Rozansky & Kay Construction Co., one of Washington's leading real estate developers, its principal owners and advisers are being sued by Manufacturers Hanover Trust Co. of New York for failing to repay loans totaling $57 million.
The lawsuit filed in U.S. District Court in Baltimore accuses the developers of fraud for allegedly misrepresenting their financial position in order to get more favorable terms and borrow additional funds from the bank.
Reached by telephone late yesterday, principal Alan I. Kay said he had not been served with the lawsuit filed last Thursday and would not comment on the suit. He added his partner, Allan E. Rozansky, would not comment either.
Others named as defendants in the complaint are members of the men's families, their attorneys, some partnerships they established and an employe of their construction company.
The bank claims Rozansky & Kay is in default on $57 million of principal and interest on loans of $120.6 million made for real estate development and construction since 1974.
The loans, which were personally guaranteed by Rozansky, Kay and Kay's wife Dianne, were for several condominium and townhouse complexes in Prince George's County and townhouses near Richmond.
The suit charges that after failing to pay off the five loans in 1977, the developers told the bank that foreclosure or litigation would force them into bankruptcy. Then the pair allegedly told bank officials they would be able to repay part of the defaulted loans if the bank would agree to lend them $9.6 million more to develop the former Rockefeller Estate on Foxhall Road.
The bank now alleges that Rozansky and Kay's financial statements fraudulently concealed their true financial position. The lawsuit says the two claimed they held only a one percent interest each in the projects, having transferred their other interest to members of their families for less than the actual value. In reality Rozansky and Kay owned or controlled from 50 to 100 percent of the 16 projects, the bank said in court papers. Their 1981 financial statement underestimated their interests $15.8 million, the suit said.
Moreover, the pair's financial statements, according to the complaint, omitted short-term profits derived from buying and quickly reselling real estate before settlement. This so-called "contract flipping" netted them an unreported $7.8 million in 1981 and $7 million in 1982 on a Tysons Corner property.