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In a place where housing demand never lets up, an ugly court battle has halted sales at a partially built condominium complex whose developer is nearly $39 million in arrears.

The developer, Abraham Goldberger, claims in a lawsuit that Jacob Sofer — a fellow builder and neighbor in the Hasidic Jewish community of Kiryas Joel — betrayed him to seize control of the 342-unit project and monopolize the local housing market in which they compete.

Goldberger says he enlisted Sofer to negotiate a reduction in the $39 million bank debt, but that Sofer instead bought the mortgages off KeyBank through an entity called Lexington Funding Group and then demanded Goldberger repay the full amount.

Goldberger calls Sofer "a thief" in a court statement. "The court should note that Sofer lives three doors down from me and prays at the same synagogue as I do," Goldberger says. "He is no stranger."

A Montgomery attorney representing Lexington Funding Group in both the Goldberger lawsuit and the mortgage foreclosure that Lexington began this month dismisses Goldberger's claims as fanciful distractions in a simple case of loan default.

"It's baseless nonsense," says attorney Stewart Rosenwasser. "This is a straight foreclosure action. There's nothing more to it than that."

Sofer echoed those remarks Friday, saying, "Everybody's using every defense in the book that they can." When asked if Goldberger had enlisted him to negotiate with KeyBank on his behalf, he answered, "No."

The condo complex is taking shape off Bakertown Road on the outskirts of Kiryas Joel. About half of the 42 buildings have been built, and 89 units had been sold by the time Goldberger filed his lawsuit. Under an agreement with village officials, some units are being sold as affordable housing at below-market prices.

Court papers show that Goldberger and his financial backers borrowed about $50 million over five years from Union State Bank and KeyBank to buy the expensive land — $20 million for 30 acres — and pay for construction. KeyBank inherited the Union State mortgages when it bought Union State in 2008.

The loan balance came due on Sept. 30. Goldberger says he urged KeyBank to slash his debt because of the depressed housing market. He brought Sofer into the discussions, he says, because Sofer could vouch for Kiryas Joel home prices, but also because he could afford to buy the KeyBank mortgages at a reduced price — an option that Goldberger says the two builders discussed.

Instead, KeyBank demanded full payment on Dec. 31, not mentioning that it sold the mortgages that same day to Lexington Funding Group. Lexington had been incorporated two weeks earlier.

In his lawsuit, Goldberger accuses Sofer of breaching his "fiduciary duty" by cutting his own deal with KeyBank. He's seeking damages and a cancellation of the debt; the defendants include KeyBank and one of its executives.

Rosenwasser counters that no evidence exists that Sofer ever acted on Goldberger's behalf, saying, "You can't create a fiduciary relationship without" a written document. Neither he nor Sofer would identify the investors who make up Lexington Funding Group. Rosenwasser says Goldberger rebuffed Lexington's proposals for paying off the debt.

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