California Landlord Fraud Fuels Regional Bank Losses

A Real Estate Collapse With Banking Fallout

The collapse of a California-based real estate firm is now reverberating through the regional banking sector, per Bisnow.

Last week, shares of several regional lenders dropped sharply before rebounding. The sell-off followed disclosures from Zions Bank and Western Alliance about rising loan losses tied to the defunct landlord group MOM CA Investco LLC.

Zions Bank issued a $60M loan backed by 16 properties. Six appeared in the firm’s February bankruptcy filing. Western Alliance claims the borrower misled the bank into lending on properties already facing foreclosure—charges the investors deny.

Who’s Involved?

California lawsuits name landlords Gerald Marcil, Andrew Stupin, and Deba Shyam as central figures in the firm’s operations. The suits allege the group hid critical information from lenders, leaving them exposed during bankruptcy.

Western Alliance says the investors owe nearly $100M and accuses them of loan fraud. Zions Bank, through subsidiary California Bank & Trust, discovered that its collateral carried prior liens, pushing it further back in repayment order.

A Troubled Partnership

MOM CA Investco, founded in 2021 by Mohammad Honarkar and Mahender Makhijani, aimed to acquire and reposition distressed properties. But internal conflicts derailed the partnership, culminating in fraud accusations, physical takeovers of properties with armed guards, and mobile billboards alleging corruption in Laguna Beach.

The bankruptcy case was dismissed in August after the investor group failed to agree on a restructuring plan. That left creditors—including the regional banks—to pursue asset seizures through litigation.

Broader Implications

The situation is another flashpoint in growing concerns around regional bank exposure to risky commercial real estate. JPMorgan Chase CEO Jamie Dimon echoed market fears during a recent earnings call, warning: “When you see one cockroach, there are probably more.”

As scrutiny of commercial real estate debt deepens, especially among mid-sized lenders, the MOM CA Investco fallout could be an early warning sign of broader distress in the sector.

What’s Next

With the bankruptcy case dismissed, creditors are actively seeking to recover funds through asset seizures and lawsuits. The legal outcomes of the Zions and Western Alliance suits could set the tone for how aggressively banks pursue remedies for real estate-related loan losses.

For now, expect continued pressure on regional lenders as market confidence wavers in the face of potential loan fraud and commercial real estate headwinds.