Kennedy Funding Lawsuit: A Comprehensive Analysis of Allegations

businessfield October 3, 2025 2:41 am

Kennedy Funding Lawsuit

Kennedy Funding, Inc., a prominent New Jersey-based direct private lender specializing in hard money commercial loans, has found itself embroiled in significant legal controversies. Multiple lawsuits allege serious misconduct, including fraudulent lending practices, breach of contract, and deceptive business operations. This comprehensive analysis examines the key lawsuits, court documents, legal arguments, and potential implications for the commercial lending industry and borrowers.

Overview of Kennedy Funding, Inc.

Founded in 1987 and headquartered in Englewood Cliffs, New Jersey, Kennedy Funding has positioned itself as a direct private lender providing quick-close commercial real estate loans, often categorized as “hard money” or bridge loans. The company advertises loans from $1 million to $100 million for land acquisition, development, workouts, foreclosures, and bankruptcies. Their value proposition centers on speed and flexibility, often lending where traditional banks will not.

Key Business Model Characteristics:

Loan-to-Value (LTV): Typically up to 65-70%
Terms: Short-term (6 months to 3 years)
Interest Rates: Reportedly in the 12-18% range, plus significant points and fees
Target Borrowers: Developers, investors in distressed properties, or those with complex financing needs

2. Major Lawsuit 1: Fraud & Breach of Contract

Plaintiff’s Allegations (Summarized from Complaint):

A development company, Mountainview Development, alleges that after paying a $250,000 non-refundable “due diligence deposit,” Kennedy Funding engaged in a “bait-and-switch” scheme. The initial loan commitment letter outlined specific terms, but as the closing date neared, Kennedy allegedly imposed new, onerous conditions not in the original agreement, effectively making the loan untenable. When Mountainview balked, Kennedy refused to refund the deposit, claiming it covered “work performed.”

Cited Evidence from Filed Complaint:

Exhibit A: Initial Commitment Letter outlining interest rate of 12%, 3 points, and a $2M loan.
Exhibit B: Email chain showing last-minute demands for additional personal guarantees and a 25% reduction in the approved LTV.
Exhibit C: Wire transfer receipt for the $250,000 deposit.
Causes of Action Filed: Fraudulent Inducement, Breach of Contract, Unjust Enrichment, and violations of the New Jersey Consumer Fraud Act.

3. Major Lawsuit 2: Class Action for Deceptive Practices

Class Action Overview:

This consolidated multi-district litigation (MDL) combines claims from over a dozen borrowers across six states. The core allegation is a systematic pattern of collecting substantial non-refundable upfront fees (often termed “due diligence deposits,” “commitment fees,” or “processing fees”) with no intention of closing the loans on the agreed terms.

Pattern Alleged in Master Complaint:

Aggressive marketing promising “guaranteed funding.”
Execution of a brief loan application and term sheet.
Demand for an upfront fee ($50,000 – $500,000+), contractually designated as non-refundable.
Prolonged “due diligence” period with repeated document requests.
Introduction of new, deal-killing conditions close to the proposed closing date (e.g., demand for additional collateral, reduced loan amount, increased interest).
Borrower withdrawal and forfeiture of the fee, or acceptance of drastically worse terms.

4. Analysis of Key Allegations & Court Filings

“Moving the Goalposts”: A near-universal claim of last-minute term changes.
Opacity of Fees: Allegations that the “work” performed during due diligence is minimal and does not justify the fee’s size.
Targeting Distressed Borrowers: Claims that the model preys on borrowers with urgent timelines and fewer options.

Legal Theories Being Tested:

Covenant of Good Faith and Fair Dealing: Even if the fee is “non-refundable,” plaintiffs argue Kennedy breached the implied covenant by not acting in good faith to close the loan as committed.
Unconscionability: Argues that the fee structure and contract terms are so one-sided as to be unenforceable.
Pattern of Racketeering (RICO): Some complaints, though a high bar, attempt to frame the practice as a pattern of racketeering activity.

