Fallout from the Signature Bank collapse has reached the courts.
A shopping center owner claims the FDIC and Rialto Capital Advisors botched what should have been a routine extension of its Signature Bank loan, saddling it with hundreds of thousands of dollars in wrongful fees.
The borrower alleges it is being milked for money in a “possibly illegal attempt” to “fabricate a default” at its Staten Island retail property.
The lawsuit may be the first filed against the Federal Deposit Insurance Corporation or the firms that bought a stake in Signature’s debts after the closely watched bidding process concluded in December.
The owner of the Heartland Village Shopping Center, 2271-2375 Richmond Avenue, last week sued the FDIC, Rialto and the venture that now holds $17 billion in Signature’s commercial real estate debt. The complaint alleges they failed to acknowledge an extension of a $14 million loan.
The retail landlord, which appears to be Interstate Management, claims it secured the five-year loan from Signature in 2016 and the mortgage allowed for two five-year extensions. The loan terms required the owner to give 60 to 90 days’ notice to push back the maturity date.
“Critically, there is no requirement in the note or any other loan documents that any approval of the extension needed to be given,” the complaint reads.
In September, the landlord exercised its right to extend the loan to December 2028. A credit analyst at Flagstar, which managed Signature’s branch locations after the bank failed last March, acknowledged receiving the notice and looping in the FDIC.
Then, crickets. The owner claims it heard nothing on the extension for nearly three months, “despite repeated written inquiries.”
When Flagstar finally responded Dec. 12, it said the extension option would be handled by whoever bought the loan.
Two days later, the FDIC awarded a 20 percent stake in a venture holding Signature’s CRE portfolio to Rialto, two Blackstone affiliates and the Canada Pension Plan Investment Board. The FDIC retained a majority stake.
The landlord got in contact with Rialto the next week and told Tim McLaughlin, Rialto’s CMBS manager, it had exercised its right to extend the loan, but no payment had been pulled from its account and it hadn’t received a loan statement for December.
Repeated follow-up calls and correspondence received no “substantive response,” the complaint reads.
When the shopping center owner finally received a statement in late December, it included nearly $1 million in additional charges, more than half of which stemmed from late fees.
“No information was provided on how these amounts were calculated or on what they were based,” the lawsuit claims.
The owner alleges it tried to sort things out with Rialto over the next couple of months. It deposited funds into an account to pay its loan — as the Rialto manager eventually instructed — but neither the payments for December or January were credited.
Eventually, McLaughlin notified the landlord in early January that the extension had not been finalized by Signature before the FDIC’s takeover, but he had submitted a memo to greenlight the extension, which was “just pending final approval.”
Weeks later, Rialto allegedly changed its tune, saying it needed a signed pre-negotiation letter from the owner. Rialto also said it had to do a site inspection and needed the owner to pay the lawyer Rialto hired to document the extension.
Heartland’s owner claims that extending its loan requires neither a letter nor additional documentation.
Further complicating matters, the owner, after receiving a February mortgage statement with more late charges, got a letter from Rialto stating its loan had been transferred to the venture joint-owned by the FDIC and the Blackstone-Rialto team. Rialto would now subservice the $14 million loan, according to the suit.
In February, the shopping center owner received a statement that “incomprehensibly” reported its principal balance as “zero.”
Finally, on March 6, the joint venture sent a proposed extension letter to the owner, which would require it to declare itself in default.
The landlord chalks up the months-long headache to a ploy to “artificially manufacture financial obligations to benefit the servicers, investors and attorneys.”
“This matter is rife with such wanton dishonesty as to imply criminal indifference to their obligations,” the owner alleges of Rialto and the FDIC.
The FDIC and Rialto declined to comment.
The retail property owner is seeking a judgment ruling the extension has gone through, plus damages of no less than $5 million.
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