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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, SS SUPERIOR COURT DEPT.
C.A. No. 00-4274B

V&M MANAGEMENT, INC.
and ALPHONSE MOURAD,
Plaintiffs

AMENDED VERIFIED
COMPLAINT AND
JURY DEMAND

v

WINTER HILL FEDERAL
SAVINGS BANK, and
SANDRA McGOLDRICK
Defendants

INTRODUCTION
1. This is an action for damages by V&M Management, Inc. and its President, Alphonse Mourad, against Winter Hill Federal Savings Bank and its President, Sandra McGoldrick, for wrongfully, fraudulently, unfairly, tortuously, negligently and unlawfully causing V&M Management, Inc. and Mourad to lose its $20 million property known as the Mandela Apartments in Roxbury , MA.
2. On January 8, 1996, V&M Management, Inc. filed for Chapter 11 bankruptcy protection, In re V&M Management, Inc., No 96-10123-CJK. On April 2, 1996, the U.S. Bankruptcy Court, Judge Carol J. Kenner, placed V&M Management, Inc. under a bankruptcy trustee, and appointed Stephen S. Gray as the Chapter 11 Trustee of V&M Management Inc.
* Under Mr. Civ P. 15(a), the Plaintiff has the right to file an amended complaint once as a matter of course prior to the filing of a responsive pleading.
3. During the course of the V&M bankruptcy, various competing reorganization plans were proposed. A reorganization plan backed by Mourad, the Mourad, Owens plan, would have paid Winter Hill the full $2.8 million in notes owned by V&M Management, Inc. (and guaranteed by Mourad) to Winter Hill as well as other creditors of the debtor.
4. Winter Hill voted against the Mourad backed reorganization plan and instead voted for the reorganization plan submitted by the Chapter 11 Trustee, Stephen Gray, and Beacon Residential Properties. The Beacon Plan paid Winter Hill significantly less (approximately nine cent on the dollar). Because Winter Hill was the only secured creditor, its vote was the deciding factor in having the Court award the property to Beacon. Winter Hill's decision to go with the Trustee and Beacon for less money, even though Winter Hill knew that Mourad had a commitment letter from the Multi-Loan Network for more money ($5.5 million) cost Mourad and his company, V&M Management, Inc. the property owned for approximately fifteen years, and millions of dollars of profit.
PARTIES
5. Plaintiff, Alphonse Mourad, is the President, sole stockholder and chief executive officer of V&M Management, Inc., a Massachusetts corporation previously located at 10 Hammond Street, Roxbury, MA. V&M Management, Inc. filed for Chapter 11 bankruptcy protection on January 8, 1996, In re V&M Management, Inc., No. 96-10123-CJK. Mourad currently resides at 125 West Street, Hyde Park, MA 02136.
6. Plaintiff, V&M Management, Inc., previously located at 10 Hammond Street, Roxbury, MA, is a Massachusetts corporation, organized under Chapter 156B of the Massachusetts General Laws for the purpose of owning and operating real property in the form of multiple unit residential dwellings, of which the subject property is a 276 unit development located in the Lower Roxbury section of the City of Boston, Suffolk County, Massachusetts, and known as the Mandela Apartments (formerly Westminster-Willard).
7. Defendant, Winter Hill Federal Savings Bank, (hereinafter "Winter Hill") is a duly organized banking institution with a usual place of business at 342 Broadway, Somerville, MA.
8. Defendant Sandra McGoldrick is and was the President of Winter Hill Federal Savings Bank prior to and during the time of V&M's bankruptcy, and made the decision to go against the Mourad backed plan paying Winter Hill more money and chose the Gray/Beacon Properties plan.
FACTS AND CLAIMS
9. On December 31, 1981, Inge-Vasquez Development Company, V&M's predecessor, acquired the 276 unit property, known as Westminster-Willard, in Roxbury at a HUD foreclosure.
