California Hard Money Violations?

Question

Hi all, I have started running this by some local San Diego attorneys but wanted to get feedback from group.

Situation:

1. Homeowner owns a duplex in Lemon Grove, CA.  Non owner occcupied.

2. 7 years ago, he received a private loan for a second trust deed.  The loan was done by a California licensed real estate broker and attorney who did the loan under the name of what appears to be his lending LLC.  The LLC shows active with the Secretary of State with this individual showing up as the agent for service.

3. The loan was at 12% interest.  There was an escrow done but that appeared to be more so lender can verify title etc as there was no loan docs or disclosures done.

4. This lender has now started foreclosure proceedings.

My questions,

1. would love to get a referral for attorney versed in these matters.

2. Does homeowner have any leverage due to loan interest rate and lack of any disclosures or loan paperwork?

3. Are any of the infractions hampered by statute of limitations?  It appears usury is only 4 years, but not sure if that can extended at all for extenuating circumstances.

Thanks in advance for the assistance.

Aaron Mazzrillo · Answer

I would disagree and say that the borrower has been uncooperative. Don't sign for a loan you can't pay for and then look for legal loop holes to take advantage of people. This guy lent money. MONEY. He deserves to be paid back and if that is not going to happen, he deserves to get the collateral that was pledged.

Account Closed · Answer

I'm not an attorney but generally speaking if the loan was originated by a broker there is no usury violation and if it's truly a non-consumer loan required disclosures are minimal.  And he isn't required to agree to a short pay.

"Loan Docs" that you say are missing generally include the note and deed of trust.  I presume you have at least that much.

What violation do you believe has occured?

David Oldenburg · Answer

The loan is originated by a broker, so exempt from usury. The broker could charge any rate. The loan is non-owner business use, so exempt from RESPA and TILA. He should have done the RE885 combo MLDS /GFE... For California, but I think he is still good.  I would say the guy agreed to a debt, the lender loaned money and took the risk, so pay up!!

Jeff S. · Answer

As a lender, what is your argument that there has been a violation, @Drew Hernandez  ?

None of your facts above indicate a violation to me.  What’s missing?  Surely you're not suggesting that today’s standards apply?

Account Closed · Answer

Drew,

Why did the borrower stop paying?

Joe Gore

Drew Hernandez · Answer

Thanks for feedback everyone.  I have been a private lender on numerous deals so no way am I siding with or trying to find a way to borrower to get out of an obligation.  And in no way are we trying to say that the borrower doesnt owe the lender money.

But when I have acted as a private lender I always did it thru a broker who ensured everything was done properly.

I also dont think it is right to assume that everyone who has ever made a hard money loan did it the right way.  And if they are cutting corners, I think it is perfectly fine to hold them accountable for that.

Account Closed · Answer

I agree with you 100%, and I see a lot of borrowers think the lender owes them something. If the lenders start the foreclosure and don't stop until the borrower is out of the home, then there will be more homes for investors to buy.

Account Closed · Answer

@Drew Hernandez

Check with your attorney but if the money was used for a business purpose the loan is respa and tila exempt, therefore no disclosures required.  On the other hand, if the money was used primarily for family, personal or household use there is a boatload of disclosures required.  I'll probably get push back for saying this but the fact that the security for the loan is a non owner occupied property is irrelevant.

Wayne Brooks · Answer

Drew, to eliminate confusion-refer to the owner as the investor, not homeowner, as you said this is Not owner occupied.

Bill Gulley · Answer

I'd say you're barking down the wrong road. Are you saying you were not making payments for 4 years and that there were no ongoing collection efforts? If that's the case tell your attorney to look into an abandonment of the loan. I doubt an attorney will be in violation of law as to loan origination, securing collateral or compliance with his firm or company. He may have screwed up in servicing the loan and collections, otherwise, get it on the market. :)

California Hard Money Violations?

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