Rialto Files 15th Foreclosure Against Signature Borrower

A Rialto Capital Advisors joint venture has filed to foreclose on another Signature Bank loan, this one tied to a stalled development site in Lower Manhattan.

The Roe Corporation defaulted in January 2023 on a $25 million mortgage tied to 267 Broadway. The company had failed to develop a planned hotel-condo on the site, which overlooks City Hall Park, and then tried to sell it. Then the loan came due, and Roe did not repay it.

Luckily for Roe, its lender collapsed a couple of months later, throwing its loan into limbo until Rialto, through a joint venture tapped by the FDIC in December, started servicing the debt in early 2024. Roe received a notice of maturity default soon after.

Rialto, Jeff Krasnoff’s notoriously aggressive firm, has now brought at least 15 foreclosure suits against Signature borrowers, alleging defaults exceeding $300 million. The number represents a fraction of the failed bank’s $17 billion commercial loan book awarded to the joint venture, but some borrowers accuse the servicer of engineering defaults.

Rialto has also sued Aby Rosen three times in contract disputes, alleging RFR defaulted on $80 million in debt.

A spokesperson for Rialto said the company continues “to engage with borrowers to find the best resolutions possible.”

Rialto has faced two suits alleging it mismanaged run-of-the-mill extensions to either trigger late fees or drive loans to the brink of foreclosure. The latest was filed last month by landlord MJ Orbach Associates, which claimed the servicer was “angling for” defaults.

MJ Orbach did not immediately respond to a request for comment.

The landlord accused Rialto of botching the extension of a $65 million loan backed by a Flatiron office building at 27 West 24th Street.

MJ Orbach claims it wrote Rialto in June to request the extension, which would bump its Sept. 10 maturity date to September 2029. Rialto replied that it was working on a reappraisal; MJ Orbach took that to mean the extension was moving forward.

Those “impressions were wrong,” the borrower’s complaint reads.

Instead, Rialto and MJ Orbach played email tag for weeks over what was required for the extension, the landlord alleges.

After the extension talks started, Rialto reversed course and notified MJ Orbach the loan would come due in September.

The landlord asked for an explanation and Rialto backpedaled again. It revoked the notice and instead requested a rent roll and income statement for the property. It told MJ Orbach those documents would satisfy what was needed to extend the loan, the landlord alleges.

Two weeks before the debt was due, Rialto said the extension had been put “on hold,” the complaint reads, because Rialto hadn’t received payment for the anticipated cost of an appraisal. MJ Orbach said that was the first it heard of the requirement. It wired $6,000 to Rialto the next day.

With 11 days to maturity, Rialto then reassigned the loan to a new person at the company.

In its Sept. 4 suit, six days before the loan would mature, MJ Orbach claimed no representative had responded to its requests since the switch.

The landlord alleges that Rialto, by dragging its feet, was working to drive a default so it could fetch more for the $65 million loan in a sale than if the loan carried the same 2021-era interest rate for another five years.

The Rialto-Blackstone venture has already sold $247 million in loans to distressed debt player Maverick Real Estate Partners, whose strategy involves charging default interest rates up to 24 percent.

In another suit against Rialto, a Staten Island shopping center owner claimed the servicer mishandled a routine extension, saddling the owner with hundreds of thousands of dollars in wrongful fees.

That suit was settled in just two weeks.