Wachovia prevented from fraudulent actions against a property company

On Thursday a judge in Guilford County, N.C. ruled that Wachovia Bank, N.A., should be prohibited from foreclosing on a Greensboro shopping center owned by an affiliate of Granite Development, LLC. Last month Granite filed a lawsuit against the bank to dispute Wachovia’s claims to a $5.48 million fee the property company allegedly owed it as a result of swap agreement termination.

Superior Court Judge Richard W. Stone blocked Wachovia from foreclosing on property developed by the Granite affiliate until a trial on claims that Wachovia wrongfully terminated a derivative interest rate "swap" agreement, over Granite's objection, which was designed to provide a fixed interest rate for permanent financing.

While the purpose of the swap agreement between the bank and the property agency was to protect Granite against an increase in a permanent interest rate above 5.82% Wachovia's termination fee would impose a 10.9% effective interest rate on the company which would be nearly double the rate promised in the swap agreement. Under the swap agreement, Wachovia was to bear the risk of increased interest rates, not Granite.

"Far from protecting (the Granite affiliate) from the risk of rising permanent mortgage interest rates, the swap agreement has compounded (the Granite affiliate's) risk," states the amended complaint. "Not only must (the Granite affiliate) now pay higher market rates than the fixed rate specified in the swap agreement, but Wachovia actually contends that (the Granite affiliate) owes Wachovia money on the termination of the swap agreement, rather than other way around."

"What should have been a vaccination has now turned out be a double injection with the very disease against which we sought protection," said Monty K. Venable, a principal in Granite Development.