One blaze ignited a two-year battle over rebuilding and default claims
When a fire destroys part of your collateral, who decides what happens next? That question is now before a federal court in Texas.
Fannie Mae has taken legal action against the owners of a Texas apartment complex after a fire set off a chain of events that led to foreclosure attempts, courtroom battles, and ultimately, a negotiated resolution. The case, filed on January 26, 2026, in the United States District Court for the Southern District of Texas, offers a window into the complications that can arise when disaster strikes a mortgaged property.
At the center of the dispute is the Del Sol Apartments, a multifamily property in Texas City, Texas, secured by an $11,534,000 loan. The borrowers, Capstone Del Sol LLC, Capstone Del Sol II LLC, and Del Sol MF VII, LLC, took out the loan in July 2023 through Arbor Commercial Funding 1, LLC. Fannie Mae later became the assignee of the loan documents.
Things took a turn on February 21, 2024, when a fire tore through the property and destroyed one of the residential buildings known as Building 7. What followed was a disagreement over two key issues: how to rebuild the damaged property and whether certain loan payments were being met. Fannie Mae claimed the borrowers were in default. The borrowers disagreed.
By March 2025, Fannie Mae moved to foreclose, scheduling a sale for May 6, 2025. But the borrowers pushed back. Days before the scheduled sale, Del Sol and two of its members, Shlomo Sorotzkin and Elliot Menchel, filed for emergency relief in a Galveston County state court. They won a temporary restraining order that halted the foreclosure. By September 2025, that order had been converted into a temporary injunction, effectively freezing Fannie Mae's efforts while the case played out.
The standoff did not last. In December 2025, the parties reached a settlement. On January 9, 2026, they jointly asked the state court to dismiss the case and dissolve all injunctions. The borrowers have since agreed to the appointment of a receiver to manage the property and facilitate its transition to Fannie Mae.
The federal case now seeks court approval for that receiver. According to the loan documents, the borrowers had already consented to such an arrangement in the event of default, including on an ex parte basis.
For mortgage professionals, the case underscores a familiar risk in multifamily lending. When unexpected property damage disrupts cash flow or raises questions about rebuilding obligations, even well-documented loans can become contested. The path from fire damage to foreclosure fight to settlement took nearly two years and required both state and federal court involvement.
No final determination has been made in the case. The matter remains pending.
