Rates the servicer paid its lawyers did not match what the market charges
A commercial mortgage-backed security (CMBS) trustee won foreclosure on a $3.6 million commercial loan - then watched a New York court gut its fee request.
The Appellate Division’s Fourth Department unanimously affirmed a ruling that cut the trustee’s attorneys’ fee demand from approximately $588,000 to $250,000 - and denied its bid to stack two layers of interest on the defaulted mortgage. The decision in Wilmington Trust, N.A. v Stradtman Park, LLC was entered October 9.
KeyBank National Association originated the loan in July 2014 on a commercial property valued at approximately $7 million, then assigned it to Wilmington Trust, which placed it into CMBS trust JPMBB 2014-C24. Under the pooling and servicing agreement, LNR Partners, LLC served as special servicer if the loan became distressed.
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.
The appellate court upheld the figure. Even contractually permitted fees must be reasonable and warranted for services actually rendered.
For commercial mortgage servicers and their outside counsel, the practical point: a court is not bound by whatever fee schedule a servicer agrees to pay its lawyers, particularly when local market rates run well below it.
