Donald Trump and the promoters of his Trump SoHo hotel-condominium were sued by buyers who accused them of fraudulently touting out-sized sales figures to encourage them to buy units and inflate the project's financial health.
The lawsuit by 15 plaintiffs was filed late Monday in Manhattan federal court, less than four months after the 46-story building opened and three months after the offering plan went effective, allowing closings to begin.
Trump SoHo is a venture between the Trump Organization, which manages the building, and Bayrock Group LLC and Sapir Organization LLC, which formed its sponsor Bayrock/Sapir Organization LLC. The smallest units start at $1.2 million.
The complaint said the defendants in sales pitches and to the media during the first 18 months of marketing advertised that the building was 30, 40, 50, 60 percent or more sold.
Instead, when the offering plan went effective, buyers learned that just 62 of the 391 units, or 16 percent, had been sold, the complaint said. A minimum of 15 percent was needed for the plan to go effective.
Many banks will not lend to buyers of condominium units when sponsors still own a large percentage of the units, often 50 percent. Lawyers believe there can be greater risks when that happens because of the sponsors' obligations to their own lenders and to the condominium itself.
Not only were the plaintiffs individually misled into signing their contracts, lawyer Adam Leitman Bailey wrote, the defendants' collective efforts to pump up sales through false and misleading statements caused all buyers to miss an option to revoke their contract that they all should have had in the absence of fraud.
The complaint seeks to rescind purchase contracts, a refund of $1.75 million of deposits and punitive damages.
Jonathan Canter, a lawyer representing Bayrock/Sapir, said in a statement the sponsor in a filing with the state attorney general's office identified the 15 percent minimum number of units required to have the plan go effective, though more than 100 units, or 26 percent, were in contract at the time.
The developer on Tuesday separately said it has closed on the sale of 20 units for more than $26 million.
In a separate statement, Donald Trump said the building has done exceedingly well since its opening.
This case is simply a matter of buyers' remorse, he said, referring to the lawsuit. Other defendants include Trump's children Ivanka Trump, Eric Trump and Donald Trump Jr.
Trump SoHo is unusual in that owners are limited to staying in their units no more than 120 days a year and no more than 29 consecutive days in any 36-day period. Units are rented to hotel guests when owners are away.
The case is Palmer Gardens LLC v. Bayrock/Sapir Organization LLC, U.S. District Court, Southern District of New York, No. 10-05830.
(Reporting by Jonathan Stempel and Deepa Seetharaman; editing by Gerald E. McCormick, John Wallace, Andre Grenon and Richard Chang)