Red Gold loses lawsuit Ruling validates mortgage notes for housing authority

SUNBURY - A Northumberland County judge has ruled that promissory notes for Center City Apartments in Shamokin are valid, and the city housing authority can seek payments totaling more than $1.5 million from Red Gold Enterprises.

Judge Charles Saylor made the determination in awarding summary judgment to the authority regarding a lawsuit filed by Red Gold.

"We are happy the judge saw things in our favor and ruled that the notes we have are valid," authority Executive Director Ronald Miller said Friday. "Basically, the ball is in their court now as to what they want to do, either pay the mortgage or appeal the ruling."

Robert Cravitz, of Selinsgrove, attorney and spokesman for Red Gold, said an appeal of the judge's Jan. 15 ruling is possible.

"Red Gold and Mr. (Eugene) Picarella are looking at their options to see if we will appeal this decision," he said. "In the meantime, there is other litigation pending, so we proceed."

Authority board president Raymond G. Splane said Center City Apartments, at Independence and Shamokin streets, can be a great asset to the authority.

"We are at capacity with our (other) properties now, with a waiting list," he said.

The ruling takes the possibility of the authority fully using Center City another step closer to reality.

The authority is seeking payment of $544,238 in principal from a support mortgage and served notice of that with Susan Good, rental agent for Red Gold, on Jan. 20. It is also seeking interest at a rate of 6 percent a year, plus attorney's fees and court costs, until paid in full. The interest amounts to $89.46 per day.

The authority plans to file an action soon to also recoup $995,000 in principal and interest from the primary mortgage, said Clayton Davidson, a Harrisburg attorney who has been working on the case for the authority.

The repayment of principals and interest on the two mortgages would amount to $1,539,238.

Red Gold has 30 days from the date of service to file a petition seeking relief from the judgment.

A year of trouble

Center City has been embroiled in controversy for more than a year over unpaid property taxes and the mortgages, on which payments haven't been made since 1999.

It started in February when the authority told Center City residents who receive federal rent subsidies - about 10 of the building's 28 tenants - that those payments would be curtailed due to Red Gold's failure to pay its property tax bill for the past 10 years, a total of more than $74,000. The authority said federal law prohibited it from paying subsidies to a property owner who was delinquent on taxes.

On June 1, the Pennsylvania Housing Finance Agency (PHFA), through which Red Gold had acquired the mortgage and support mortgage in 1988, transferred the mortgages - totaling more than $1 million - to the authority because of the lack of payments.

On July 21, a month before the property was set to be sold at a county judicial sale, Red Gold paid its back taxes and, with that, said it had reclaimed ownership of the property and the right to collect subsidy payments.

Red Gold then sued the authority July 28, asking that it pay the subsidy money it had withheld. It also sought relief for defamation of character and breach of contract.

Also in the suit, Red Gold claimed that when the foreclosure action - filed by the PHFA because Red Gold had not made a mortgage payment since February 1998 - was dismissed with prejudice in 2004 after four years of inactivity, it rendered the promissory notes on the mortgages invalid. With that, the authority's acquisition of the notes from PHFA in June 2009 didn't give it any authority over Center City, Red Gold argued.

'Separate' issues

In his ruling, however, Saylor cited case law that said action on a promissory note and action on a foreclosure are separate and different.

"The dismissed action was solely on the mortgage and support mortgage, by way of an action in mortgage foreclosure, as opposed to an enforcement action as to the notes," Saylor wrote. "The validity of the notes was not affected by the prior dismissal of the mortgage foreclosure action."

With that, he said the authority, as holder of the mortgage, could seek to "enforce the obligations" and seek payment from Red Gold.

Saylor also did not rule in favor of Red Gold on its claims of defamation or breach of contract.

Rent payments

Saylor made a recommendation dealing with a claim made by Picarella at a Jan. 13 hearing on the case.

Out of 28 tenants at the building, Picarella said, 20 pay rent to his company and the rest pay to the authority, which has been holding the money in an escrow account. At the hearing, Picarella said loss of rents from the eight properties has caused a hardship on his company, so much so that the Good, who is in charge of the property, had not taken a salary in a few months.

Saylor suggested the two sides work out an agreement in which they would contribute money to keep up the maintenance, operation and utilities of the building, so that no tenant is affected while the two sides settle their differences in court. This was done in a footnote of the order, so it is not legally binding.