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| Wachovia Bank, N.A., is accused in a North Carolina lawsuit of reneging on an agreement to maintain a fixed rate on a commercial mortgage. A judge has halted the bank’s foreclosure on the loan until the lawsuit is decided.Granite Development, LLC, reported Thursday that it obtained a preliminary injunction from Guilford County Superior Court Judge Richard W. Stone in North Carolina against Wachovia — which declined to comment.
The order prevents the Charlotte, N.C.-based bank from foreclosing on a Greensboro, N.C., shopping center owned by a Granite affiliate until a lawsuit filed in February by Granite against Wachovia is decided, the statement said. Wachovia is also prohibited from attempting to collect rents from the shopping center’s tenants. The judge reportedly found “serious issues” with Wachovia’s right to pursue foreclosure, which would cause irreparable harm if the foreclosure completed. Granite claims that it had executed a swap agreement that transferred interest-rate risk on the shopping center loan to Wachovia. The deal was supposed to fix Granite’s rate at 5.82 percent. However, Wachovia reportedly required Granite principals to sign a last-minute broad waiver of claims against Wachovia and all subsidiaries dating “from the beginning of the world.” As financial markets were in turmoil, the bank “wrongfully terminated” the derivative interest rate swap agreement and demanded a $5.5 million termination fee. Wachovia’s strategy would effectively push the interest rate to 10.9 percent. Granite said the bank’s actions threatened to derail two projects opened in 2007. So it filed a lawsuit last month — hoping to force the rescission or modification of the swap agreement, according to its announcement. It is also asking that the termination fee be declared unenforceable. Among the plaintiffs were principals in Granite/Horse Pen Creek LLC. “Wachovia has engaged in extortion, fraud, and unfair and deceptive practices,” the Greensboro-based plaintiff said. “Wachovia’s actions were motivated by the bank’s financial distress and not by the financial condition of Granite, which has never failed to make a payment on any project during a 21-year relationship with Wachovia.” Granite said that testimony from Alexander T. Arapoglou — a risk-management expert and finance professor at the University of North Carolina’s Kenan-Flagler Business School in Chapel Hill — proved that the swap agreements were the wrong vehicle to hedge interest rate risk. Arapoglou reportedly testified that the termination fee would be “an unconscionable windfall” for Wachovia. “If the termination fee is calculated as provided in Wachovia’s sales presentation and consistent with the purpose of the swap agreement, the bank would owe Granite a termination fee of about $2 million,” Arapoglou reportedly testified. |
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