A New York Post headline recently blared DEVELOPER KENT SWIG ON BRINK OF FORECLOSURE ON 740 PARK CO-OP, and jaws immediately dropped all over realty-land. “I am truly shocked you are allowed to have debt on a unit at 740 Park,” wrote one commenter on the website of the trade paper The Real Deal. Everywhere, it seemed, the biggest question was not how much Swig and his soon-to-be ex-wife, Elizabeth, owed—they reportedly stopped making payments on a $12.8 million short-term loan from 2009—but how this happened at 740 Park, home to David Koch and Steven Schwartzman and a building whose board is said to require buyers to have $100 million in liquid cash.
Foreclosure barely ever happens at this level. “I’ve never heard of a building of this caliber where [this] situation has arisen,” says broker Michele Kleier of Gumley Haft Kleier. “These co-ops generally preempt having somebody in the building to which this would happen.” Besides, people as wealthy as these usually can find enough capital to stay put: a private loan from a friend, say. (Elizabeth Swig’s divorce lawyer told the Post that “we don’t think a foreclosure will happen.”) Still, says Kirk Henckels of Stribling Private Brokerage, “the rich do go wrong. Things do happen.”
According to the lawsuit, the Swigs’ duplex had been used to secure an earlier loan from Bank of America, this one for $4,792,131.51. That’s surprising, given that 740 Park is widely known to be an all-cash, no-mortgages building. Stroock & Stroock & Lavan LLP’s Richard Siegler, who represents many Upper East Side buildings, explains that lending at all-cash co-ops is at the discretion of the banks. They’ll occasionally write a loan against the apartment that is not formally a mortgage, skirting the need for board approval. (A spokesperson for Kent Swig says only that Elizabeth has owned the apartment for more than a decade; her lawyer did not return a call for comment. Brown Harris Stevens, which manages 740 Park, declined to comment.)
Matthew Haines, founder of PropertyShark.com, which tracks lis pendens (the legal term for pre-foreclosures) and foreclosures, says co-op owners rarely lose their homes to the bank and almost never in hyperexclusive buildings like 740 Park. But there are certainly more foreclosures now than ever before, and in better neighborhoods. PropertyShark lists seventeen Manhattan co-ops headed for bank auctions, including addresses on Central Park West, Sutton Place, and Fifth Avenue. (In July 2008, at the housing market’s grimmest moment, there were fourteen in Manhattan overall, and that includes houses and condos.)
When a co-op resident goes bust, the rest of the shareholders have to cover that owner’s maintenance. At the 740 Park level, that IOU can stack up fast, says Siegler, who represents one Park Avenue building in which a resident owes nearly $250,000. Still, Stuart Saft, chairman of the Council of NY Cooperatives and Condominiums, says a filing actually has “very little effect” in terms of the building’s financial health. If the loan is a traditional mortgage, the building is ahead of the banks in line for any payout and the board is allowed to apply its usual discretion regarding buyers. (Saft has represented Swig in the past but isn’t involved in this case.) The only knock, apparently, is to a co-op’s cachet. “It doesn’t look really great,” says Haines. “The residents must be mortified.”