Friendship turns into lawsuits over loan made during housing bubble

April 16–Two Amherst couples, the Eisens and the Schiffs, were friends for more than 25 years.

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The friendship survived even after Lawrence Schiff, an accountant, was convicted of federal fraud charges and served prison time in 2002.

And after Lawrence and Jill Schiff moved to Florida and filed personal bankruptcy in 2005, Bernard Eisen and his wife, Linda, had no reservations about loaning the Schiffs nearly $120,000 in 2006 so they could make the down payment on a house. That was 11 years ago.

Now the Eisens want their money back.

In a lawsuit filed to recover the funds, the Eisens explain that they provided the loan “to allow (the Schiffs) the opportunity to purchase a primary residence and hopefully get back on their feet after the tribulations of the Builders Capital experience, prison and the move to Florida.”

Once the Schiffs were settled, they were supposed to repay the loan, the Eisens assert.

The Schiffs, in a counterclaim, maintain that the money wasn't a loan, that it was a real estate investment made to take advantage of the overheated housing market in South Florida. They point out that there is no promissory note between the couples for the loan, and that Bernard Eisen's name appears with Jill Schiff's on the mortgage for the house.

The Eisens allege that the loan was made in good faith, and that they only signed papers that Schiff sent them — sometimes seeing only the signature page of longer documents. They admit in their legal filing that they were “especially trusting” of their close friends.

“Plaintiffs signed papers when signatures were requested by defendants,” the suit says. It also says that, “Defendants often took advantage of plaintiff's trusting nature.”

That trust was well established over their years of friendship.

Because of it, the Eisens were willing to overlook Lawrence Schiff's felony conviction for computer fraud when he was chief financial officer for Builders Capital. The local investment company went under in 2002 when it was revealed to be a Ponzi scheme, as described by the U.S. Bankruptcy Court judge who was involved in disposition of claims against the company.

Schiff pleaded guilty in federal court to transferring $200,000 from Builders Capital into his personal bank account. After he was caught, he returned the money and reportedly cooperated in the investigation of the company.

Two other Builders Capital executives, David Corbett and William Gordon, also were convicted of felonies for their part in the scam, which defrauded investors of roughly $14 million, according to prosecutors.

Schiff was sentenced to nine months imprisonment and his license as a certified public account was suspended for five years. He and his wife lost their home on Silver Maple Court in Amherst in 2004 and declared bankruptcy the next year, according to court records.

Then they moved to Florida for a fresh start.

Not long afterward, according to the Eisens' lawsuit, the Schiffs contacted the Eisens and said they wanted to buy a house near Fort Lauderdale, “but they lacked sufficient funds for an initial down payment.”

The Eisens offered to lend them $117,000, their suit says. But the Schiffs say Bernard Eisen “offered to personally invest $117,000 to be used as a down payment” for the house on Blaze Court in Davie, Fla.

In exchange, the Schiffs agreed to live in the house, and pay the mortgage and taxes. The house sold for $405,000. The mortgage was for $300,000, and interest on the note was 6.875 percent.

It was the peak of the housing boom and the plan, according to the Schiffs, was to sit on the property, sell it within five years and split the profits.

Then came 2008 and the burst of the housing bubble.

The value of the house plummeted. By 2010, comparable homes on the same street sold for $199,000 — half what the Schiffs paid for their house.

Unable to sell and with mortgage payments of nearly $2,000 a month, the Schiffs stayed put until 2012, refinancing along the way, with the property still “underwater” on the mortgage, meaning they owed more than the house was worth. During the refinance, Eisen tried to get his name off the mortgage, but the lender wouldn't allow it.

Instead, according to the Eisens' suit, the new mortgage was for $291,411 and includes a “balloon” payment of nearly $45,000, due in 2051.

“Upon information and belief,” the suit says, “Bernie Eisen remains the only person personally liable for the balance due on the note.”

Meanwhile, the Schiffs decided to move. The Eisens claim they used money received from the refinance to buy a $407,000 home in Hollywood, Fla., “without paying back any of the money owed to plaintiffs.”

For a while, the house on Blaze Court was leased, and the Schiff's sent the Eisens $300 a month. But in January 2015, even those payments stopped.

Instead, the Eisens charge, the Schiffs somehow set up a “joint venture” for the Blaze Court property, with Jill Schiff owning 72 percent of the property and Eisen owning 28 percent, even though the Eisens made the entire down payment, are solely responsible for the note and are paying the mortgage using rent from tenants.

The Eisens are asking for their $117,000 back, plus interest and attorneys fees.

The Schiffs say they owe the Eisens nothing and accuse the Eisens of breach of contract, while they, on the other hand, “agreed to manage the property at no cost to (the Eisens) during the rental period.”

The Schiffs describe the Eisens' lawsuit as frivolous and suggest it is the result of something akin to sour grapes because the house did not go up in value as hoped. They claim to have done all they could to assure the house preserved its value “so that — upon sale — it could recover and exceed the value of the property when it was purchased in 2006.”

Eleven years later, they are still waiting. Houses on Blaze Court are currently listing for between $260,000 and $300,000, more than $100,000 less than the house sold for back when the Eisens and the Schiffs were still good friends.

The case is being heard in State Supreme Court by Justice Deborah Chimes.

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