JPMorgan must face Wells Fargo lawsuit over troubled $481 million real estate loan

By Jonathan Stempel

NEW YORK, March 30 (Reuters) – A federal judge on Monday rejected JPMorgan Chase’s bid to dismiss Wells Fargo’s breach of contract lawsuit to recoup losses for investors in a defaulted $481 million commercial real estate loan.

U.S. District Judge Dale Ho in Manhattan said Wells Fargo, acting as the investors’ trustee, adequately alleged that JPMorgan knew of an event of default by Chetrit Group, a Manhattan real estate development firm that took out the loan in 2019 to buy 43 multifamily properties with 8,671 apartments in 10 U.S. states.

Wells Fargo said the borrower defaulted in 2022 and owed more than $285 million when the complaint was filed last March, while investors lost tens of millions of dollars.

JPMorgan did not immediately respond to requests for comment.

In its complaint, Wells Fargo said Chetrit told JPMorgan more than five months before the $522 million purchase closed that the seller overstated the properties’ historical net operating income, a key commercial real estate metric, yet JPMorgan pretended “nothing unusual had happened” when making and marketing the loan.

JPMorgan argued that Wells Fargo did not show how the overstatement reduced the value of the loan or the underlying properties.

But the judge said a plaintiff “may plead a material breach where the breach materially increases a loan’s risk of loss.”

Wells Fargo accused JPMorgan of turning a blind eye in pursuit of millions of dollars in fees.

It wants the largest U.S. bank to repurchase the loan, less amounts the trust received from sales of underlying properties, or else pay damages.

(Reporting by Jonathan Stempel in New YorkEditing by Rod Nickel)