news-record.com

A judge has blocked what a developer says is Wachovia Bank's desperate attempt to recover a loan by foreclosing on a financially stable shopping center in Greensboro.

The preliminary injunction was entered Thursday by Guilford County Superior Court Judge Richard W. Stone. It blocks Wachovia from foreclosing on Granite Development's shopping center The Shoppes at Battleground Oakes, charging a $5.48 million termination fee and collecting rent from Granite's tenants at the center, which include a Harris Teeter supermarket.

The lawsuit, filed by Granite Development affiliates last month and recently amended, asserts Wachovia has engaged in extortion, fraud and unfair and deceptive practices. It asks that a credit swap agreement be rescinded or modified and the “contrived and unwarranted” termination fee demanded by Wachovia be declared an unenforceable penalty.

Stone found that there are “serious issues” regarding Wachovia’s right to pursue foreclosure, according to a Granite news release, and that the Granite affiliate owning the center would suffer irreparable harm if the foreclosure were not prohibited.

The purpose of the swap agreement was to protect Granite against an increase in a permanent interest rate above 5.82 percent. Turmoil in the financial markets has caused the swap to work in exactly the opposite manner as intended by Wachovia and Granite. Wachovia’s termination fee would saddle Granite with a 10.9 percent effective interest rate, which would be nearly double the rate promised in the swap agreement, according to the news release. Under the swap agreement, Wachovia was to bear the risk of increased interest rates, not Granite.

A risk-management expert and finance professor at the University of North Carolina’s Kenan-Flagler Business School in Chapel Hill, Alexander T. Arapoglou, has presented testimony that the swap agreement proposed by Wachovia was “never an appropriate vehicle” to hedge against possible higher interest rates for permanent financing. Professor Arapoglou further testified that the claimed termination fee would be “an unconscionable windfall” for Wachovia.