JPMorgan Fails to Thwart Wells Fargo Suit Over Chetrit Loan

The lawsuit Wells Fargo leveled a year ago against JPMorgan Chase and Meyer Chetrit isn’t going away.

On Monday, a federal judge declined JPMorgan’s motion to dismiss the breach of contract lawsuit, Reuters reported. The judge ruled that in Wells Fargo’s capacity as the trustee for investors it met the burden for its allegation that JPMorgan was aware of a default by the Chetrit Group on a $481 million commercial real estate loan.

The judge’s decision clears the way for Wells Fargo to fight for JPMorgan to repurchase the loan or pay damages. JPMorgan did not immediately respond to a request for comment.

Wells Fargo filed suit in federal civil court last year as trustee on the $481 million commercial mortgage-backed securities loan, alleging JPMorgan knew the mortgage it made to Chetrit for a national multifamily portfolio was based on inflated financials.

The suit also alleged that Chetrit was aware that the numbers had been inflated by the seller, Roco Real Estate.

The issue dates back to 2019, when Chetrit was looking for debt to buy Roco’s apartment deal. Through due diligence, it allegedly found that Roco falsified trailing 12-month financial statements, inflating net operating income by 25 percent.

It allegedly flagged errors to Roco and the seller agreed to slash the sale price by more than $65 million.

The Chetrits then brought the fraudulent financials to JPMorgan’s attention. Internally, the lender acknowledged the reporting was unreliable, according to the complaint

The 10,000-unit portfolio traded for $522 million, the suit stated. Chetrit defaulted on the debt in 2022 after the deals failed to generate sufficient cash flow to service the loan. In early 2023, a spokesperson for the firm said it was looking to sell assets.

Roco and the 43-property, 8,700-unit deal are central to a federal investigation into mortgage fraud. In 2023, Roco principal Tyler Ross pleaded guilty to one count of conspiring to commit an offense against the United States related to a previous financing of the properties; he was sentenced to a year in federal prison.

Wells Fargo’s filing marked the first major lawsuit against a lender in the broader commercial mortgage fraud scandal. Lenders have largely claimed to be victims of borrowers’ fraud. When the suit was filed, Chetrit called itself “a victim of seller fraud, which was investigated by the U.S. Department of Justice.”

— Holden Walter-Warner