Bank's words during mediation came back to haunt it – with $6m deposits on the line
A New York court just put a spotlight on what can go wrong when banks sell loans while litigation is still playing out with borrowers.
Valley National Bank learned this lesson the hard way on December 9, 2025, when the Appellate Division weighed in on a messy dispute over a bundle of mortgages tied to a Manhattan property.
Here's what happened. Valley National was in the middle of suing borrowers over loans secured by 161 Maiden Lane when URP Maiden Lane LLC showed up to buy those same loans. The two sides signed a loan purchase and sale agreement with a pretty standard requirement: Valley National had to keep pushing the lawsuits forward with reasonable effort while the deal closed.
But during a mediation session with the borrowers, things went sideways. URP Maiden Lane says Valley National essentially threw them under the bus. The bank allegedly told the borrowers that the new buyer was eager to settle fast and would accept bad terms. Valley National also apparently got creative about who the buyer actually was, suggesting there was more money on the table than reality would support.
You can imagine how well that went over. URP Maiden Lane had already put down $6 million in non-refundable deposits to extend the closing. Now they were watching their future bargaining position crumble in real time.
So URP Maiden Lane sued, claiming Valley National broke the deal and violated the basic promise that parties won't sabotage each other. They also asked the court to freeze things with a preliminary injunction. Valley National pushed back, trying to get the whole case tossed.
The trial court sided with the buyer. Valley National appealed.
The appellate panel mostly agreed with the lower court. Writing for a five-judge panel, the court said URP Maiden Lane made a solid case that Valley National breached the contract. Telling borrowers the buyer would roll over in settlement talks while misrepresenting who that buyer even was crossed the line.
The court also let stand a separate claim about the implied duty of fair dealing. Even though there was a written contract, the judges said Valley National still had an obligation not to undermine what URP Maiden Lane reasonably expected from the deal. That included getting accurate information and not having the seller kneecap their negotiating leverage.
Valley National did score one win. The court tossed a claim for unjust enrichment, saying you can't argue someone was unjustly enriched when there's a contract that covers exactly what happened. Those $6 million deposits were spelled out in the agreement as non-refundable, so there was no separate unjust enrichment claim to pursue.
On the preliminary injunction, the appellate court agreed it made sense to grant one but said the trial court should have required URP Maiden Lane to post a bond. The case went back down for that piece.
For anyone in the secondary market or handling loan sales with active litigation attached, the takeaway is straightforward. What you say and do during mediation or settlement talks matters, especially when you're about to hand off those loans to someone else. Misrepresenting the buyer or their intentions can come back to haunt you.
