Norfolk condo developer's woes leave many feeling burned

NORFOLK

The yellow-brick building with a view of the Chesapeake Bay seemed ideal to Adam Law.

Condos there were small but reasonably priced, and from Ocean View it was a short drive to his job in Hampton. Plus, the contract stipulated that the developer would pay the first year of condo fees.

So Law bought a place. Not long after, trouble began.

Rainwater seeped through cracks around his windows and onto his living room floor during a November 2006 storm. Seven months went by before the developer sent a repairman.

The developer, Jonathan Z. Rubin, also failed to fix a broken elevator or install the recreation room and gated entrance touted in advertisements for the condos.

According to lawsuits and city building inspection records, other properties developed by the limited-liability companies that Rubin controlled had problems, too. His companies rode the housing boom up, converting old Norfolk apartment buildings into condominiums, and then back down with unsold condos and debt.

As a salesman, Rubin promised much, but behind the scenes he negotiated “family and friends” sales that created the appearance of demand for his properties. His companies left work unfinished, some condo owners said. Lawsuits also allege that his companies didn’t pay their share of condo fees, and owners said they were left with barely enough cash to pay utility bills, much less fix myriad problems. Several owners – including his sister – have sued Rubin.

Law has contacted the developer repeatedly, trying to wrestle with the problems in his building. He said he can’t decide whether to stay or leave.

“It’s like the American dream has become the American nightmare.”

For Rubin, condo development was something of a second career. After growing up around Framingham, Mass., where his father ran a pub, he spent more than a decade working in the hospitality industry in Washington, D.C., and Virginia.

Eventually, Rubin, 56, came to Hampton Roads. His companies bought and redeveloped the James Madison and the Thomas Nelson, two aging Norfolk hotels, in the mid-1990s. The Madison renovation brought Rubin’s company $2.75 million when it sold in 1998. The Nelson cost the company $7 million in renovations, but managers couldn’t keep the rooms filled. Rubin’s Commonwealth Enterprises filed for bankruptcy to prevent foreclosure but ultimately lost the hotel.

The hotel’s failure forced Rubin to seek personal bankruptcy in 2005, said his attorney, Harry Jernigan.

The setback didn’t derail the developer’s venture into condos. Using family money and millions in loans from banks, Rubin started his condo business.

“In 2004, 2005, 2006, the banks lost their minds a little bit, because real estate prices were just going up,” said Michael Seiler, a real estate professor at Old Dominion University. “I think they thought nobody defaults on a property. If they couldn’t pay, they would just sell it.”

Aside from the booming housing market, Rubin had a convincing way about him, said former business associates who described Rubin as a natural salesman, a “smooth-talker.”

“He always made it seem like a no-brainer,” said James Quill, Rubin’s former brother-in-law, who bought several condos from the developer. “He’d give us a pro-forma, show us how much money we would all make. I haven’t come across that many easy deals in my whole life.” Reached twice by phone, Rubin spoke briefly and said that he’d call right back. He didn’t. The developer did not return numerous other calls. Attempts to reach other Rubin family members, employees and associates were unsuccessful.

Rubin’s business was similar to those of the house-flippers popularized by cable TV. He’d buy an aging apartment building, fix things, install new appliances, paint the units and then sell them as condos.

From 2003 to 2007, Rubin’s companies purchased 10 apartment buildings. By the end of 2008, they had converted 115 apartments to condos.

Other developers were doing similar work during the housing boom. Condos were particularly popular among buyers and investors near downtown Norfolk and in Ghent because land was scarce, the existing housing stock was pricey, and renters were abundant. Investors expected to lease their units, then turn a tidy profit by selling them when prices climbed.

Real estate records show that Rubin often sold the first units in a building to family members or business associates.

The process known as a “straw sale” is not uncommon in the early stages of a condo building, said ODU’s Seiler.

“He was really creating a buzz,” said Seiler, who does not know Rubin but researches human behavior in the real estate market. “You might say it’s slightly deceptive, but a lot of marketing is deceptive.”

The sales enable a developer to establish a price for the units and to create the impression that they are selling quickly, Seiler said.

Rubin devised what he called a “Friends and Family” program, which, according to a disclosure statement in his firm’s Chapter 11 bankruptcy filing, worked like this: His company would waive the down payment, pay closing costs and condo fees, and cover any negative cash flow – such as the difference between rental income and mortgage payments – for friends and family members who agreed to buy a unit. When the developer found another buyer for the condo, the associate or family member would get a portion of the profits from the sale.

