” ... shouldn’t the financial institutions be suing him if that is the case? ... “
I (non-lawyer) would think so.
In my prior life as a senior corporate customer of major banks, I never heard of anything like this.
Moreover, his banks are not naive individuals, they’re well-staffed institutions capable of making informed judgments of property values.
They are all (probably) NYC HQ’d and thus very well-informed about local real estate.