UPDATE 2-Stuy Town foreclosure auctions blocked for now

* William Ackman venture and mortgage holders at odds

* Ackman eyes foreclosing on equity in property owner (Adds lawyers and councilman's quotes, background, byline)

By Jonathan Stempel

NEW YORK, Sept 2 (Reuters) - A New York judge has blocked two sets of competing creditors from conducting foreclosure auctions related to one of the nation's biggest housing complexes until he decides which can proceed.

"I am not permitting any foreclosure on either side until my decision," New York State Supreme Court Justice Richard Lowe said at the conclusion of a Thursday hearing concerning the future of the Stuyvesant Town and Peter Cooper Village complex in Manhattan. The judge did not indicate when he would rule.

Until there is a decision, neither a joint venture led by hedge fund manager William Ackman's Pershing Square Capital Management LP nor holders of the senior mortgage on the property can proceed with their respective plans.

Home to more than 25,000 residents in 56 buildings, the iconic complex symbolizes the overheating of U.S. commercial real estate, after buyers led by Tishman Speyer Properties LP defaulted in January on loan payments.

Tishman in 2006 paid $5.4 billion for the 80-acre complex. The property is thought to be worth less than half that sum.

Pershing and Boston-based Winthrop Realty Trust (FUR.N), which last month bought a defaulted $300 million junior loan for 15 cents on the dollar, had sought by Sept. 8 to foreclose on PCV ST, the company that owned the property.

The senior mortgage was sliced into bonds, whose holders hoped to foreclose on the property later in September.

They are represented by special servicer CWCapital Asset Management LLC, and Bank of America Corp (BAC.N) and US Bancorp (USB.N) as trustees.

In their Aug. 18 lawsuit, these investors sought an injunction to stop the Ackman-led venture PSW NYC LLC from foreclosing on the equity, saying they need to be paid the $3.66 billion they deserve under a June court ruling.

They fear Ackman could put the property into bankruptcy, saddling them with losses and upending months of efforts to ease the eventual transfer of the complex to a new owner.

WHAT DOES THE AGREEMENT SAY?

At Thursday's hearing, a lawyer for CWCapital accused PSW of contorting language of an earlier agreement among creditors that he said requires senior lenders to be paid off first.

"You don't need a road map, you don't need a chart, you don't need to be an English major," said Gregory Cross, who runs the bankruptcy group at the law firm Venable LLP. "No transfer can occur without curing the default."

But Edward Weisfelner, who leads the bankruptcy group at the law firm Brown Rudnick LLP and represents PSW, disagreed.

"We're not diverting any money from the senior lenders" by trying to foreclose on the equity, he said.

Weisfelner later added that if the senior creditors were to foreclose first, "we're gone, wiped out, out of the money."

Lowe questioned the reach of Ackman's request.

"Explain to me," he told Weisfelner, "you are junior, and you are asserting the right to supersede the senior lenders?"

But the judge later asked Cross why both sides could not go forth with foreclosures on their separate collateral.

Cross responded that PSW had no such right. "They paid 15 cents on the dollar for a reason," he said.

Tenants also have plans to restructure the complex and keep it affordable.

"They need relief," said City Councilman Daniel Garodnick, a lifelong resident of the complex, after the hearing. "We will work with whichever party is able to deal the best outcome."

The case is Bank of America NA et al v. PSW NYC LLC, New York State Supreme Court, New York County, No. 651293/2010. (Reporting by Jonathan Stempel in New York; Editing by Ilaina Jonas and Richard Chang)