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A deal not even a mom could love

By Scott Barancik, Litigation Nation
Published June 23, 2007

Two years ago, Jason Gabay hired an architect to work on his waterfront home in Belleair. Now his widowed mother is out $500,000.

Confused? The sordid tale is laid out in a recent lawsuit.

Largo architect Steve Spencer began drafting designs in 2005, Gabay alleges. Shortly thereafter, Spencer offered him a remarkable investment deal: in exchange for a $500,000 loan, Spencer's real estate development group would issue Gabay an 18-month promissory note at 12.5 percent annual interest - and throw in a $250,000 bonus.

Days earlier, the group had bought a 198-unit apartment building in South Pasadena to convert into condos. Now, he and his partners needed cash. The bonus represented 1 percent of the project's anticipated $25-million profit.

Gabay, now 38, told Spencer it was too rich for him - but not, perhaps, for an investment vehicle his 67-year-old mother controlled. A deal was struck. Quarterly interest payments soon began rolling in.

When the real estate market soured, however, the condo project stalled. Gabay says Spencer and co-developer John Loder didn't disclose that fact until pressed - one day before a final $750,000 payment on the note was due. They let attorney Sandy Solomon deliver the worst news: Gabay's mother wouldn't get her $250,000 bonus - or even her $500,000 investment back. Why? Because they deemed the note was "criminally usurious" under Florida law.

"I'm partially to blame for introducing (my mother) to these guys," Gabay said. "It's so sleazy, it's unbelievable."

Loder declined to discuss the specifics of the case. But he characterized the complaint against Spencer, himself and former development partner Steve Gianfilippo as "some of the best fiction I have read in a long time."

The trio star in a veritable library of courthouse filings this year. In January, mortgage lenders sued them for defaulting on nearly $90-million in loans on three condo-conversion projects (two in Gianfilippo's case). Dozens of other claims - from secondary lenders, condo buyers, subcontractors and former partners - followed. The general contractor on two of the projects sued to recover more than $1-million in unpaid bills, but only after less conventional gambits - such as locking the doors on one project's model units - didn't work.

"The worst part for both Spencer and I is that both of our families have worked their entire lives building names for themselves above reproach, and someone with $300 and a good imagination can file a lawsuit," Loder said. His father founded the Crabby Bill's restaurant chain. Spencer's dad founded Spencer International Advisors Inc., a Clearwater investment firm.

Loder blames his group's financial woes on the fickle real estate market and says he makes good on his promises. For example, he says he hasn't missed a single interest payment on $5-million worth of unrelated promissory notes that Spencer's father sold to investors last year.

Then again, there's Gabay's mom. In a reply to her fraud lawsuit, Spencer and Loder denied any fiduciary duty. They also demanded she return $75, 000 in interest payments - which, they argued, are illegal under Florida's usury law.

Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified June 22, 2007, 22:58:14]