When the condominium market went sour a few years ago, a lot of builders and investors in the midst of condominium conversions were left with a bitter taste in their mouths. Worse, some of these builders and investors ran out of money, and the projects ground to a halt.
Two crucial questions still haunting at least one such group are: Who is responsible to the condominium owners? and Who pays the bills?
About three years ago, six lawyers and a builder formed 1326 R Street Real Estate Limited Partnership to convert some DuPont Circle property into four condominiums. J&B Builders Inc., a corporation formed by Robert Jersky and Joann Kay-Jersky, was designated as the general partner, and the six lawyers were limited partners.
As the project neared completion, interest rates climbed to all-time highs and the limited partnership was left with two units it could not sell.
The situation has deteriorated steadily since then, with partners, builders, owners, banks and lawyers flinging accusations--including the possibility of fraud--at one another. Most recently, the group became embroiled in litigation.
Earlier this year, Chevy Chase S&L, which holds the project's construction loan, began foreclosure procedures because the partnership fell behind in its payments. (The loan was issued to J&B Builders, Joann Kay-Jersky and Robert Jersky and at least one of the limited partners, but the partnership later assumed the note.) It still owes the bank about $80,000.
The partnership filed for reorganization under Chapter 11 in June, a common practice used to stall foreclosure. Court acceptance of the bankruptcy action is pending.
Chevy Chase began to foreclose because it "was jerked around by the limited partners in their attempts to refinance," Jersky said.
"There's no need for the partnership to go into bankruptcy," he said. Money from selling the remaining two units would more than cover the remainder of the loan, he said.
After two years of frustrated money and repair demands, the owners of two of the four condominiums consulted a real estate lawyer to determine their legal options. The owners, Peter Gavian and Raymond Johnson, are awaiting the outcome of the partnership's attempt to file for bankruptcy before they settle on a course of action. Gavian, a limited partner in the project, said that he was not consulted about the bankruptcy motion.
Lack of landscaping, air conditioning ducts without insulation, faulty masonry and cracked bathroom and kitchen tiles top the list of repairs never completed under a one-year warranty, according to Gavian and Johnson, each of whom paid $125,000 for the units.
The partnership never contributed its share of monthly condominium fees and owes about $4,000, Gavian said.
Johnson also holds a note, signed by builder Robert Jersky, for almost $5,000 as a settlement on his buydown mortgage, Johnson said.
Repair costs and Johnson's note could have been financed with the 10 percent construction bond that the District requires every builder to post before selling a condominium, according to Allan McKelvie, the lawyer for the owners.
But the bond does not seem to exist, and lack of a bond could constitute fraud, McKelvie said.
Jersky said Madison National Bank has issued J&B Builders a letter of credit. No bond was issued, but the letter established that a bond could be obtained if it was ever needed, Jersky said.
McKelvie said he received a letter from Madison National Bank saying that a letter of credit for $10,000 was approved for the project, but never issued. Mary A. Schlosser, who wrote the letter for the bank, confirmed the contents of the letter.
The city's department of regulatory and consumer affairs said that it has a letter from the builders' attorney, notifying it that the project had obtained a letter of credit.
The builders "kept saying 'don't worry, we've got the money, we've posted a bond to take care of these problems,' " while at the same time telling him that "they were strapped for cash," Johnson said.
Johnson said that the last straw was reading a story in The Washington Post about a $5 million condominium project that the Jerskys are developing in Bethesda under a different corporation. "It appears they might have a little money," he said.
J&B Builders was incorporated by the Jerskys solely for the limited partnership, according to the Jerskys' lawyer, who asked not to be named. Any other corporation the Jerskys form is a separate and distinct entity from J&B Builders and, therefore, not liable to the partnership, he said.
According to the law, only a general partner of a limited partnership is responsible for its debts, said Steven Skalet, a partner for the real estate law firm of Kass and Skalet. By definition, a limited partner plays a passive role in such an enterprise, usually simply acting as an investor. Consequently, the limited partners also have a limited liability.
In this case, J&B Builders is the general partner and seemingly responsible for the repairs and Johnson's note.
Yet, the issue became more clouded when the limited partners assumed a managerial role in the project about 18 months ago by renting the two unsold condominiums, collecting the rent, authorizing some repairs, and maintaining the records. By becoming active participants, they began to behave as general partners, said the lawyer for the Jerskys.
If the limited partners did legally behave as general partners, all of the partners could be equally liable to the owners, Skalet said.