from condos into rentals took yet another nasty turn Oct. 3, when a group of unit owners sued members of the condo board, alleging they helped the buyer make lucrative side deals with some residents to win their votes.

The lawsuit also alleges that the condo board essentially stuffed the ballot box in an Aug. 28 vote to approve the buyer’s $90.5 million offer.

Owners of 20 units in the 449-unit building allege in their suit that members of the River City homeowners association board helped the developers who were trying to buy the building in bulk curry favorable votes by privately offering individual owners better deals than the contract specified all would get. The board also, according to the suit, intentionally miscounted the votes to show a favorable outcome.

After the offered price rose high enough to finally attract enough favorable votes, Marc replacing its offer with a lower one seemed an unlikely vote-getter, yet according to the board’s tally, 77.9 percent of the ownership approved a sale at the lower price.

Dan Pepper, another River City unit owner who has opposed the sale to Marc Realty, requested all the voting materials from the board and, according to the lawsuit, passed them to an accounting firm for an independent audit. The audit found that only 72.2 percent of ownership voted to approve the sale, below the legally required 75 percent.

Read more:

https://www.chicagobusiness.com/residential-real-estate/river-city-condo-owners-sue-halt-fraudulent-sale-developer

Corrected article from Crain’s Chicago Business:

River City condo owners seek temporary restraining order as they aim to halt sale

Brianna Kelly, Crain’s Chicago Business
October 08, 2018 12:23 PM

CORRECTED

A group of condo owners in the South Loop’s River City building are seeking a temporary restraining order in their fight to stop the sale of the building to a buyer that wants to convert it to apartments.

Owners of 20 units in the 449-unit building sued last week in Cook County Circuit Court to stop the sale. The lawsuit alleges members of the condo association’s board helped the potential buyers, Marc Realty and equity partner Wolcott Group, make lucrative side deals with some residents to win their votes. It also alleges that the condo board essentially stuffed the ballot box in an Aug. 28 vote to approve the buyer’s $90.5 million offer.

The lawsuit calls the deal “an illegal and fraudulent forced sale” and says it should be shut down by the court.

The condo board denies the allegations.

“The board was in no way involved in the collection or tabulation of proxies or ballots,” the board said in a statement, adding that the board and its attorneys conducted another review. “The board and legal counsel have confirmed (again) that over 77% of the unit owners voted in favor of the sale. The voting results are specifically supported by physical ballots and proxies, which are available for review by any owner at any time, as well as the certified tabulation from the association’s independent auditor.”

The parties are scheduled to appear in court tomorrow morning.
https://www.chicagobusiness.com/commercial-real-estate/river-city-condo-owners-seek-temporary-restraining-order-they-aim-halt-sale.

Read more:

https://www.chicagobusiness.com/commercial-real-estate/river-city-condo-owners-seek-temporary-restraining-order-they-aim-halt-sale

In the past several months, I have heard from dozens of homeowners alleging voting fraud as described by the Plaintiff condo owners in River City.

Some homeowners have told me that, in order to convince them to sell their units to investors, they have been threatened with huge special assessments, or continuously harassed with covenant and rule violations.

Still other homeowners have said that the board of association-governed community uses the same strategy —- postponing the annual or special meeting date while soliciting unit owners for proxies —- in order to obtain a sufficient number of favorable vote on any issue or amendment that will personally benefit board members and their cronies.

The issue could be anything at all, such as a controversial and expensive capital improvement project, a major renovation with several proposed material upgrades, or a board-favored amendment to the governing documents.

I’ve been told that owners who oppose the board’s agenda are typically characterized as “obstructionists” or “malcontents.” Their requests for common area maintenance may be ignored, even when the association’s willful negligence results in damage to individual homes or units.

The detailed accounts I have read or heard about are stunningly consistent, leading to me to question whether a few influential individuals and companies in the real estate industry deliberately orchestrate their moves based upon a standard playbook.

If you have experienced similar fraud and abuse, with retaliation toward whistleblowers and opponents of the HOA board, and you’d like to share some of the details of your story, you can contact IAC through the email contact form on this website.

Updated October 9, 2019:

Condo association responds to Plaintiff’s lawsuit

River City sent a letter to its members denying any conflict of interest involving the board, and stating that their independent auditor has confirmed that a deconversion sale agreement has been approved by 77% voting interest.

You can read the letter here.

The condo association alleges that five of the Plaintiff owners previously attempted to negotiate their own “side deals,” which were denied. The board’s letter also confirms that the condo association plans to move forward with the sale, unless the court concurs with the Plaintiff’s request for a temporary restraining order.

The condo board cannot acknowledges that it can not possibly please everyone in the association, but that a supermajority of owners are more than happy to “unload” their units in a bulk sale.

A hearing is reportedly scheduled for October 10, 2018.

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