Rejected by more than two dozen bond companies, Donald J. Trump has so far been unable to come up with the nearly half-a-billion dollar penalty owed by Monday in his civil fraud trial.
Just days before the deadline, the former president’s social media company completed a merger — a move that is poised to pump an estimated $3 billion into Mr. Trump’s coffers. That is more than enough to cover the $454 million penalty that he owes to the state of New York, but the merger restricts him from selling his shares for six months, or using them as a collateral against a loan.
Unless those rules are waived to allow him to tap the infusion of cash, Mr. Trump faces the possibility that the state’s attorney general will move to freeze some of his bank accounts and attempt to seize his properties in the city where he made his name as a real estate developer.
The buildings at the heart of the lawsuit — several that dot the Manhattan skyline, as well as a 212-acre property north of the city in Westchester County — sit like the smallest figurine inside a Russian nesting doll, protected by layer upon layer of legal entities. Lawyers specializing in bankruptcies, foreclosures and corporate insolvency warn that getting control over, and trying to liquidate, any of the former president’s flagship properties is an uphill battle.
And even if the attorney general succeeds in acquiring Mr. Trump’s real estate, unloading a 60-story skyscraper involves a spider web of transactions.
“People are really, really good at litigating and getting to the point of a judgment,” said Brad Eric Scheler, a senior counsel at the law firm Fried, Frank, Harris, Shriver & Jacobson, where he oversees corporate restructuring and insolvency. “But they never focus on the fact that collecting on a judgment is very hard.”
Accused of grossly inflating the value of his real estate empire to get better loan and insurance terms, Mr. Trump lost his civil fraud trial in February. A judge fined him nearly $355 million, a penalty that has now topped $450 million with interest. He has until March 25 to pay the penalty, but it’s unclear what will happen if he doesn’t.
In a letter to the clerk of the court last Thursday, one of Mr. Trump’s lawyers reiterated that they had approached 30 bond companies through four separate brokers, and had failed to find any that would underwrite an i.o.u. of such magnitude. The bond companies, the letter said, refused to accept real estate as a collateral and instead required a guarantee in the form of cash or other liquid assets worth around 120 percent of the value of the judgment — or over $557 million.
The former president had around $350 million in cash as of last year, a Times analysis found — not even two-thirds of what the bond companies are requesting.
Appraisers and commercial brokers warn that it is difficult to know how much his assets are worth, with numerous variables at play, including his debts. The value of his real estate also would take a beating if he is forced to sell it in a hurry, something that Trump’s lawyer also highlighted: “A ‘fire sale’ of real estate holdings would inevitably result in massive, irrecoverable losses,” wrote the lawyer, Clifford Robert.
Here is a look at the challenges that the state faces as it tries to seize, or even pin a value, on some of Mr. Trump’s best-known properties in Manhattan.
Who Really Owns It?
Mr. Trump does not own almost any of his properties outright. They are protected by a maze of interlocking trusts and limited liability companies. According to the lawsuit, there are as many as 500 separate entities that operate for the benefit of, and under the control of, Mr. Trump.
This creates a challenge for the court, bankruptcy experts said.
“Let me give you an analogy,” said Mr. Scheler, who has no direct knowledge of Trump’s assets, describing how Yellow Cab operators have been similarly protected. “Taxi fleets had each of their taxis in a separate corporation, so that if the taxi was in a car accident and the insurance didn’t cover it, it would be limited to the entity that had the cab.”
The Banks Get Paid First
Even if New York Attorney General Letitia James succeeds in seizing a property, if there are mortgages or loans against it, those debts will need to be paid first, say lawyers who have represented distressed corporate clients.
“It’s 1,000 percent complicated and the reason it is 1,000 percent complicated, is there are creditors and equity holders that are ahead of Letitia James,” said Leo Jacobs, a commercial bankruptcy lawyer. “Imagine 40 Wall Street is worth $250 million, and there’s $200 million collateralized against it. After transfer taxes and fees, she will be left with $1 million. Is it worth it to enforce…
Read More: Could Trump’s Properties Really Be Seized?