Wells Fargo is suing JPMorgan Chase over investor losses related to an allegedly inflated metric used for a $481M loan in 2019.
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The loan helped finance the $522M purchase of 43 multifamily properties in 10 states by Manhattan firm Chetrit Group, Reuters reported. The lawsuit, filed Monday in federal court, also names Chetrit Group principal Meyer Chetrit as a defendant for providing a guarantee for the loan.
Wells Fargo claims JPMorgan and Chetrit Group knew the historical net operating income reported was “false and dramatically inflated” before it issued the loan. It also alleges the 12-month financial statements provided by seller ROCO Real Estate LLC were fraudulent and inflated that key metric by around 25%.
After JPMorgan originated the loan, it sold it to its affiliate, J.P. Morgan Chase Commercial Mortgage Securities Corp., which then deposited the loan in a commercial mortgage-backed securities trust, the suit says.
“JPM immediately offloaded any risk it had on the Mortgage Loan to the Trust, taking home millions of dollars of fees in the process,” Wells Fargo’s lawyers wrote in the suit. “The value of the Properties backing the Mortgage Loan then collapsed — leaving the Trust with tens of millions of dollars in losses.”
The borrower owes more than $285M after defaulting in 2022, in addition to the alleged tens of millions owed to investors, Wells Fargo wrote.
JPMorgan Chase declined Bisnow's request for comment, as did Wells Fargo’s attorneys at Quinn Emanuel Urquhart & Sullivan LLP. Chetrit Group didn't immediately respond to a request for comment.
Wells Fargo also alleges JPMorgan “never intended” to hold the loan and immediately sold it off in pieces to investors unaware of the “inflated NOI figures.”
The Manhattan federal court complaint says JPMorgan had “an obligation to engage in due inquiry” about the NOI figures. It also asks that JPMorgan repurchase the loan or pay damages for breach of contract.
Rising operating costs with limited interest rate relief for multifamily properties helped drive the overall delinquency rate for the CMBS market to 6.6% at the end of 2024, up from 4.5% a year prior. Meanwhile, multifamily delinquencies jumped 75% year-over-year to around $2.8B, Trepp reported.
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