10. From 1982, up to and through the time of the January 1984 and November 27, 1984 loans by Winter Hill to V&M, Inge-Vasques was barred from operating the property due to HUD's interpretation of its regulations by HUD.
11. The City of Boston and HUD determined that V&M's Roxbury property was taxable under G.L. c. 59, and not under G.L. c. 121A.
12. On January 30, 1984, V&M closed on a loan of $2 million with Commonwealth Mortgage Corporation, the proceeds of which were used to payoff the HUD mortgage and make needed repairs to the property.
13. On January 31, 1984, Commonwealth Mortgage Corporation conveyed and assigned the loan, mortgage and note to Winter Hill Federal Savings Bank, and continued to act as the agent of Winter Hill Federal Savings Bank for the purpose of servicing the V&M loan.
14. On January 31, 1984, a title insurance policy was issued to Winter Hill Federal Savings Bank as mortgagee of the subject property by Lawyers Title Insurance Corporation of Richmond, Virginia, which conducted a title search.
15. On November 27, 1984, Winter Hill Federal Savings Bank consolidated two loans to the Plaintiff in the amounts of $300,000 and $500,000, respectively, into a single note of $800,000. This note was secured by a second, $800,000 mortgage on the property.
16. Under G.L. c.109A, Sec. 6, if a lender's negligence in the granting of a loan causes harm to the borrower, the transaction may be voided.
17. Winter Hill Federal Savings Bank, through its agents and assigns, did cause grievous harm to befall the Plaintiffs due to its failure to exercise due diligence and failure to determine the proper tax status of the property, by ignoring and failing to acknowledge liens against the property due to its tax status that should have been discharged at the time of the loan closing; by failing to follow standard lending procedures; and by Winter Hill's own inexperience in dealing with multi-family properties.
18. Winter Hill failed to acknowledge or act upon the "restrictions, conditions, covenants, easements, terms and condition and reservations set forth in a deed from the Boston Redevelopment Authority..." to both Willard Place, Inc. and Westminster Place, Inc, or in paragraphs 2 and 3 of the title insurance abstract, which clearly state that the property was subject to Chapter 121A excise taxes in lieu of Chapter 59 taxes.
19. Winter Hill failed to rely upon previously issued documentation as to the tax status of the property, but relied exclusively upon the title search performed by its agents or assigns, attached to and made a part of the title policy.
20. At the time of the transaction in question, Mr. Leroy H. Keihn was president and chief executive officer of Winter Hill. In an October 30, 1985 deposition, Keihn stated that he understood the tax liability of the property to be $200,000, yet voided his bank's policy of assuring that all outstanding taxes and liens are paid, prior to, or at the closing on a new mortgage.
21. By failing to pay the outstanding taxes from the sufficient proceeds of the loan, thereby discharging any and all outstanding tax obligations, Winter Hill, by its failure to pay outstanding tax obligations, made the Plaintiff a hostage to Chapter 121A proceedings.
22. Mr. Keihn stated that Winter Hill did not have its own counsel research or opine upon the tax status of the property, but relied "absolutely" upon Commonwealth Mortgage Corporation to research the tax status of the property. Mr. Keihn remarked that "...we reviewed all the documents (pertaining to the loan with V&M Management, Inc.), and they appeared to be in correct order," (Deposition , at 38).
23. Winter Hill's failure to establish the true nature of the tax status of V&M's property resulted in an additional annual $100,000 tax liability to V&M when Chapter 121A excises tax were applied in place of Chapter 59 real estate taxes. Had Winter Hill taken the time to determine the true tax status of the property, and examined the application of Chapter 121A taxes, the loan would not have been made. Winter Hill negligently performed its responsibility as a lender, and failed to exercise proper or due diligence.
24. Neither Winter Hill, nor Commonwealth Mortgage Corporation, acting as agent for Winter Hill, asked for, or caused to be produced, documents required both by law and standard lending practices. There was no engineering report prepared in support of the appraisal, nor any G.L. Chapter 21E environmental review or report, conducted or produced prior to the closing of the loan.
