CMBS trustee wins foreclosure but court guts its attorneys’ fee demand
For nearly six years, the borrower paid every dollar owed – $39,079.69 a month, split between $18,779.30 in principal and interest and $20,300.39 in reserves for taxes, insurance, and maintenance.
Trouble started in 2019 when the borrower sought routine reserve disbursements. Even though the loan was current, LNR became the contact entity and, according to the borrower, was “dilatory and obstructionist” with every request – forcing it to cover expenses despite ample reserves. By May 2020, the borrower withheld reserve payments. The servicer spread the reduced remittances across all categories, triggering a default. Foreclosure followed.
The trial court granted foreclosure and entitlement to rents. That was never challenged. The trustee’s appeal targeted the damages award.
On interest, Wilmington Trust wanted both note rate ($120,882.59) and default rate ($583,938.25). The default rate was already five points above the note rate. The trial court found awarding both duplicative, and the appellate panel agreed.
On fees, the trustee’s witness testified LNR was paying $650 to $800 an hour for partners and $350 to $575 for associates – with no invoices breaking down individual rates. The borrower’s expert put reasonable rates in Western New York at $350 to $450 an hour. The trial court awarded $250,000, calling the rates “unreasonable” and many charges “duplicative and exaggerated.” It warned the trustee had come “perilously close” to having the entire judgment vacated over its “exorbitant” fee request.
