Bay Area condo war widens after $1 million units sell for just $32,000

The auctioning of several downtown San Jose condominiums has spawned a widening legal war now that a troubled China-based real estate firm has filed a new lawsuit in the increasingly tangled case.

China-based Z&L Properties has filed a lawsuit against winning bidders in an auction last week of the downtown San Jose condos, as well as the trustee that conducted the proceeding, Santa Clara County Court records show.

Z&L Properties, whose affiliate developed the housing high-rises, fell behind on homeowners’ dues. Typically, a buyer of one of the condos in the high-rise complex would be responsible for paying the dues. The developer is on the hook for the payments for condos that are completed but unsold.

On April 8, Nationwide Reconveyance, a trustee for the 188 West St. James homeowners association, auctioned off nine condos with delinquent maintenance dues. The proceeds from the auction were slated to cover at least some, or even all, of the dues Z&L owes. A tenth condo went to the homeowners association.

In the latest twist, a Z&L Properties affiliate has sued Nationwide Reconveyance, and two individuals who appear to be among those who successfully bid to purchase condos during the April 8 auction.

In the new lawsuit, filed on April 10 with the Santa Clara County Superior Court, Z&L Properties is seeking to regain ownership of the units and noted that the auction was conducted despite a temporary restraining order issued by a county judge. Nationwide Reconveyance did not immediately respond to a request for comment.

The nine units were auctioned off at an average price of $31,900.

“The fair market value of each of the units exceeds $1 million,” Z&L Properties stated in the court filing.

Morgan Cahill-Marsland, an attorney with law firm Nixon Peabody, which is representing Z&L Properties, gave a representative of the trustee a copy of the temporary restraining order. In addition, Cahill-Marsland made people in attendance at the auction — including prospective buyers — aware of the existence of the judge’s order.

The lawsuit also claims that the successful bidders in the auction were allowed to enter the western tower of the 188 West St. James residential complex to go to the condos they had purchased.

“On or about April 8, 2024, defendants, who do not hold title to the units, unlawfully changed the locks to the units and claimed they were the record owners of the units,” the lawsuit claims.

The auction involved just a small portion of the condos in the double-tower complex, which has more than 600 units. Each tower has slightly more than 300 residential units. Z&L has sold more than 100 condos in the western tower. The western tower also has ground-floor commercial condominiums, which remain unoccupied. The eastern tower is unoccupied.

The company has proposed several projects downtown but has yet to build anything besides the two-tower complex on West St. James.

Over the last decade, the 188 West St. James high-rises have endured numerous setbacks, including lawsuits, disputes with contractors, development delays, and construction workers who were forced to live in a locked shipping container in an East Bay industrial yard.

As for the recent condo auctions, Z&L has 90 days to regain ownership of the just-sold units — if the company pays the delinquent dues, late fees and penalties for each condo.

Plus, a court hearing is scheduled for May regarding the temporary restraining order.

For now, though, the buyers of the nine condos paid a stunningly small fraction of what people might expect to pay in a region where the average home goes for well north of $1 million — a move that could have long-range implications.

“Prices this low could affect the future values for the condos in the tower,” David Taxin, a partner with Meacham Oppenheimer, a commercial real estate firm, said in an interview in the wake of the auction.

Source: Orange County Register