After Merchants Bank made loans to a group of troubled investors, the scope of its losses is coming into view, as companies tied to one of their borrowers, imprisoned investor Moshe Silber, go through bankruptcy.
The Carmel, Indiana-based regional bank, which became a go-to lender for multifamily landlords across the U.S., announced last quarter that some of its borrowers were under investigation for mortgage fraud, leading to $46.1 million in write-downs.
New court filings reveal the bank’s exposure to Moshe Silber, who was sentenced to 30 months in prison. In Silber and his co-conspirators scheme, they allegedly used a stolen identity to obtain an inflated $74 million loan on a Cincinnati apartment complex.
The investigation into Silber was part of a broader effort by the Department of Justice and the Federal Home Finance Agency to weed out commercial mortgage fraud.
Merchants Bank provided loans to at least seven of Silber’s multifamily properties. Merchants claims it is owed over $61 million on the loans backed by properties in Flint, Michigan; Danville, Virginia; and Pittsburgh, Pennsylvania.
Merchants claims in court filings the Silber-linked entities abandoned the properties in 2024, leading the bank to cover the operating shortfalls at the properties. Merchants then appointed receivers who put the properties up for sale. The properties have either received letters of intent from buyers or are under contract to be sold.
The proposed sale prices suggest Merchants will take large losses.
Notably, Merchants claims it has a binding letter of intent to sell the 365-unit Midway Townhomes in Flint, Michigan, for just $1.5 million, according to court filings. It’s unclear how much Silber paid for the property, but in 2023, Merchants provided a $21.6 million loan on it, and the new sale price would mark a 93 percent decrease from the loan.
Other Silber-linked properties had higher offers, but they were still below the underlying loans on the property. The Woodside Village in Dannville, Virginia, which was recently hit by 17 building code violations by the city, had a sale in place for $10 million, according to Merchants’ court filings. Merchants initially provided $10.5 million in loans on the multifamily property.
But final prices could be even lower.
Because of the bankruptcy, Merchants alleges a buyer could swoop in with debtor-in-possession financing and a stalking horse bid and pay even less. Merchants alleges the debtor’s proposed use of $22 million in DIP financing, or a loan to sustain operations during the bankruptcy process, is giving the DIP lender an unfair advantage. The DIP financing will be provided by an affiliate of entrepreneur Daryl Hagler, who Merchants claims will have credit-bid rights. In other words, the DIP lender could buy the properties using its existing debt for less than what Merchants would obtain in its ongoing sales process of the properties.
It is clear that Merchants is expecting to take a hit on the Silber portfolio. But it is unclear how those losses will appear on its balance sheet.
At least some of Silber’s loans appear to be securitized as part of a larger private securitization, according to Merchants’ legal filings. Merchants has completed billions of dollars of private securitizations. The bank claims these vehicles minimize its risk by offloading loans to outside investors and allowing the bank to lend more. Usually, however, a bank has to assume the loan if a borrower commits fraud.
Merchants’ latest court filings are part of a larger bankruptcy related to Silber’s former companies CBRM and Crown Capital. After Silber pleaded guilty to one count of conspiracy to commit wire fraud affecting a financial institution, a fiduciary was appointed to oversee his multifamily portfolio. San Antonio-based Lynd Group was tapped to manage the properties.
The fiduciary put CBRM and Crown Capital into bankruptcy in May after a creditor sought to sell CBRM, a company controlling over 6,000 multifamily units, at an auction in Rockland County.
That’s when the troubled financial picture of Silber’s portfolio emerged. An attorney for CBRM claimed Silber could have extracted hundreds of millions from his properties for his own benefit, since the company Crown Capital had secured $200 million in bond financing in addition to $450 million in property-level mortgages. Many of Silber’s properties were in disrepair at the time of the bankruptcy.
Earlier this month, the fiduciary, Elizabeth LaPuma, put additional 42 companies tied to 19 properties owned by Silber into bankruptcy.
Merchants, which is the senior lender on seven of the 19 properties, pushed back on the bankruptcy.
A spokesperson for Merchants declined to comment.
Read more
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The Indiana bank that lent to a Who’s Who of mortgage fraud players
