David vs. Goliath: Signature Borrowers Push Back Against Rialto Capital in High-Stakes Loan Servicing Battles

Edited by: TJVNews.com

In a remarkable turn of events that highlights the mounting tensions between distressed borrowers and a powerful new loan servicer, Joseph Cayre’s Midtown Equities has reached a rapid-fire settlement with Rialto Capital Advisors—just ten days after filing a class action lawsuit. As reported by The Real Deal, this legal confrontation, now resolved, sheds critical light on what many see as an increasingly aggressive loan servicing regime following the collapse of Signature Bank.

At the heart of the dispute was a $45 million loan secured by 205 Montague Street, an office property in Brooklyn Heights slated for residential redevelopment by developer Jonathan Landau. According to the report in The Real Deal, the newly brokered agreement now gives Midtown Equities until August to pay off the loan—an outcome that mirrors the original terms under Signature Bank, which had included a one-year extension option beyond the initial August 2024 maturity date.

But getting to this outcome wasn’t easy.

Midtown alleged in court filings that after Rialto Capital took over the servicing of Signature’s massive $17 billion loan portfolio, the firm not only ignored repeated calls and emails but outright refused to honor the extension clause that was critical to finalizing the deal with Landau. The refusal, Midtown claimed, jeopardized the entire redevelopment plan, prompting the company to seek legal relief.

While Rialto declined to comment for The Real Deal’s report, the settlement itself speaks volumes. The deal not only reinstates the original loan terms but could also set a powerful precedent for other Signature borrowers navigating similar roadblocks under Rialto’s stewardship.

“This swift settlement is a decisive victory for our client – our results speak for themselves,” said attorney Terrence Oved, who represented Midtown alongside his brother Darren Oved, in a statement to The Real Deal. The legal duo from Oved & Oved LLP has made a name for themselves in high-stakes lending battles—most notably defeating Maverick Real Estate Partners when that firm tried to foreclose on a rent-stabilized property owned by a Holocaust survivor.

For many Signature borrowers, this case offers a glimmer of hope. As The Real Deal has reported, multiple landlords and property owners have alleged similar treatment by Rialto since it assumed servicing duties. Sources and court records suggest that Rialto’s practices have raised alarms across the commercial real estate sector, where fears of “manufactured defaults” and delayed responses have left many borrowers in a precarious position.

Importantly, this is not the first time Rialto has yielded swiftly under legal pressure. As The Real Deal previously reported, a Staten Island shopping center owner successfully sued Rialto last year, accusing the servicer of a “possibly illegal attempt” to create a default situation. The borrower in that case also claimed Rialto ignored a loan extension clause—eerily similar to the Midtown case. That lawsuit, too, was settled within just 15 days.

Such swift settlements may reflect more than just strong legal arguments—they may point to Rialto’s desire to sidestep reputational damage, especially given that the servicer’s role in the Signature loan portfolio remains under the public eye through the continued involvement of the Federal Deposit Insurance Corporation (FDIC). As The Real Deal notes, maintaining a clean public image could be critical for a firm operating within the broader framework of a federal oversight venture.

Borrowers and industry watchers alike are now left asking: Is this the beginning of a broader pushback against what many see as heavy-handed tactics by Rialto? Or are these isolated incidents merely being addressed to contain headline risk?

Either way, these recent developments—first in Staten Island and now in Brooklyn Heights—may embolden other Signature borrowers to challenge what they view as unjust treatment. With courts proving to be a viable pressure point, the balance of power may be shifting ever so slightly from servicers back to borrowers.

One thing is clear: for the Davids in this equation, the fight against the Goliath of loan servicing may just be getting started