Rubin’s companies sold or gifted at least 37 condos to relatives or associates, according to court documents. Buyers included his mother, sister and former brother-in-law, sister-in-law, an employee, his bookkeeper, and others. Some granted Rubin or his associates “power of attorney,” allowing them to sign closing documents and loan papers on their behalf.

One of the developer’s first investors was Quill, who had been married to Rubin’s sister, Charlene. In a telephone interview, Quill said Rubin touted Norfolk’s booming real estate market, telling him that purchasing the units would be a quick way to make some money.

The developer even mailed him a check for $5,000, Quill said, to help persuade the Connecticut resident to buy two units in a building at the corner of Colley Avenue and Princess Anne Road.

“The whole deal was, ‘You put your name on it because I can’t, and I’ll take care of the rest,’ ” Quill said.

Rubin used Quill’s power of attorney to buy and sell the units, real estate records show. He also waived condo fees, Quill said, and said he’d lease the units to renters. About a year later, Rubin found buyers for the condos, Quill said, and sent him $7,500 – his portion of the proceeds from the sale.

At his six-unit condo building at 617 Boissevain Ave., near Norfolk’s medical center, Rubin sold the first three units to the Quills, his sister-in-law Anna Rubin, and Joseph Longo, a business associate and the general manager of The Jefferson Hotel in Richmond. They paid between $125,000 and $139,500 for their units.

The next unit went to Anthony Asterita.

Asterita met Rubin in 2004 while the developer was traveling through the Washington airport, where Asterita worked in customer service for an airline.

The two men hit it off in brief conversations as Rubin waited for flights, Asterita said. Asterita had an interest in real estate, and Rubin had experience.

After a few months, Rubin invited Asterita to work for him as a contractor. He sent Asterita on a few tasks, such as showing a condo to a potential buyer. Eventually, the talk turned to investing in condos, Asterita said.

In a lawsuit filed in Norfolk Circuit Court, Asterita described the sales pitch. He said Rubin invited him into his Springfield home, and with Longo touted their real estate developments in Hampton Roads. Rubin said the Boissevain units were selling fast in the “luxury” building.

“Rubin stated that the complex was incredible and that he had personally overseen the renovations to the complex and the units,” the suit said.

Asterita said he wasn’t convinced, but that Rubin persisted, inviting Asterita to his home again. Longo, who did not return several calls, also tried to sway Asterita, hosting him at the five-star Jefferson Hotel, according to court documents.

Asterita bought the condo, sight-unseen, in February 2005 for $262,000. He allowed Longo to use his power of attorney to do the walkthrough and close the sale.

A few months later, when Asterita made it to Norfolk to see his new condo, he said he was stunned. The building was in disrepair, he said. He also learned that the three other buyers in the building were connected to the developer.

Asterita sued Rubin, Longo and Rubin’s company, Ghent Development Partners, in March 2006.

The suit said Rubin misrepresented the condo’s condition. It cited rotten wood, shoddy installation of appliances and wiring, and “inadequate” removal of asbestos and lead paint.

“I tried to work it out with Jon,” Asterita said. “He was like: ‘Sorry.’ He just wouldn’t fix it.”

Rubin’s companies were cited by the state Department of Labor and Industry for improper asbestos removal, and by Norfolk inspectors for fire code violations, at some condo buildings, but the Boissevain Avenue address was not among them.

A judge dismissed part of Asterita’s suit in January 2009, saying the buyer had a responsibility to inspect the property before he made the purchase. He also found that a complaint about the building’s structural problems needed to be brought by a condo association, not an individual owner.

Because Rubin’s company still controlled the association, Asterita filed a second lawsuit a month later for control of the building, this time joined by an unlikely co-plaintiff – Rubin’s sister, Charlene Quill. Asterita and Quill eventually wrested control of the condo association from Rubin, and a judge awarded them attorney’s fees, which they have been unable to collect. They had planned to file another suit on behalf of the owners, Asterita said.

“I ran out of money, and at some point, you just have to cut it off,” he said. “It’s not worth it.”

A fire destroyed the Boisse-vain building last August. Fire officials ruled it arson. No one has been implicated.

Condo developers have many obligations under state law. They are required to establish a condo association that maintains the property, provides amenities and pays for some utilities such as water, sewer and trash pickup. They must pay the fees of each unsold unit in the condo building, and they must establish a bond or letter of credit to benefit the condo association in the event that the developer falls delinquent on condo fees or abandons the community. The bond must remain in effect until the developer has sold at least 90 percent of the units and does not owe the association any fees.

