Code § 1916.1’s usury limitations because one of the lender’s owners was a licensed real estate broker who was involved with the settlement agreement (this argument was abandoned in the appeal) or, alternatively, the settlement agreement was not a loan or a forbearance agreement within the scope of California’s usury laws based upon the holdings in Ghirardo v.
The lender filed a cross-motion for summary judgment and sought dismissal of the borrower’s complaint on the grounds that the settlement agreement was exempt from Cal.
Subsequently, the borrowers removed the state court action to bankruptcy court as an adversary proceeding and filed a partial summary judgment motion wherein they requested the bankruptcy court to determine that the settlement agreement constituted a usurious forbearance, the 10% “acceleration fee” was an illegal and unenforceable penalty, and other late charges were likewise unenforceable and incorrectly and repeatedly assessed on a single missed payment. Following the state court’s denial of the borrowers’ motion for a preliminary injunction, one of the borrowers filed a bankruptcy petition. After the lender commenced a non-judicial foreclosure proceeding, the borrowers filed a state court action against the lender for breach of contract, fraud, intentional interference with contract, and declaratory relief regarding the payoff quotes that allegedly exceeded the amount required by contract and included amounts that are illegal under California law. However, the borrowers allegedly received numerous conflicting payoff quotes which included incorrect and illegal amounts of late fees, past due interest, and other charges including a 10% “acceleration penalty” for the late charge related to the unpaid accelerated loan balance. Consequently, the parties entered into a settlement whereby the borrowers paid the lender $6,008.71 in exchange for an agreement which extended the loan maturity date, specified that the agreement was not a forbearance agreement, reduced the interest rate on the remaining principal loan balance to 11.05% per annum, provided for interest only payments, and included a provision that any past due payment amount “including the final balloon payment” would be subject to a 10% late charge.įollowing the borrowers’ default under the settlement agreement and the lender’s acceleration of the loan balance, the borrowers sought to refinance the loan with a different party and requested a payoff statement from the lender.
Soon after the loan was originated, the borrowers defaulted on their payments and the lender also advanced monies for real property taxes and insurance. The borrowers obtained a hard money loan, through a licensed real estate broker, that accrued interest at 11.30% per annum, provided for interest only payments, and matured within two years in order to refinance their residence. To read the full published decision: click here. 2023), the Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”) recently affirmed a bankruptcy court decision which had concluded that: (1) a forbearance agreement was usurious and not exempted from usury just because the orginal loan might have been exempt and (2) the creditor was entitled to post-maturity interest on the loan under California law. 2023)ĭear constituency list members of the Insolvency Law Committee, the following is a case update written by David McAllister, a partner at Aldridge Pite, LLP, analyzing a recent case of interest: SUMMARY