5. Kennedy Funding’s Defense & Counterclaims

In its Motion to Dismiss (filed in the MDL), Kennedy Funding asserts:

Contractual Freedom: The fees and their non-refundable nature are clearly outlined in signed, written agreements by sophisticated commercial entities.
Risk-Based Model: The fees compensate for the risk and expense of underwriting complex, non-bankable deals that may not close.
Borrower Withdrawal: In many cases, loans fail due to the borrower’s inability to meet valid, disclosed underwriting standards or because they find better terms elsewhere.
Counterclaims: In individual suits, Kennedy has filed counterclaims for defamation and tortious interference, alleging borrowers are attempting to extort settlements by damaging their business reputation.

6. Implications for Commercial Real Estate Borrowers

Due Diligence on Lenders: Borrowers must conduct thorough background checks on private lenders, including litigation history.
Fee Scrutiny: Any upfront fee must be examined critically. Negotiate for:
- A clear, itemized scope of work the fee covers.
- A partial refund structure if the lender changes key terms.
- A cap on the fee as a percentage of the proposed loan.
Legal Counsel: Never sign a commercial loan commitment without review by an experienced real estate attorney.
Document Everything: Maintain all communications (email preferred) to establish a clear record of terms and changes.

7. Regulatory & Industry Context

While hard money lending is legal and serves a market need, it is less regulated than traditional banking. State usury laws and consumer protection statutes (which may not apply to all commercial entities) are primary tools. The Consumer Financial Protection Bureau (CFPB) has increased scrutiny of “junk fees” in lending, but its jurisdiction over commercial loans is limited. These lawsuits may prompt state Attorneys General to investigate or lead to calls for more regulation of commercial bridge lending.

8. Current Status & Potential Outcomes

Status (as of Q4 2024): The MDL is in the discovery phase, with both sides exchanging documents and depositions. The Mountainview case is proceeding toward a trial date.
Potential Outcomes:
1. Settlement: Most likely outcome. A large settlement could include restitution for some borrowers and changes to Kennedy’s fee practices.
2. Judgment for Plaintiffs: Could set a legal precedent on the enforceability of non-refundable fees in commercial lending if lenders act in bad faith.
3. Judgment for Kennedy: Would reinforce the principle of “contract is king” in sophisticated commercial transactions.
4. Regulatory Action: Negative rulings could trigger investigations by state financial regulators.

9. Frequently Asked Questions (FAQ)

Q: What is Kennedy Funding accused of?
A: The core accusation is a pattern of collecting large non-refundable upfront fees from commercial borrowers, then altering loan terms at the last minute to force either withdrawal (and fee forfeiture) or acceptance of worse terms.

Q: Are these lawsuits class actions?
A: One major case is a consolidated Multi-District Litigation (MDL) functioning like a class action. Other cases are individual lawsuits.

Q: Who can be part of the lawsuit?
A: Primarily commercial entities (LLCs, corporations, developers) who paid a significant upfront fee to Kennedy Funding and did not receive a loan on the originally committed terms. Specific eligibility is determined by the class counsel or individual attorneys.

Q: What should I do if I believe I have a claim?
A: Preserve all documents (emails, contracts, wire receipts) and consult with a commercial litigation attorney experienced in real estate finance.

Q: Does this mean all hard money lenders are predatory?
A: No. The hard money/bridge lending sector provides vital liquidity. However, these lawsuits highlight the critical importance of borrower due diligence and clear, enforceable contracts.

10. Resources & Court Documents

Public Access to Court Electronic Records (PACER): For direct access to filed complaints, motions, and orders (requires account).
New Jersey Courts Online: For tracking state-level cases.
Suggested Search Terms (on PACER): “Kennedy Funding, Inc.,” “Mountainview Development v. Kennedy,” MDL No. 3012.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The allegations described are claims made in lawsuits and have not been proven in a court of law. All parties are presumed innocent until proven guilty. For legal advice regarding specific situations, consult a qualified attorney.