Before Bernard Madoff was sentenced to 150 years for fraud yesterday, the courts began liquidating his real estate portfolio to pay back his victims.

On Friday, three days before Madoff received his sentence, Judge Denny Chin for the Southern District of New York ruled that U.S. Marshals could begin selling seized Madoff homes around the world. He and his wife, Ruth, have properties on the Upper East Side and in the Hamptons, Palm Beach, Fla., and France.

One property that is generating considerable interest, particularly in the broker community, is a beachfront getaway in the Montauk section of the Hamptons that sits unusually close to the ocean and that has had only one previous owner, making details of its layout and appearance something of a mystery.

Adding to that intrigue is the fact that many expected Ruth Madoff to fight to keep the home, as it was purchased with money that was not connected with her husband’s far-reaching Ponzi scheme, according to reports in March from sources close to her legal team. The Madoffs bought the Montauk home in the early 1990s, and Bernard’s scam, which may have bilked investors of up to $65 billion, began in the late 1980s, they said.

But in Friday’s decision, Judge Chin seemed not to buy that line of thinking about homes in which Ruth “would have claimed an interest at a forfeiture hearing,” according to a court statement.

The property, which covers 1.2 acres, was purchased in 1980 for $250,000, according to its deed. It’s worth $7 million today, according to the district court. But what’s not clear yet is whether the five-bedroom Montauk home will be sold by a broker or through an auction. A spokesperson for the court would not comment.

What is apparent, though, is that its sale likely spells the probable end of a close three-decade relationship between the Madoffs and Montauk where they were considered social and charitable.

“It’s all pretty awful and pretty sad,” said Joan Hegner, a broker with the Corcoran Group in Montauk, who had visited the property when it was being renovated in the early 1980s.

Over the years, Hegner, who’s sold homes since 1977, had also spoken with the Madoffs about selling the house, though they never decided to go through with it, she said.

“We assumed [once his crimes become public] that this would be the end result,” Hegner said about the looming sale. “There was really no other recourse.”

But Hegner, like other brokers, believes the court’s $7 million price tag is far too low.

Developed by David Webb, a well-known local builder, the contemporary home features 3,000 square feet across two stories, plus another 1,300 square feet in covered porches, according to East Hampton building records, putting it in the middle of the pack in terms of size. There’s also a 580-square-foot outdoor swimming pool.

The home’s deed, which is dated Nov. 20, 1980, shows the Madoffs bought it from Eugene Haas, a former town official. The following year, the Madoffs augmented the property by purchasing a tenth of an acre strip, also from Haas, for $20,000, the deed shows.

Last year, the Madoffs paid $17,067.86 in taxes on the home, though it hasn’t been reassessed since 1982, when property values in Montauk were considerably lower, brokers say.

More critically, however, the house, which was built in 1974, is nestled in dunes just above the beach, while current federal waterfront zoning laws dictate houses sit 150 feet back from shore, to prevent flooding. In fact, only a handful of homes in Montauk — grandfathered in before new zoning laws took effect — sit so close to the surf. For these reasons, brokers say the Madoffs could fetch $10 million for the home.

And unlike with other properties associated with notorious criminals, the Madoffs’ house shouldn’t have a hard time selling and for a high price, since its merits trump its history.

“This is a unique, stunning property,” says Kathleen Beckmann a local broker with Kathleen Beckmann Real Estate. “Oh, I would definitely like to get this commission.”

Fellow billionaire Yitzhak Tshuva has the same problem after the foray by his Delek Real Estate Ltd. into British property and roadside restaurants helped force its bonds down 73 percent. Pension funds and individual investors lost about 20 billion shekels ($5.1 billion), or a quarter of what they had invested in corporate bonds, as yields fell in the four months to November.

Now, under threat of a strike by Israel’s biggest union over pension losses, the government is proposing a bailout to help close the savings gap for people near retirement age. Concern that some companies could be wiped out helped drag the Tel Aviv Stock Exchange TA-25 Index down 44 percent in the past year.

“These real estate tycoons imported the global financial crisis to Israel,” said Gill Beeri, managing director of Ramat Gan, Israel-based Ayalon Financial Solutions Ltd. Its Smadar fund lost 14.1 percent in the first 11 months of last year. “There’s increased concern that these companies may default.”

Israel is the latest country to suffer from the collapse of the U.S. subprime mortgage market, which led to an economic crisis in Iceland, currency devaluations in Russia and street protests in Greece and Kuwait. There may be more fallout as the economies of the U.S., Japan and the countries of the European Union contract in 2009.

Five-Year Boom

Global economic growth will slow to 2.2 percent in 2009 from 3.7 percent last year, the Washington-based International Monetary Fund said Nov. 6. The IMF defines a world recession as expansion of less than 3 percent.

The slowdown is blunting a five-year boom, during which the Israeli economy grew an average of 5 percent annually. It may expand 1.5 percent in 2009, the slowest pace since 2002, the Bank of Israel estimated Nov. 20, when it abandoned a previous forecast of 2.7 percent. Israel’s economy will probably show no growth this year, Merrill Lynch & Co. said Jan. 11, cutting its estimate from 1 percent.

