Developer P.J. Simao has filed a $20 million counterclaim against HSBC Bank USA, claiming the bank loaned him money to buy Ives Hill Country Club while failing to disclose that another of his businesses, the now-closed DealMaker Auto Group, was in financial trouble.
HSBC filed state Supreme Court action May 10 against Prime LLC, Alexandria Bay, seeking to foreclose on the Flower Avenue West golf course, claiming it is owed about $490,000 remaining on a mortgage it originally provided to Prime in 2007. Prime, whose managing member is Mr. Simao, owns the clubs real estate, while a separate company, Ives Hill Country Club Inc., operates the golf course and restaurant.
HSBC had provided Prime a $1.8 million loan in January 2007, with $1.1 million used to purchase property on Route 11 in the town of LeRay and $700,000 applied to the purchase of the country club. The LeRay propertys mortgage has since been satisfied and is not included in the foreclosure action. Prime has been making interest-only payments on the country club property and, according to court documents, was current on its payments as of April.
It is claimed in the countersuit, however, that HSBCs invoice for May increased the interest rate from 4.75 percent to 7.75 percent, hiking the monthly payments from about $2,000 to $3,167. The invoice also sought about $49,000 in retroactive interest. When Mr. Simao objected to the change, the foreclosure action was initiated.
Mr. Simao claims that he had three banks committed to lending him the money needed to buy the Route 11 property and the country club, but halted the transaction at the last minute when an HSBC executive familiar with the proposed transactions offered to lend the $1.8 million. Mr. Simao intended to put a DealMaker dealership at the Route 11 location, with Mr. Simao believing the bank would provide floor-plan financing for the dealership, as it had at two other DealMaker locations.
The loan with HSBC closed Jan. 16, 2007, and Mr. Simao closed on the purchase of the country club Feb. 1, 2007. The next day, he received a phone call from HSBC demanding that he participate in a conference call with the bank. It is claimed that it was on this call that Mr. Simao learned the two DealMaker dealerships were $400,000 out of trust with HSBC on floor-plan financing the bank provided, according to court documents.
Mr. Simao paid $300,000 to reduce the out-of-trust amount, but a few days later HSBC claimed DealMaker was $1.4 million out of trust. On Feb. 14, 2007, HSBC issued a demand letter seeking repayment of the $1.8 million loan.
It is claimed in the countersuit that two days later, HSBC forced Mr. Simao, DealMaker and Prime to enter into a forbearance agreement concerning the out-of-trust situation, with Prime being drawn in solely because it provided real estate collateral. The countersuit claims, among other things, that HSBC fraudulently induced Prime and Mr. Simao into entering into the $1.8 million loan and that the alleged effect was to give to HSBC real estate collateral it would not otherwise have to assist in its recovery of the floor plan out of trust monies and caused Prime to become a party to the forbearance agreement.
The suit contends that HSBC breached its duty to Prime and Mr. Simao by failing to disclose that DealMaker was out of trust on its financing, information that allegedly materially affected Primes and Mr. Simaos financial positions. Mr. Simao, who was not involved in DealMakers day-to-day operations, said Wednesday that he had no knowledge of the out-of-trust situation prior to closing on the $1.8 million loan.
HSBC cannot show one shred of evidence that I knew prior to approximately Feb. 1, 2007, that there were any issues with DealMaker, DealMaker Dodge or V.M. Paolozzi Inc., Mr. Simao said.
In 2009, HSBC obtained a $10.1 million confession of judgment against DealMaker Dodge LLC and V.M. Paolozzi Imports Inc., an amount later reduced by a judge to about $6 million. Mr. Simao said the amount remaining due on the judgment now stands at $662,000, plus interest and penalties that push the total to $1.2 million. He said that as recently as two days before the foreclosure action was filed, HSBC had indicated a willingness to further negotiate a settlement, but now the matter will be litigated.
As part of the counterclaim, Mr. Simao is asking that a judge declare the forbearance agreement void.
I have never had my day in court with HSBC, and I hope Im afforded the opportunity to prove that these claims are absolutely true, Mr. Simao said.