25. Neither Winter Hill, nor Commonwealth Mortgage Corporation, acting as the agent of Winter Hill, requested or reviewed the certified audit required by holders of Housing Assistance Program HAP) contracts with HUD for Section 8 rental subsidies. The 1983 HUD audit revealed that the property was losing money and should never have been funded for a loan. That was the opinion of four other banks (Bank of Boston, Shawmut, Fleet and US Trust), prior to the loan approval by Winter Hill.
26. The Plaintiff, Alphonse Mourad, never negotiated with Commonwealth Mortgage Corporation for the loan. All negotiations, including the original application, were done with Winter Hill. Only after the application with Winter Hill was personally approved by Mr. Keihn was another application made to Commonwealth Mortgage, and was hastily approved. The agreement between Winter Hill and Commonwealth Mortgage Corporation for Winter Hill to take an assignment of the loan happened with such rapidity that a pre-ordained assignment deal was already in existence. Winter Hill stood the mortgage approval process on its head by sending the application to Commonwealth Mortgage Corporation, which acted as a straw for Winter Hill, who then waited in the wings to take an assignment.
27. Winter Hill was eager to fund the loan to V&M for several reasons: 1) Winter Hill was eager to assist its star mortgage broker Charles Andronica of Belmont, who had brought the Bank millions of dollars in loans over a period of more than 20 years, and who stood to profit handsomely from the proceeds of this loan, which Mr. Andronica, who would accept only cash, received four points (4%), while Winter Hill received two points (2%) of the face value of the loan; 2) additional loans to Shamir Construction Corporation had received prior approval, and those profits were anticipated; 3) Winter Hill stood to earn 14.5 percent interest on the loan toV&M; 4) Winter Hill did not expect to hold the V&M loan for more than several months since a purchase and sales agreement for the property existed between V&M and Shamir Construction, headed by Edmund Shamsi; and 5) Winter Hill expected Shamir Construction to assume V&M's note and pay down the loan by $300,000. Shamir Construction had signed a purchase and sales agreement with V&M to purchase the property in a cash deal. Upon presenting the proposed purchase and operating plans to over ten local banks, and being denied a loan at each institution, Shamir Construction was forced to abandon its cash purchase offer. The only remaining option for Shamir was to assume V&M's mortgage with Winter Hill, and make smaller cash payments to both V&M and Winter Hill, as well as issue V&M a second mortgage. Winter Hill knew of and approved of this assignment process, again negligently and without due diligence, and in violation of standard banking procedures. The assignment agreement was never consummated because of Winter Hill's negligent behavior.
28. Winter Hill grievously harmed V&M by agreeing to, and by failing to understand the implications of paying off the HUD mortgage. While the property functioned with HUD as the mortgagee, it carried a replacement reserve account of $41,000 per month for both normal and extraordinary repairs. When the HUD mortgage was paid in full, the replacement reserve account was withdrawn, thereby commencing a decline in the physical condition of the property and causing V&M to continue to borrow at ever increasing interest rates to cover maintenance expenses.
29. By paying the HUD mortgage in full, and failing to determine the true tax status of the property, Winter Hill placed V&M in grave financial danger. Winter Hill's inability to comprehend the effect of its actions effectively underfunded the property. Had Winter Hill been diligent, Winter Hill would have discovered that HUD had never properly funded the property. HUD had always funded the property as if it was subject to Chapter 59 taxes instead of Chapter 121A excise taxes, thereby underfunding the property at a rate of $100,000 annually on taxes owed.
30. Winter Hill's negligence resulted in an underfunded property; an overtaxed property; and was the genesis of legal proceedings that consumed an inordinate amount of Mourad's time and approximately $1.5 million in legal fees to challenge the applicability of Chapter 121A taxes to V&M. Winter Hill placed the property in harms way, jeopardizing repayment of the loan and thereby unnecessarily placing its stockholders at risk. By extension, Winter Hill's actions also placed other V&M creditors at risk, as well as the mostly minority tenant population of 1, 500, allowing the property to be underfunded by HUD and overtaxed by the Commonwealth of Massachusetts.
