Sharestates Wins Landmark Decision Enforcing Mortgage Integrity
Sharestates, an originator and servicer in the private lending and loan syndication industry, announced a landmark legal victory in a case at the heart of mortgage enforcement and lending industry business practices. The case is considered a landmark victory with wider industry implications because the court’s ruling underscores the principle that if a party takes out a mortgage and receives its benefits, the mortgage will be deemed valid, and parties who accept the benefits of a transaction cannot later contest its validity to gain an unfair advantage.
The plaintiffs, Cassaforte and FRF 348 Quincy, began the case in October 2019 and asserted that the defendants Sharestates, Amtrust, Atlantis, Pourtavoosi had breached contractual and fiduciary duties by refinancing three Brooklyn properties without authorization, resulting in debt incurred on behalf of the plaintiff without their consent. They sought to void the mortgages held and serviced by Sharestates and Toorak.
The court ruled in favor of Sharestates based on two important legal principles:
- Equitable Estoppel: The plaintiffs, having accepted the benefits of the mortgage loans, were estopped from contesting their validity and, therefore, cannot seek to avoid their obligations under the loans after having received and retained the loan proceeds. The principle precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by a previous pertinent judicial determination.
- Unclean Hands Doctrine: The plaintiffs’ attempt to disavow the mortgage loans was countered by the doctrine of unclean hands, which bars relief for those who have participated in wrongful conduct.
Sharestates’ defense of equitable estoppel was based on documentary evidence showing that the plaintiffs received the loan proceeds and that their representative, Aaron Johnson, had the authority to enter into the loan agreements. The court ruled that since the plaintiffs received the loan benefits and did not offer to return any part of the proceeds, they were estopped from contesting the validity of the mortgages.
The plaintiff attempted to have the case heard by the Supreme Court, Appellate Division, but that motion was denied, concluding the case in favor of Sharestates in March 2024.
Colin Kaufman and Courtney Lerias of Adam Lietman Bailey led the legal defense in this precedent-setting case.
Sharestates has also recently had some other notable successes with precedent-setting cases. To subverge appraisal fraud and appraisal negligence, Sharestates brought several suits against inflated or negligent appraisals and had favorable outcomes with value being returned to investors. To remedy inequities in the business purpose lending space and bolster the enforcement of its mortgages, Sharestates has made compelling arguments about mortgage validity in unique situations. In another recent case, the Housing Trust Fund Corporation (HTFC) attempted to void a Sharestates mortgage due to reversionary rights it had in the historical chain of title. The Judge ruled that indemnification language in the reversionary clause evidenced the HTFC clearly contemplated that the properties would be mortgaged and such mortgages should remain on the properties after “automatic reversion”, ultimately enforcing the Sharestates mortgage.
Sharestates General Counsel Amy Doshi stated, “These victories underscore Sharestates’ commitment to upholding the legal integrity of its paper, reducing exposure to fraud, and protecting the interests of its investors. Additionally, in the commercial business purpose space that is not heavily regulated, we are committed to enhancing our underwriting and originating standards to move and grow with the ever-evolving industry norms. We have been spending a considerable amount of time and effort on exploring and implementing smarter and more efficient tools to enhance our credit quality and originations to result in consistent returns and lower-risk investments.”
“During the recent market slowdown, Sharestates capitalized on the opportunity to bolster its operations infrastructure and talent pool, dedicating resources to enhance its underwriting and servicing standards by integrating advanced technologies into its operations,” added Richard Wisniewski, Chief Investment Officer. Specifically, Sharestates has integrated new robust risk management protocols with the inclusion of Lexis Nexis Smartlinx reports, Fraud Guard reports, and Prudent AI for bank fraud detection, among others. Sharestates also completed onboarding to the MERS settlement system. This move not only streamlines processes but also enhances transparency and efficiency in loan servicing operations. Additionally, implementing enhanced loan recovery methods on defaulted loans, such as credit reporting of defaults and foreclosures to personal guarantors’ credit, alongside traditional foreclosure and workout options, underscores Sharestates’ dedication to maximizing investor returns while mitigating risks. Tina DelDonna, Chief Financial officer, emphasized that “This strategic re-focusing has positioned the firm for accelerated growth as interest rates stabilize.”
About Sharestates
Sharestates is a national private lender focused on non-owner-occupied residential and commercial properties. The company creates customized lending solutions for real estate developers and has successfully funded over $3.5 billion in projects nationwide. Since its founding in 2013, Sharestates has been an important source of private capital to real estate investors nationwide seeking short-term bridge financing for rehabilitation projects and long-term DSCR loans for rental properties.
Sharestates funds loans from $100,000 to $10,000,000 on residential (SFR 1-4), multifamily, mixed-use, and commercial properties. Its loan programs include residential bridge, fix & flip, new construction, portfolio, and rental loans. As a partner to its developers, Sharestates manages the servicing of loans it originates through successful repayment to ensure the needs of its developers are met throughout the loan lifecycle.
Sharestates’ technology platform allows the Company to more efficiently source and qualify investment opportunities on real estate projects nationwide and create investment products that are resold to institutional and accredited retail investors. Sharestates’ end-to-end approach to technology and vertical integration allows the Company to capture higher margins and leverage its expertise.
Sharestates was founded by real estate veterans and its success is attributed to a strong leadership team, an easy-to-use platform, sensible underwriting practices, and a relationship-focused lending strategy. Sharestates partners with direct borrowers and brokers.
To learn more visit www.sharestates.com.
