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The holders of the $85 million mortgage on Buffalo’s tallest building are calling in their loan, initiating a foreclosure on One Seneca Tower downtown that could ultimately lead to a new owner for the 38-story structure.

The move by the Chicago-based LaSalle Bank and the investors that own the actual mortgage on the former One HSBC Center has been anticipated, after the building’s two largest tenants both vacated their space within two months of each other. That left the building 95 percent empty, where a year ago it was 95 percent full.

The 10-year loan, which dates to 2005, includes a $75 million balloon payment due in a year.

For now, the legal action will have no visible effect on the building or anyone inside. Except for the appointment of a third party to oversee the building and collect the rent, it’s business as usual for the 20 or so tenants that remain in the tower – all of whom are on the top three floors.

But the Dec. 26 filing – likely the biggest foreclosure filing ever in Western New York – has triggered a formal legal process that could drag on for a few months, or even a few years, depending on if it is contested or challenged in court. That could delay any effort to redevelop the structure into a mixture of apartments, condos, retail and office space, which local observers and experts from the Urban Land Institute have concluded is the only way to use up the vast amount of space without damaging the rest of the downtown market.

“This proceeding can take several months or longer. It’s sometimes a long and drawn-out process,” said Richard Schechter, the court-appointed receiver for the building. “I’m hoping it won’t take that long, but only time will tell.”

Stephen Fitzmaurice, chief operating officer for Seneca One Realty LLC, the building’s owner, declined to comment.

It’s not clear if Seneca One had actually failed to make any of the regular monthly payments of $508,349. However, the significant loss of tenants prompted LaSalle and the investors to worry about their investment. So LaSalle sped up the loan payments – or called the loan early – and when Seneca One couldn’t pay the full remaining balance as demanded, LaSalle foreclosed.

“The amounts owing under the note were accelerated,” said Maureen T. Bass, an attorney at Buchanan Ingersoll & Rooney PC in Buffalo, who represents the lenders. She declined to comment further.

The court will now either deal with arguments against the foreclosure or, if there is no opposition, appoint a local attorney as “referee” to calculate precisely what is owed under the mortgage.

The case would then return to State Supreme Court Justice Timothy Walker to rule on an application by the lender for a final judgment. If that is granted, a foreclosure sale would occur 30 days later. The two sides could also agree to an out-of-court settlement or auction.

If no one else bids on the property, LaSalle and the loan holders would take possession of the building, which would likely be “repositioned” and put back on the market for sale, probably at a steep discount compared with what Seneca One had paid.

Thursday, Walker, head of the court’s Commercial Division in Erie County, formally appointed Schechter to oversee the building, making him responsible for ensuring the building is maintained and preserving its value for the creditors and any future owner.

Schechter, an attorney who is now primarily a commercial real estate broker at Pyramid Brokerage Co., will collect the rents from tenants and pay all bills for the building. Fitzmaurice and his eight-person staff, including several building engineers, will continue working and managing the building on site but will report to Schechter.

“I don’t represent either party. I’m an officer of the court,” Schechter said. “My sole responsibility is to safeguard the asset, make sure lights and heat are on, and take other precautions that any property owner needs to do to make sure it’s a safe working environment.”

The 40-year-old tower is the tallest privately owned building in the state outside of New York City. It was built as the headquarters of the former Marine Midland Bank, later acquired by London-based HSBC Holdings Plc. “The importance of the building speaks for itself,” Schechter said.

The building was almost fully occupied until recently, with HSBC Bank USA as the lead tenant, taking up 75 percent of the building, or 653,000 square feet, followed by law firm Phillips Lytle LLP, with another 10 percent or 85,000 square feet. The Canadian Consulate was the third-biggest.

But the Canadian government closed its consulate in 2012, while Phillips Lytle moved out in October to the redeveloped One Canalside a block away, and HSBC consolidated across the street to its Atrium building and a facility in Depew last month.

email: jepstein@buffnews.com