31. Winter Hill's negligence caused V&M's sale of the property to the Shamir
Construction Corporation to collapse since Winter Hill failed to pay any and all back taxes from the proceeds of the original $2 million loan in January 1984.
32. Accordingly, V&M seeks a declaration by this Court that the security of
Winter Hill under the loan made to V&M on January 30, 1984 by Commonwealth Mortgage Corporation, and assumed by the Winter Hill as principal Mortgagee on January 31, 1984, is void and invalid, under Chapter 109A of the Massachusetts General Laws, or any other laws.
33. Winter Hill, by issuing additional mortgages to V&M in the amount of
$300,000 and $500,000, respectively, and then consolidating those mortgages in a note and second mortgage of $800,000 on November 27, 1984, did further compound V&M's tax problem by knowingly, or unknowingly, adding to the value of the property by the extension of a second mortgage, thus causing a concurrent rise in assessments and an increase in taxes, since taxes under Chapter 121A are a function, in part, of the assessed value of the property (one percent, 1%, plus five percent of the non-governmental income). At fair market value, the property's assessment increased with the filing of the second mortgage.
34. Winter Hill was negligent in issuing the second mortgage since neither Winter Hill, nor its agents or assigns, performed a second title search, and continued to rely upon the aforementioned negligently performed title search and Title Policy.
35. The second mortgage not only had the undesirable effect of increasing the tax assessment of the property, but further strained V&M's ability to pay since Winter Hill again failed to consider the impact of Chapter 121A taxes. Mr. Keihn stated in an answer to a question with respect to the Chapter 121A status of the second mortgage borrower, he "didn't care which way it was. It didn't make a difference to me." The callousness of Mr. Keihn's statement is reflective of the attitude of Winter Hill towards its duty to perform due diligence to ensure that the loans it made to V&M did not violate either the letter, or spirit, of Massachusetts General Laws Chapter 109A. To further show the callousness and character of Mr. Keihn, as well as other Winter Hill officers, it is a fact said parties were investigated by the FBI, were indicted by the U.S. Attorney, and guilty to insider trading or ("in house lending"), were fined and paid astronomical fines, and were forced to resign from their duties at Winter Hill. Because of former Winter Hill President Keihn and other Winter Hill officers' failure to act diligently, V&M Management, Inc. continues to financially suffer, and, its losses continue to accumulate.
36. The terms under which the second mortgage was made call into question the ethics and motivation of Winter Hill. The loans were made to Alphonse Mourad, to be used to explore other business ventures unrelated to the property. These businesses, though properly marketed, had to be abandoned in order to direct funds into the legal conflicts centering around V&M's challenges to Chapter 121A taxes, which should have been settled at the closing of the first mortgage.
37. The unresolved Chapter 121A issue led directly to the unraveling of approved refinancing from the Greystone Mortgage Corporation, who had signed a commitment to V&M. Had Winter Hill exercised prudence in the execution of its original mortgage to V&M, the Massachusetts Department of Revenue would have become only a contingent party to the refinancing of the property, and would not have been able to impact upon committed refinancing.
38. The security of Winter Hill under the second mortgage consolidated loan made to V&M on November 27, 1984, is void and invalid under Massachusetts Laws.
39. Winter Hill did continue to display reckless disregard towards the tax status of V&M by never entering the discussion, negotiations or legal proceedings surrounding the challenges to the assessment of Chapter 121A excise taxes, and in doing so has brought the entire Mourad family to the brick of insolvency.
40. Winter Hill failed to protect its own interests, the interest of V&M, the interest of Alphonse Mourad, the Mourad family, and the interest of the Mandela tenants, by not joining with and moving affirmatively to defend V&M against the dubious claims of Mario Nicosia of L&N First Mortgage Realty Trust, who forced V&M into filing a Chapter 11 Bankruptcy petition based upon an alleged loan of only a fraction of the value of Winter Hill's original loans toV&M.
