A federal judge in New York has refused to dismiss a lawsuit filed by Wells Fargo against JPMorgan over losses tied to a defaulted $481 million commercial real estate loan.
Wells Fargo, acting as trustee for investors, claims JPMorgan failed to act despite allegedly knowing that the borrower, Chetrit Group, was already facing serious issues connected to the deal. The loan was issued in 2019 and used to finance the purchase of 43 multifamily properties across 10 US states, representing a total of 8,671 apartments.
According to the complaint, Chetrit informed JPMorgan more than five months before the closing of the larger $522 million acquisition that the seller had overstated the properties’ historical net operating income. This metric is considered one of the most important indicators in commercial real estate because it helps determine a property’s income performance and overall value.
Wells Fargo argues that despite being aware of this problem, JPMorgan moved ahead with issuing and marketing the loan as if nothing had changed. The lawsuit accuses the bank of ignoring clear warning signs while collecting millions of dollars in fees tied to the transaction.
JPMorgan argued that the complaint did not clearly prove the overstatement directly reduced the value of either the loan or the underlying properties. However, the judge said that a plaintiff can still claim a material breach if the alleged misconduct significantly increased the loan’s risk of loss.
The borrower later defaulted in 2022, and Wells Fargo is now seeking to force JPMorgan to repurchase the loan, after accounting for proceeds already recovered through property sales. If that does not happen, Wells Fargo is asking for damages instead.
The ruling allows the case to continue, keeping JPMorgan exposed to further legal and financial pressure as the dispute moves forward.
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