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Midtown Equities Takes Legal Action Against Rialto Capital Over Alleged Predatory Loan Practices
Edited by: TJVNews.com
As Rialto Capital Advisors aggressively pursues foreclosure actions against Signature Bank borrowers, a powerful figure in New York real estate is taking a stand. Joseph Cayre, the head of Midtown Equities, has launched a lawsuit against Rialto, accusing the firm of deliberately engineering borrower defaults to extract excessive default interest and fees. According to a report that appeared on Tuesday on The Real Deal website, the lawsuit, filed on Monday, alleges that Rialto, which took over servicing Signature Bank’s $1.2 billion loan portfolio after its late 2023 sale, is engaging in a systematic strategy of forced defaults, termed in the complaint as a “Sinister Pocket Veto Scheme.”
Midtown’s attorneys, Terrence and Darren Oved have argued that Rialto’s strategy relies on stonewalling borrowers by failing to acknowledge extension requests or respond to inquiries, effectively forcing them into default. As The Real Deal reported, attorney Terrence Oved likened Rialto’s tactics to a hotel front desk ignoring a guest’s timely late check-out request, only to later penalize them for overstaying. In response to the allegations, a Rialto spokesperson stated, “We continue to engage with borrowers to find the best resolutions possible.” However, Cayre’s lawsuit suggests that Rialto’s engagement consists of obstruction and bad-faith dealings rather than genuine efforts to resolve loan disputes.
This lawsuit is not the first of its kind against Rialto, but it marks a significant escalation. As The Real Deal report noted, a Staten Island shopping center owner previously sued Rialto in 2023 over nearly identical allegations before reaching a private settlement weeks later. What makes Midtown’s case different is its attempt to attain class-action status, indicating that the battle against Rialto could soon involve dozens of landlords. The complaint claims that over 40 property owners may have fallen victim to similar alleged predatory tactics.
Midtown Equities is also the first major real estate player to take Rialto to court. Previously, as The Real Deal report pointed out, most of the landlords facing foreclosure from Rialto have been smaller-scale investors with limited financial resources. These mom-and-pop property owners lacked the capital and legal firepower to challenge Rialto’s servicing tactics. With Midtown entering the legal fray, it signals a potential turning point in how major real estate players respond to Rialto’s handling of Signature Bank’s loan book.
At the heart of Midtown’s lawsuit is 205 Montague Street, a Brooklyn Heights office building for which Midtown secured a $45 million refinancing loan from Signature Bank just months before the institution’s collapse in 2023. According to the information provided in The Real Deal report, the terms of the loan granted Midtown an initial maturity date of August 3, 2024, with the option to extend the term by an additional year as long as the extension request was submitted in writing within a specific timeframe before the due date.
Midtown states that it planned to sell 205 Montague Street and entered into a contract for the sale, scheduling a closing date of August 27, 2024. Concurrently, real estate developer Jonathan Landau, previously of Fortis Property Group, submitted plans to develop a 47-story residential tower on the site, signaling a major transformation of the property, as was noted in The Real Deal report.
Midtown claims that in May 2024, it formally notified Rialto of its intent to extend the loan’s maturity date as permitted under the loan agreement, as per the information in The Real Deal report. However, rather than acknowledge the request and confirm the extension in writing, Rialto allegedly embarked on a deceptive campaign to instead declare Midtown in default. The lawsuit argues that Rialto’s goal was to exploit the default provisions to trigger punitive fees and interest charges—allowing the servicer to extract significant additional payments before the property sale was finalized.
The lawsuit, filed in New York courts, seeks between $20 million and $60 million in damages and asks the court to compel Rialto to recognize the loan extension. As The Real Deal report noted, this case could have far-reaching consequences for Rialto’s handling of Signature Bank’s distressed loan book, which it took over after the bank’s collapse in 2023.
One of the key points of contention in Midtown’s lawsuit is Rialto’s demand for a pre-negotiation agreement (PNA)—a legal document that outlines the framework for discussions between lender and borrower in the event of a dispute. While these agreements are common in commercial real estate, attorneys warn that they can also be weaponized against borrowers. As The Real Deal report explained, some PNAs require borrowers to acknowledge a default, even if none has occurred, which can then be used as leverage against them in foreclosure proceedings.
Midtown, perhaps wary of this legal pitfall, refused to sign Rialto’s PNA. Instead, it repeatedly sought confirmation that its loan extension request had been approved. However, rather than providing a clear answer, Rialto allegedly ignored emails and calls from Midtown for extended periods, responding only sporadically with vague assurances that the request was “under review.” According to the information contained in The Real Deal report, this pattern of communication—known in the lawsuit as a “Sinister Pocket Veto Scheme”—was designed to keep Midtown in a state of uncertainty while Rialto positioned itself to declare a default.
By June 2024, after weeks of ignoring Midtown’s inquiries, Rialto suddenly became responsive—but only to demand payment. According to the report in The Real Deal, the servicer requested $5,000 from Midtown to cover the cost of an appraisal for 205 Montague Street. Midtown complied and wired the money, and the appraisal allegedly confirmed that the loan met the required loan-to-value ratio for an extension. However, despite meeting the necessary conditions, Rialto still refused to confirm the loan extension, providing “no basis whatsoever,” the lawsuit claims.
As the closing date for the building’s sale approached, Midtown found itself in an increasingly precarious position. The Real Deal reported that the uncertainty has already caused multiple delays in closing the transaction, and Midtown now fears it may lose both its buyer and its commercial tenant, whose lease remains in limbo due to the unresolved loan issue.
Midtown also alleges that Rialto took additional steps to force a financial crisis by deliberately ceasing payments on the property’s taxes. According to The Real Deal report, although Midtown continued to deposit monthly loan payments into its designated account, Rialto stopped withdrawing the required amounts to cover interest and escrow obligations. It also stopped making tax payments on Midtown’s behalf, even though sufficient funds were available.
Instead, Rialto allegedly demanded that Midtown pay property taxes out of pocket. Facing the threat of a tax lien, Midtown had no choice but to comply, according to the lawsuit. The Real Deal report suggested that this maneuver may have been another tactic to create financial strain on the landlord, positioning Rialto to declare a default and enforce penalties.
Given the high stakes involved, Midtown Equities has made it clear that it intends to fight back aggressively. The lawsuit is not just about financial damages—it seeks judicial intervention to force Rialto to honor the terms of the loan agreement. As The Real Deal reported, Midtown is asking the court to compel Rialto to formally recognize the loan extension and to award damages ranging from $20 million to $60 million.
In a public statement, Midtown’s attorneys, Terrence and Darren Oved, condemned Rialto’s conduct in harsh terms. “Rialto’s disregard for Borrowers’ contractual rights is a blatant attempt to extract an unearned windfall or force them into costly, prolonged litigation to enforce their rights,” the Oved brothers wrote. “This unlawful practice ends now.”
