Unsophisticated Lender Not a "Foreclosure Consultant", Dodges Liability On '11th Hour' Usurious Loan Made To Save Homeowner Facing Foreclosure

In a recent court ruling, a California Court of Appeals recently let an unsophisticated lender off the hook for liability on a usurious loan made to save a financially strapped homeowner about to lose her home at a foreclosure sale, agreeing with the trial judge that the lender lacked a usurious intent.

The appeals court also affirmed the trial court ruling that the unsophisticated lender did not fall within the definition of a "foreclosure consultant" under the California Mortgage Foreclosure Consultant Act (Civ. Code, § 2945 et seq.) and, accordingly, that statute was inapplicable to the subject transaction.

In each case, the issue centered primarily on the fact that the lender, one Richard T. Homem, was an individual unsophisticated in real estate matters, and was unfamiliar with the formal process of making a secured loan when entering into the loan agreement with one, Lisa Charter, the homeowner facing foreclosure.

The appeals court provides this description of what happened (the reference to one, Hjerpe, is a reference to the homeowner's attorney) (bold text is my emphasis):

• At the time Homem made the loan to Charter, he was unaware of the terms of the promissory note. Those terms, including the length of the loan, the $15,000 fee, and the 8 percent interest rate, were supplied by Charter as approved terms from previous loan negotiations. Homem was unaware his loan would cover liens on Charter's property until after payment of the USDA mortgage and execution of a deed of trust in his name. Homem was told, and at all times believed, that the terms of the note were fair.
  
  Homem was not knowledgeable or experienced in loaning money. He had never loaned money for a promissory note, and was previously uninformed about the process. Homem paid Charter's defaulting mortgage before obtaining a promissory note or deed of trust to secure repayment.
  
  He is not an attorney or real estate broker, and holds no professional licenses of any kind. The promissory note was drafted by Hjerpe. Homem considered Hjerpe to serve as both his and Charter's attorney throughout the entire process, relied on his advice, and expected to be protected by him. These circumstances support the conclusion that Homem lacked a usurious intent.

Further, Homem's involvement in this matter appeared to occur innocently enough. His relationship with the homeowner that led to the transaction in question began by the latter's grandmother hiring Homem to do yard work around the house.

Upon finding out the house was in foreclosure, Homem asked the homeowner if she was interesting in selling it, to which she replied in the negative, and Homem initiated no further discussion on his inquiry. Eventually, it was the homeowner who began bugging Homem for a loan, which he was reluctant to make, after her attempts to refinance failed while the scheduled foreclosure date continued closing in on her.

According to the appeals court:

• The trial court correctly found that Homem does not qualify as a foreclosure consultant. In so concluding, the trial court cited its finding that he did not intend to enter into a usurious transaction. We have already rejected Charter's challenge to this finding. (See pt. II.B., ante).
  
  Additionally, at the time of the June 2007 loan, no agreement required Homem to perform any of the listed services for compensation for Charter. Indeed, Homem had never made a loan or obtained a deed of trust before and was unaware how to conduct secured real estate transactions. The only agreements signed between Charter and Homem were the deed of trust and the promissory note, both of which were signed after the June 2007 foreclosure sale had been halted.
  
  Further, Charter's three calls to Homem for help the day before the USDA foreclosure sale and his reluctance to make the loan supports an inference that Charter solicited his help, and not vice-versa. The record satisfies us that Homem did not act or perform in a manner consistent with the statutory definition of a foreclosure consultant.

Further, in footnote 4 of the opinion, the appeals court made this observation on the trial court's ruling:

• It also noted Homem could have denied Charter's requests for a loan and proceeded as a bidder at the June 2007 foreclosure sale. Instead, he tendered a cashier's check for the full amount of Charter's defaulted mortgage prior to the execution of documents to protect himself.

What triggered this litigation was that the homeowner ultimately went into default on the mortgage payments to Homem, at which point he foreclosed on the home and took title to it at a foreclosure sale.

For the ruling, see Charter v. Homem, No. A129519 (Cal. App. 1st Dist., Div. 4, June 8, 2011) (unpublished).