Beleaguered developer Yair Levy suffered another setback Wednesday when a court issued a ruling allowing the lender on Mr. Levy’s Park Columbus property on West 87th Street to move forward with its foreclosure proceedings on the 95-unit condo conversion, according to filings.

The U.S. Bankruptcy Court of the Southern District of New York granted Garrison Special Opportunities Fund, the lender on Park Columbus, “relief from the automatic stay to enforce its security interest” in the building, the filing stated.

Last year, Mr. Levy defaulted on his $20 million loan on the project, and the lender sued him. The day before the foreclosure auction was scheduled to take place in September, Mr. Levy petitioned to block the foreclosure and filed for bankruptcy on the building.

“The next step will be to renotice the UCC foreclosure sale that was stayed by the filing of the Chapter 11 case,” said Harvey Strickon of the law firm Paul Hastings Janofsky & Walker, which represents Garrison. “Beyond that, nothing has been decided.”

“We anticipated this might happen, but regardless, we are still pursuing damage claims against the banks,” said Dan Deutsche, a representative of Mr. Levy’s development firm YL Real Estate Developers. A separate lawsuit involving Park Columbus is still pending.

In 2005, Mr. Levy purchased the property located at 101 W. 87th St., formerly known as Columbus Green, from Related Cos. for $42.5 million. He had ambitious plans to convert the building into a condo by renovating the units and adding an additional 40,000 square feet for a four-story townhouse, 23 more residential apartments and retail space. But his plans were foiled by the recession. According to the court filing, the property is currently valued at $45.8 million.

Today, construction on Park Columbus has stopped and the state attorney general’s office required Mr. Levy to abandon the condo offering plan. In his effort to block the foreclosure, Mr. Levy proposed a reorganization of the project. But the court concluded Wednesday that “Garrison has met its burden in proving that the debtor lacks equity in the collateral, and the debtor has failed to meet its burden in proving that there is any likelihood of an effective reorganization.”

Mr. Levy, who once served community service for assaulting his erstwhile business partner Kent Swig with an ice bucket, experienced similar problems at two other planned condo conversions in the city—Sheffield57, pegged as the biggest failed condo conversion in city history, and 225 Rector Place. Last summer, Sheffield57 was auction off for $120 million. Mr. Levy, along with partners Mr. Swig and Serge Hoyda, bought Sheffield57 for $418 million in 2005.

At his Battery Park City condo conversion at 225 Rector Place, which also faces a possible foreclosure, owners of apartments recently sued Mr. Levy for $100 million in alleged fraud. A ruling on that case is expected any day now, says Marc Held of law firm Lazarowitz & Manganillo, which is representing the Rector Square tenants. Mr. Levy also defaulted on the $165 million mortgage for 225 Rector Place.