Suruga Bank: Investment Property Loans Stuck in Quagmire
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Negotiations over the Suruga Bank's (located in Numazu City, Shizuoka Prefecture) illicit lending issue involving used apartments and condominiums have been prolonged. Two full years have passed since the application for mediation, yet there is no sign of resolution. The main point of contention lies in whether to assess individual responsibility on the part of the bank or to attribute the issue to systemic problems.
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Individual or organizational? The issues remain unresolved.
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With a debt balance exceeding 100 billion yen
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-negotiations between Suruga Bank and the victim support group remain deadlocked over fraudulent loans for used apartments and condominiums.
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The parties are at odds over whether to treat the fraudulent loans as individual cases or hold the bank accountable for systemic issues.
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According to Suruga Bank, out of a total of 37,907 loans granted for investment properties, approximately 20% or around 7,500 properties have been found to involve falsification or forgery of screening documents.
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As a result of these irregularities, owners are seeking compensation from Suruga Bank for what is known as "overpricing," where prices were artificially inflated beyond market value. A total of 864 properties are involved in organized negotiations, representing approximately 480 owners. The outstanding debt exceeds 100 billion yen.
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Out of 24 cases, only 2 have been certified.
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On November 22, 2023, Suruga Bank announced its latest response and approach regarding loans for investment properties other than share houses. They disclosed a framework for early resolution, which involves selecting properties eligible for compensation and providing a three-stage criteria for determining the amount of compensation to be paid to the owners.
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In the first stage, the presence of damage is determined, examining whether there was a case of overpricing. Specifically, this is indicated by tampering with the rent roll. In the second stage, it is confirmed whether Suruga Bank employees were involved in tampering with the rent roll. In the third stage, the resolution amount to be paid by Suruga Bank is determined based on the amount of damage and the degree of responsibility.
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The protocol is to calculate the resolution amount in the third stage for properties that qualify in the first and second stages.
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Experimentally applying this framework to the 24 properties owned by members of the Suruga Bank Fraudulent Lending Victims Alliance, it was found that only a small fraction of properties were identified as eligible for resolution payments: 8 properties in the first stage and 2 properties in the second stage.
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Regarding this, Daigo Matsumoto, Head of the Comprehensive Planning Division at Suruga Bank, stated, "Unlike new construction share houses, used apartments and condominiums have strong individual characteristics for each case. There are variations in the degree of overpricing and employee involvement, so a blanket resolution is not feasible." This reaffirms the notion that individual responses are necessary.
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Objection to the Framework
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The Suruga Bank Victims Alliance (SI) and the Suruga Bank Victims Defense Team, comprising about 430 members, along with the Smart Days (SS) Victims Alliance and the SS Victims Defense Team, are raising objections to the resolution conditions proposed by Suruga Bank. Representing these groups in collective negotiations involving 54 owners is Attorney Kaku Adachi from the Murata & Wakatsuki Hotsu Law Office in Chiyoda-ku, Tokyo, and Attorney Satoru Ikeda from KOWA Law Office in Chuo-ku, Tokyo. They are unanimous in stating that the "Early Resolution Framework" is merely advantageous for Suruga Bank and does not cater to the needs of the victims.
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The common assertion among them is that the focus should not be on the individual involvement of Suruga Bank employees but rather on the systemic issue of Suruga Bank's organizational misconduct. The representative of the SI Victims Alliance stated, "Suruga Bank refuses to acknowledge its wrongdoing to the victims and shifts the responsibility to real estate operators. We want them to address the victims' concerns properly."
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Jun Igarashi, an attorney at the Tokyo Joint Law Office in Shinjuku-ku, who serves as the secretary-general of the SI Victims Defense Team, remarked, "All the cases handled by our defense team involve overpricing. Suruga Bank's wrongdoing extends beyond tampering with the rent roll. They should present a resolution that can provide relief to a larger number of victims."
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Confession of Tampering by Employees
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Attorney Adachi, who is conducting collective negotiations separately from the SI Victims Defense Team and the SS Victims Defense Team, states, "Suruga Bank has publicly disclosed evidence of systematic fraudulent lending in lawsuits against former executives. The former head of Suruga Bank's Examination Department (Second Department) testified in court about falsifying rent rolls." He is prepared to file a lawsuit if mediation fails.
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Attorney Adachi explains that Suruga Bank had coordinated with a third party for real estate appraisals during the loan process. There are suspicions that Suruga Bank inflated property valuation by assessing properties based on full occupancy without supporting evidence or by inflating property valuations with unreasonably high returns.
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"We want to reach a settlement where owners don't suffer losses, such as through payments in kind similar to share houses or significant reductions in principal. At this point, we are aiming to conclude mediation by the end of the year," says Attorney Adachi.
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Written by Tsuyoshi Hikichi
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