The owner of Crystal Ristorante used the same kitchen equipment as collateral on two different loan applications, an apparently improper business practice that will leave Montgomery County unable to recoup a $110,000 loan made to the financially ailing business.
Tony Centi pledged the equipment to Ciena Capital, also known as BLX Capital, LLC, in 2004 when he borrowed $1.2 million to add a banquet hall onto the bar and restaurant. He then pledged the same equipment in 2009 to the Montgomery County Industrial Development Agency when he borrowed $150,000 from its revolving loan fund for his business, according to the IDA.
Centi did not return a phone call for comment Monday. The restaurant remains open for business.
Centi repaid about $40,000 on the IDA loan before he defaulted, said Ken Rose, director of the Montgomery County IDA, which administers the loan for Montgomery County.
Centi also defaulted on the BLX loan and owes the mortgage company $1.7 million, an amount that includes interest and penalty payments. In addition, he owes more than $15,000 in city and school taxes to Montgomery County. BLX has initiated foreclosure proceedings against Centi’s business.
Rose said the IDA believed it had first position on the kitchen equipment when Centi pledged it as collateral. “He presented it as free and clear of any liens,” he said.
The IDA learned otherwise when it scheduled a foreclosure auction Monday to try to recoup the loan. It had to cancel the auction when the IDA was contacted by BLX and told the mortgage company had first position on the kitchen equipment. “BLX showed us some paperwork filed prior to our loan that showed they had a first lien position on the equipment,” Rose said.
Rose said the revelation shocked IDA and county officials. “This is the first time this has happened with regard to collateral being presented like this. It is apparent to us he used his equipment twice,” he said.
The IDA is discussing what steps to take. “We are consulting our legal counsel and we will have to confer with the Montgomery County Board of Supervisors, as the loan fund is with them. The board will make the final call,” he said.
Town of Amsterdam Supervisor Tom DiMezza, a member of the Board of Supervisors, said the “county has no legal recourse in collecting the loan and will likely have to write the amount off. There is no money there.”
DiMezza said he is willing to give Centi the benefit of the doubt on his use of the kitchen equipment for collateral, but at the same time said, “I would hope that he kind of knew he pledged the equipment. There will be a lot of finger-pointing taking place.”
DiMezza said he faults the county for not doing due diligence on the IDA loan and for taking Centi’s word about the collateral. “When dealing with large amounts of money, you can’t do that,” he said. Further, he said, the county will have to send a report to the federal government about the loan write-off. “It will give us a black eye with the federal government because they give us the money,” he said.
Rose said BLX is not likely to recoup its full loan amount when the foreclosure is completed on the Crystal Ristorante. “What is owed to them is more than they will recoup on any type of foreclosure proceeding,” he said.
According to Rose, Centi applied for a $150,000 loan from the IDA in February 2009. “We closed on that loan May 7, 2009. Centi made $40,000 in payments and stopped paying about eight, nine months ago. To help him out, we renegotiated his payment schedule. It was a schedule he proposed. He paid a couple of months on the new schedule and then stopped,” he said.
Rose said the IDA ran a report on Centi when he applied for the loan and learned BLX had a position on the property as collateral.
He said the report did not show BLX had a position on the equipment, however. “We do double check, but we never anticipated this to happen,” he said.
Rose said Centi was fully aware of the IDA’s interest in the kitchen equipment as collateral for the loan and that Centi never disclosed BLX also had an interest in it. “We sat down several times and negotiated with him on the loan. We had to get permission from him to inventory the equipment,” he said.
The IDA also obtained a personal guarantee from Centi on the loan.
The guarantee would have allowed the IDA to use Centi’s personal assets, such as his home, to recoup the loan. But Centi and his wife, Carolyn, in April negated the guarantee when they filed for Chapter 7 personal bankruptcy protection in federal court when BLX began foreclosure proceedings against the restaurant.
The action protects their personal assets, such as their home, from having to be sold to satisfy debts.
The couple cited $1.9 million in claims against them and less than $1 million in assets. Their petition states that $1.2 million of the $1.9 million in claims is unsecured.
Rose said as a result of the Crystal Ristorante write-off, the IDA will tighten up its loan review procedures. “We will make sure we contact every potential lien holder who comes up in a search,” he said.