41. In the normal practice of approving a mortgage, the leader generally requires that certain contingencies are met: 1) an appraisal; 2) an engineering report; 3) an environmental report (21E); 4) provable loan to value and debt service ratios; 5) audited financial statements; and 6) confirmed tax status and settlement of tax issues, along with several other contingencies. Winter Hill continues to be consistently negligent from one administration to another, since under former President Leroy Keihn, and now under President McGoldrick, none of the above requirements are necessary to acquire a mortgage from Winter Hill. It was this same disregard for the process that brought federal indictments and convictions against Winter Hill officials during the real estate boom days of the 1980's, and that keeps Winter Hill on the United States Controller of the Currency's "watch list" for regulatory violations.
42. Winter Hill, by its negligence, has caused V&M financial harm by helping to devalue and underfund V&M's property and caused V&M to expand nearly $1.5 million in legal fees, undermined V&M's good name, credibility and credit standing with its creditors, and refused to correct its own negligence when given multiple opportunities to do.
43. Winter Hill, as the only secured creditor, erred in its decision to support the reorganization plan of Stephen Gray and Beacon Residential Properties and accepting a significantly less amount of money that the Mourad backed Mourad, Owens plan would have paid, which was secured by a commitment letter for $5.5 million from the Multi-Loan Network. Further, Winter Hill supported Gray and Beacon's plan, which relied on the acquisition of tax credits to fund the purchase. It turns out that these tax credits are currently in question as to the whether or not Stephen Gray and Beacon Properties were qualified to even apply for the tax credit. The IRS claims that they do not qualify and that all profits, losses and tax credits can flow only through the shareholder. The Plaintiff, Alphonse Mourad, is the sole shareholder of V&M, thus all profits, losses and tax credits can flow only through Mourad.
44. Mourad says that he is liable for debts exceeding $5,000,000 because he signed or guaranteed all of V&M notes to Winter Hill personally, and the creditors of the V&M estate were paid only 9 cents on the dollar. Thus, there was no profit from the sale of the property. Mourad received the tax returns for the years 1996 and 1997, and found that Trustee Gray had reported a profit of $2.8 million, which the Trustee kept after he sold the property. Mourad says that he should not be liable to pay income tax on money he had never received. If Mourad is liable to pay the taxes on the profits the Trustee kept for those years that he (Trustee) ran the development, then Mourad should also be entitled to all of the 'profit', as well as the tax credits, for all profits and liabilities and tax credits flow only through the shareholder.
45. The Plaintiff asks how could Winter Hill support the Trustee and Beacon's plan which paid them significantly less than what was owed to them, when Stephen Gray reported a profit of $2.8 million for himself? Shouldn't that money have gone to pay Winter Hill in full as well as the other creditors in line? Isn't it ironic that the Trustee kept that money for himself and sent the Plaintiff (Mourad) the K-1 forms for those years to pay the taxes on money Mourad had never received.
46. As a result of the wrongful, tortuous, negligent, unfair and unlawful acts of Winter Hill, Mourad and V&M Management, Inc. have suffered great financial harm and damages.
WHEREFORE, Mourad and V&M Management, Inc. demand judgment against Winter Hill Federal Savings Bank, and ask for damages in the amount of $20,000,000 to compensate them for their injuries and losses, and for other appropriate declaratory and equitable relief.
JURY CLAIM
Plaintiffs claim a trial by jury on all issues.
VERIFICATION
I, Alphonse Mourad, hereby certify that I have read the within complaint and verify that the allegations are true, accurate and based upon my personal knowledge, information and belief. Signed this 19th day of December, 2000
________________________
Alphonse Mourad
125 West Street
Hyde Park, MA 02136
617-312-4919, and
_________________________
Alphonse Mourad,
President of and sole
Stockholder of V&M
Management, Inc.
December 19, 2000

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