Owners of senior housing in Edina defaulted, each resident being sued

Residents of the new Gramercy Club of Edina senior housing complex plan to relocate to a Hennepin County courtroom on Tuesday. Their purpose: to defend their right to stay in their homes.

The 50 or so people have dutifully made their mortgage and tax payments to live in the units, which opened last year at 70th Street and Metro Boulevard.

But in a new dimension of the housing meltdown, each resident has been sued individually by a bank that has also filed a foreclosure suit against the Gramercy Club of Edina corporation, after it defaulted on loans worth $25 million.

BankFirst, the South Dakota-based lender, argues that because the financially struggling building is a cooperative, not condominiums, all of the units are vulnerable to foreclosure. Now the residents, many of them retired and settled comfortably into their new digs, find themselves drawn into a legal brawl that has already cost them $100,000.

"They're fighting against the risk that they lose their homes, they lose their plans for retirement," said Lee Lastovich, the attorney for the residents.

An attorney for BankFirst declined to talk about the lawsuit. But a court filing last week in the foreclosure lawsuit indicates that BankFirst would be willing to allow residents in 32 of the 36 units to become individual condo owners once the case is resolved.

A hearing in the case is scheduled for Tuesday before Hennepin County District Judge Mel Dickstein. Jim Campbell, a resident who has emerged as a spokesman for his beleaguered neighbors, said the small courtroom is the only thing that might keep every resident from making the trip to downtown Minneapolis for the occasion.

The case hinges on the Gramercy Club of Edina's cooperative ownership model. Residents don't buy their units. They buy shares in a corporation that owns the entire property. Still, residents have their own mortgages and pay their own property taxes.

It's a common model for senior housing in the Twin Cities, where there are 42 co-op developments, compared to 27 condo communities, according to Tom Melchior, who follows senior housing trends as director of market research for LarsonAllen.

'Peace and tranquility'

The four-story, 126-unit Gramercy Club of Edina opened in the spring of 2007, offering "the peace and tranquility of an elegant home offering many of the social and recreational amenities of an exclusive resort," according to its website. Membership prices ranged from about $200,000 up to about $700,000, based on the size of the units.

Sales struggled as the housing market sagged, and the developer had to renegotiate the mortgage loan. By early 2008, Gramercy Club of Edina was defaulting, telling the lender it couldn't even afford to pay for the janitors and electricity, according to court records. Only 36 of the 126 units in the building were occupied.

The situation got worse in May. That's when residents learned they were being sued individually by BankFirst, which says it is owed more than $25 million.

"They served each one of us," Campbell said. "A little guy came, knocked on your door, and handed you a stack of papers 200 pages thick."

Will down payments vanish?

The residents' attorney argues that each of them is protected from foreclosure by individual releases that they signed when they bought into the cooperative.

Since the lawsuit was filed, the complex has been in limbo. No additional units have been sold. At least seven potential residents have put down the equivalent of down payments, but there's no word on whether that money will be refunded, said Alice Engstrom, one of the prospective residents.

"The money seems to be just gone," she said. Nichols could not be reached for comment.

The bridge games and bingo sessions continue at Gramercy Club of Edina, and happy hour at the onsite pub takes place each Friday. The grass is clipped, the sidewalks are swept, but the empty porches and unoccupied benches give the place a deserted feeling.

The fact that most of the building is vacant has its advantages, Campbell said.

"It's got very nice exercise facilities and no one's ever in them," he said. "You go down to the pool, you got it to yourself."