The Bank of Kansas has filed suit to foreclose on the Kaufman Building at 208 S. Market.
The building is owned by Kaufman Building LLC, which is owned by David Lundberg and Michael Elzufon, the two Minnesota investors who bought more than a dozen downtown buildings before running into serious financial trouble.
The bank, as the successor of the original mortgage lender SNB Bank of Wichita, contends that Lundberg and Elzufon owe it $1.6 million. The bank declared Kaufman Building LLC in default on April 15.
The bank is the senior lender. Security National Life Insurance of Salt Lake City has a second mortgage on the building, according to court documents.
The building is largely occupied by the Kansas Department of Corrections’ Parole/Re-entry program.
Attorney Scott Hill of Hite, Fanning and Honeyman said he expects the bank to seek to buy the property out of foreclosure at a sheriff’s sale. It’s likely that would eliminate the second mortgage claim.
Once the building is back on the market, Hill sees its ultimate future as promising, he said.
“It’s well-occupied, and we believe this property can be profitable,” he said.
Elzufon said Wednesday that he’s been “frustrated and disappointed” with the whole experience of owning and operating the Kaufman Building.
He and Lundberg bought the building in 2007 and spent several hundred thousand dollars and hundreds of hours turning “a derelict, vacant building” into a functional office building that the Kansas Department of Corrections chose for its parole program, Elzufon said.
He expected the state to bear the cost of assessments for improving the facade of the building, $23,000 per year, he said, but the state said it wouldn’t. Without the assessment payments, the two started losing money on the building.
He also acknowledged that when the state stopped payments for the facade assessments, so did he and Lundberg. The Sedgwick County Treasurer’s Office website shows that Kaufman Building LLC made a partial payment in 2010 and has paid nothing since. Kaufman Building LLC owes $207,413 in property taxes.
But Elzufon also said he and Lundberg stopped making payments on the mortgage because the note had come due and they needed to refinance. That, he said, had become impossible because the loss of cash flow hurt the asset value of the building when the state didn’t pay as much as he originally expected.