Condo fees were a selling point of the buildings owned by Rubin’s companies. At those buildings, the companies offered to pay buyers’ condo fees, some as high at $199 per month, for a year or two.

Adam Law had such a deal. So did Timothy Hatt.

Hatt purchased a unit at 1040 Brandon Ave. in 2006 for $237,000.

He later sued Rubin and Ghent Development Partners, alleging among other things that the developer had never properly set up a condo association, and that Rubin had not paid his condo fees.

“The way the real estate agents marketed it to me,” Hatt said, “I thought ‘Any day now, the developer is going to set up the condominium association like he’s supposed to, and everything is going to be hunky-dory.’”

Hatt’s suit described an “unlit” and “unsafe” fire escape, broken hallway lights and unpaid water bills.

He won a $50,000 judgment in October 2008.

Other owners complained in a lawsuit that the developer owed condo fees. They also questioned the effectiveness of the state law designed to protect them.

In a letter dated January 2009, Richard Swentzel, a bookkeeper for Rubin, wrote to state condo regulators asking them to release the $24,000 letter of credit for Rubin’s Ocean View building. According to real estate records, 50 percent of the 24 units had been sold at the time, not the 90 percent required by law.

The letter stated that the developer had fulfilled all of the obligations required by state law. It was signed by Swentzel, who also wrote that he was not affiliated with the developer and was authorized to act on behalf of unit owners. Swentzel also owned a condo in one of Rubin’s buildings.

State officials promptly returned the letter of credit.

In an interview, Swentzel said that he wrote the letter at Rubin’s request.

“It was a complete fraud for them to make those statements,” said Mike Inman, an attorney who specializes in condo law.

Inman represented homeowners in a West Ghent building at 1017 Westover Ave. who sued Ghent Development Partners in 2007, alleging that the company got its bond released by state condo regulators despite owing thousands in unpaid condo fees.

The homeowners won a $25,000 judgment in 2008, which they have been unable to collect.

Regarding the Ocean View building, Rubin’s personal attorney, Jernigan, contended that it was the homeowners’ fault for being left with little or no funds.

“The homeowners didn’t properly fund the association after he turned it over,” he said.

The state has no mechanism for checking whether developers have met the requirements of the law, Inman said. “They’re not accustomed to people lying to them.”

The state also has no way to enforce the law, said Mary Broz-Vaughn, a spokeswoman for the Department of Professional and Occupational Regulation. Developers aren’t licensed like real estate agents are, she said.

“At the end of the day, you’re talking about a private contract that someone enters into,” she said. “So it’s really a matter for the civil court system.” She said state regulators are trying to strengthen that system.

By fall 2009, Rubin was sitting on 33 unsold condos and a mound of debt as the housing market plunged. Rubin filed for bankruptcy protection for two of his companies: Ghent Development Partners and Ocean Development Partners, which owned the Ocean View project. The two reported a combined debt of $4.7 million.

Old Point National Bank foreclosed on Rubin’s Freemason Street library office and the remaining units in the Ocean View building. Rubin also lost condos in other buildings. From January to October last year, banks foreclosed on at least 30 unsold Rubin condos.

His personal condo in the PierPointe at Freemason Harbour in Norfolk was auctioned by the bank; however, during a bankruptcy hearing for creditors last December, Rubin said that the condo still was his address.

The condo was purchased at auction by Diane Mocion, who has a relationship with the developer.

During that same hearing, Rubin blamed the real estate market’s swoon for the bankruptcies: “The real estate market had a cataclysmic downturn, and the values were inverted significantly.”

Meanwhile, Rubin has reinvented himself again.

He mentioned during one phone call that he now advises homeowners on how to avoid foreclosure.

These days, Law is torn between trying to sort out the community’s problems or walking away, as his father advises.

“It is so upsetting,” said Law, 31. “I feel chained to my home.”

About a year ago, he took charge of the condo association. He is trying to solve the building’s woes and restore its value.

After Old Point foreclosed on half of the building’s units last summer, it sent out workers to clean up the basement and fix other problems that might hinder a sale. Other owners have since purchased some of the foreclosed units and seem eager to help.

The elevator still is broken. And the building’s two hot water heaters, designed for a home instead of a large multifamily building, need to be replaced.

In January, Law stood in the building’s hallway, staring at a real estate flier taped to the door of an unsold unit. The bank listed it for sale at $50,000 – a fraction of the $160,000 Law paid.

He shook his head.

“I’m so screwed.”

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com