Wells Fargo: "JP Morgan immediately offloaded any risk it had on the Mortgage Loan to the Trust, pocketing millions in fees. When property values collapsed, investors were left holding the bag—tens of millions in losses."
Wells Fargo sued JPMorgan Chase last week over $481 million in commercial mortgages tied to the Chetrit Group’s 2019 purchase of 43 multifamily properties.
The lawsuit claims JPMorgan knowingly financed the deal based on an inflated net operating income (NOI), then sold the loan off to investors—who took the hit when the borrower defaulted in 2022. Wells Fargo, acting as trustee, argues JPMorgan ignored clear fraud warnings and is now demanding damages or a loan repurchase.
---- Canaries in the coal mine? ----
Carveout recourse:
Many borrowers signed whatever was needed to lock in favorable financing at the peak. Now, they’re learning that “non-recourse” doesn’t mean no recourse. Case in point: the borrower in this deal faced a carveout claim for overstating NOI back in 2019.
Slow burn:
Mortgage defaults were rare for over a decade, leading to an environment where many market participants hadn’t experienced significant distress. While the conversation has moved on from apartment syndicators, there are still billions in unrealized losses in that space alone.
New normal?
Declining interest rates and cap rates made it easier for new firms to grow quickly. With today’s conditions, most active players are navigating some level of pressure, and differentiation is becoming more challenging—especially for newer entrants.
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