On February 24, 2022, the Georgia State-wide Business Court issued an order granting in part and denying in part a multifamily real estate lender’s motion for summary judgment on borrowers’ claims arising from fees that the lender earned in selling mortgage-backed securities related to the borrowers’ loans. The borrowers, entities owning Georgia apartment complexes, alleged that Red Mortgage Capital, LLC (and its affiliates) had breached its contractual obligation to offer them loans at the “best” interest rates available and had fraudulently misrepresented the rates because, the borrowers claimed, Red Mortgage had built into the rates a premium that it could collect post-closing from investors buying the mortgage-backed securities related to the loans.

The court granted summary judgment to Red Mortgage on most of the claims, finding that Red Mortgage had no contractual obligation to procure or offer “best” rates and that it had no legal duty to disclose the trade premium that it expected to earn from the post-closing securitization transactions. The court held, among other things, that the loan documents’ merger clauses precluded any argument based on alleged promises or representations not contained in the documents and that the Georgia statute of frauds further precluded claims based on oral promises or representations. The court also granted summary judgment on state RICO claims as they were predicated on the same insufficient theories of liability. The court allowed a narrow set of claims, related to payments to a third-party consultant, to proceed on the basis of a fact dispute over that consultant’s status and whether its fees (which ultimately included a portion of the sale premium) were adequately disclosed under the loan documents.

The case is Overlook Gardens Properties, LLC v. ORIX USA, L.P., No. 20-GSBC-2 (Ga. State-wide Bus. Ct. Feb. 24, 2022). The borrower-plaintiffs are represented by Charles A. Gower, P.C. and Waldrep, Mullin & Callahan, LLC. Red Mortgage and its affiliates are represented by King & Spalding LLP. The order is available here.