Overseas property purchases helped drive up the amount of corporate debt in Israel over the past five years.

Retirement Savers

The country’s 15 largest real estate companies have about 140 billion shekels in overall debt, more than three times the amount in 2003, according to Dun & Bradstreet Israel.

“Pointing a finger at Delek Group Ltd. and Delek Real Estate, as well as Africa Israel, as the central reasons for the situation in the capital and pension market is a radical distortion of the reality,” Delek Group said today in an e- mail. The companies “have always been able to cover their liabilities and will continue to do so in the future.”

About 50 billion shekels of that debt is in the hands of those saving for retirement in so-called provident funds, long- term investment vehicles similar to U.S. 401(k) accounts that offer tax-free savings for employees.

Investors are suffering partly because of the billionaires’ property losses and from concern the companies they control won’t be able to pay debts or find refinancing because of the credit crisis.

Manhattan Property

Leviev, 52, made his money as owner of the world’s largest cutter and polisher of diamonds and was No. 227 on Forbes’s list of the world’s richest people last year, with a net worth of $4.5 billion. His charitable activities include helping fund Jewish schools in his native Uzbekistan.

Leviev’s Africa Israel Investments Ltd. bought the former Times headquarters on Times Square for $525 million. It paid $200 million for the 19th-century Clock Tower building on Manhattan’s lower Broadway, saying it would be converted into 55 apartments designed by Italian fashion company Gianni Versace SpA.

Those overseas deals were backed in part by investors and fund managers who acquired the company’s bonds, rated AA by Standard & Poor’s-Maalot. Leviev, the chairman of Africa Israel, moved to London last year, spending a reported 35 million pounds ($51 million) for a property in the Hampstead neighborhood.

Tshuva is estimated by Forbes to be worth $3.5 billion. As a contractor, he profited from the construction boom during the immigration of Russian Jews to Israel in the 1990s. The 60-year- old took over Delek, Israel’s No. 2 oil and gas company, in 1998.

U.K. Holdings

Delek Real Estate has about 2.8 billion shekels in outstanding bonds, according to the Tel Aviv Stock Exchange. Africa Israel has 7 billion shekels, according to the company.

Their bonds were snapped up in oversubscribed offerings, and were the most-traded notes on the stock exchange in October, according to Bank Hapoalim Ltd.

In April 2007, Delek Real Estate bought 47 hotels in the U.K. operated by Marriott International Inc. It also acquired RoadChef Motorway Holdings Ltd., a U.K. operator of highway service stations, for $738 million and owns the building leased to Britain’s Foreign Office.

Israelis hold about 220 billion shekels in provident funds and employee benefit funds, the Finance Ministry said. Through November, provident funds lost an average 17.8 percent. The long-term investments account for about 30 percent of the 200 billion-shekel corporate bond market.

Strike Threat

The losses have investors heading for the exits. About 3.5 billion shekels were redeemed from provident funds in October, according to Meitav Investments & Securities Ltd., which tracks the industry.

On Dec. 14, the cabinet approved a plan by Prime Minister Ehud Olmert to guarantee pensions and long-term savings up to 750,000 shekels, or about $193,000, for people age 57 and older. He said the aim was to provide a monthly income equal to the country’s average wage, which is 8,210 shekels.

The decision came after the Histadrut labor federation, which represents more than a quarter of Israel’s workforce, threatened a nationwide strike. The government didn’t estimate a cost for the program.

During the deregulation of the capital markets in 2003, the non-bank credit market expanded as union pension funds were privatized and the banks were forced to sell their asset- management units, creating a new class of institutional investors who had previously invested mainly in government debt.

Investing Abroad

At the same time, developers took advantage of financing opportunities to invest abroad. Critics say that these changes in the market led provident and pension funds to buy riskier assets.

“Institutional investors were fighting to get the best short-term yields for long-term investments — it didn’t make any sense,” said Ami Cohen, head of the union’s pension department.

Africa Israel said in August that it will sell 49.9 percent of its holding in the Clock Tower and 49 percent of the Times building, along with its entire stake in a Wall Street property, in order to pay back its debt.

“I don’t see any problems in covering our debt or liabilities,” Izzy Cohen, chief executive officer of Africa Israel, said in an interview.

Africa Israel’s inflation-linked notes due in 2012, which have dropped 65 percent in the past 12 months, were downgraded to A3 from Aa3 by Midroog Ltd., the Israeli unit of Moody’s Investors Service. Leviev’s net worth plunged by about 13 billion shekels as the company’s shares fell 91 percent in 2008.

Asset Sales

Tshuva’s Delek Group Ltd., the parent company of Delek Real Estate, has lost about 8.5 billion shekels in market value and was removed from the TA-25 this month.

Delek Real Estate said Oct. 29 that it planned to sell assets, including its RoadChef holding, to repay debt.

That pledge doesn’t comfort politicians who say Israel needs protection from toxic financial imports.

“There has been a group of businessmen that acted irresponsibly and with great greed,” said Avishay Braverman, chairman of the parliamentary finance committee. “Long-term savings have been thrown out of the window and there is a need for more oversight and regulation.”