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1 MEYLAN DAVITT JAIN AREVIAN & KIM LLP
VINCENT J. DAVITT, ESQ. (State Bar No. 130649)
ELECTRONICALLY
2 ANITA JAIN, ESQ. (State Bar No. 192961)
444 S. Flower St., Suite 1850 FILED
3 Superior Court of California,
Los Angeles, CA 90071 County of San Francisco
4 Tel (213) 225-6000 - Fax (213) 225-6660 10/18/2023
vdavitt@mdjalaw.com I ajain@mdjalaw.com Clerk of the Court
BY: RONNIE OTERO
5 Deputy Clerk
HARRIS L. COHEN, ESQ., State Bar# 119600
6 HARRIS L. COHEN, A PROF. CORP.
5305 Andasol Ave.
7
Encino, CA 91316
8 Tel (818) 905-5599 I fax (818) 905-5660
hcohenOO@aol.com
9
Attorneys for Defendants and Cross-Complainants,
10 Milestone Financial, LLC, Bear Bruin Ventures, Inc.,
William R. Stuart, Carolyn Stuart, Zoe Hamilton
11
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 FOR THE COUNTY OF SAN FRANCISCO
14
15 Eduardo Paniagua and Elena Asturias, ) CASE NO. CGC-18-571279
individuals, )
16 ) DECLARATION OF WILLIAM R. STUART
Plaintiffs, ) AS DIRECT TESTIMONY FOR TRIAL
17
vs. )
18 Milestone Financial, LLC, a California ) Date: October 24, 2023
corporation, Bear Bruin Ventures, Inc. a ) Time: 8:30 a.m.
19 California Corporation, William R. Stuart, an ) Dept.: 611
individual, Carolyn Stuart, an individual, Zoe )
20 Hamilton, an individual, and DOES 1-100, )
inclusive, )
21
)
Defendants.
22 )
)
23 RELATED CROSS-ACTIONS )
)
24 )
25
26
27
28
1
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 DECLARATION OF WILLIAM R. STUART
2 I, William R. Stuart, hereby declare and state:
3 1. I am the Managing Member of Defendant/Cross-Complainant MILESTONE
4 FINANCIAL, LLC ("Milestone") and the president of Bear Bruin Ventures, Inc. I submit this
5 Declaration as my direct testimony in the trial in this action. I have personal knowledge of the facts set
6 forth herein and, if called as a witness, I could and would testify competently thereto.
7 BACKGROUND, EDUCATION, TRAINING, ASSOCIATIONS, AND LICENSES
8 2. I reside in the San Francisco Bay area with my wife Carolyn Stuart. I graduated from
9 Miramonte High School in Orinda, California. I graduated from UCLA in 1985, with a degree in
10 Political Science and was selected to study at Cambridge University. Since graduating from UCLA, I
11 have successfully completed post-graduate courses in finance, commercial brokerage, and real estate
12 investments, and have taken classes and professional training relating to the lending and/or real estate
13 industries, including conferences with the California Mortgage Association, and UCLA extension
14 classes on mortgage laws and real estate. I have taken Department of Real Estate ("DRE") continuing
15 education as required. I also frequently attend asset based lending seminars and lectures to stay current
16 on legal and business issues affecting the industry and trends in the industry. I have been a speaker at
17 various conferences involving real estate and/or lending issues. During my professional career, I have
18 been involved in multitudes of transactions with multitudes of banks and other lenders/financial
19 institutions, either in representing the lenders or in transactions with them.
20 3. I am licensed by the State of California as a real estate salesperson, License ID
21 00908287, and have held that license in good standing since 1985.
22 4. I have been appointed by several U.S. bankruptcy courts to assist in liquidating various
23 real-estate based assets. I have testified and been qualified as an expert in real estate valuation of
24 contaminated property and have been hired as a witness by the United States Small Business
25 Administration and have testified in Federal Court relating to real estate matters.
26 EMPLOYMENT BACKGROUND PRIOR TO MILESTONE
27 5. Prior to starting Milestone in 2007, I worked in the commercial real estate and lending
28 industries for approximately 22 years. This employment involved commercial lending, wholesale
2
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 lending, and "asset-based" lending. After graduating from UCLA, I worked for 7-8 years as a
2 commercial office leasing agent for Schneider Real Estate Co., a real estate management company
3 ("Schneider"), located in Santa Ana. After Schneider, I went to work as a commercial real estate agent
4 for Mr. Robert Braun in the Moreno Valley area. I worked for Mr. Braun for approximately 2 years.
5 6. Next, I worked for a large, commercial real estate company, Marcus & Mill chap
6 ("M&M") in Palo Alto. M&M was and is a commercial real estate company engaged in, among other
7 things, brokerage, mortgage brokerage, and advisory services. While at M&M, I was an investment real
8 estate agent and listed and sold investment properties such as shopping centers, other commercial
9 properties, raw land, and industrial properties. I was promoted a number of times while at M&M,
10 achieving the level of Vice President of Investments. I worked at M&M for approximately 19 years.
11 7. During my professional career prior to Milestone, I was involved with wholesale,
12 commercial, and/or asset based lending by, among other things, purchasing loan portfolios and
13 representing banks and other lending institutions as a commercial agent.
14 MILESTONE BACKGROUND, STRUCTURE, AND PERSONNEL
15 8. At all times from prior to the subject March 2014 "Loan" from Milestone to Plaintiff
16 Eduardo Paniagua ("Paniagua") through the 2018 Loan payoff, Milestone has been a Limited Liability
17 Company organized under California law and has been owned by me and my wife, Carolyn Stuart.
18 During this time, Milestone has had between 2-5 people working for Milestone. I was the president of
19 Bear Bruin Ventures, Inc. dba Page Mill Funding, a licensed real estate broker ("BBV"). BBV was the
20 managing member of Milestone at the time of the Loan. Milestone's Zoe Hamilton ("Hamilton") has
21 been the person primarily responsible for loan intakes from licensed real estate brokers and for filling in
22 lending forms and processing loans. I make the high level decisions at Milestone, including all loan
23 quotes, what loans are funded, and the loan terms. Hamilton and I were the only people at Milestone
24 who worked on the Paniagua Loan. I currently hold and have held a California Real Estate
25 Salesperson's license #00908287 since prior to 1990.
26 9. Since the company was founded, Milestone has only made non-consumer loans - i.e.,
27 commercial, business, and/or investment purpose loans (hereinafter "Non-consumer Loans" or
28 "Commercial Loans"). In addition, Milestone only makes loans that are arranged through third-party,
3
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 licensed real estate brokers who represent the borrowers. Milestone does not make consumer residential
2 mortgage loans or represent borrowers. Thus, Milestone has never needed the license and endorsement
3 that applies to lenders of consumer, residential mortgage loans (hereinafter a "License/MLO
4 Endorsement" or "Consumer Loan License"). Milestone only makes a loan if a borrower first
5 represents, in a notarized loan purpose affidavit and in other documents, that the proceeds are being used
6 for commercial, investment, or business purposes. Milestone does not make a loan without first
7 obtaining such an Affidavit of business purpose, and Milestone relies on the borrower's non-consumer
8 loan representations in making a loan.
9 10. Milestone is in the commercial lending industry. I have been in the commercial lending
10 industry for roughly 35 years and am familiar with the customs and practices of the commercial lending
11 industry. In the commercial lending industry, a loan secured by a non-owner occupied, residential rental
12 income property, where the borrower represents the proceeds are being used to renovate and sell the
13 property, is a commercial loan and a for-profit loan. It is also the custom and practice of Milestone and
14 other commercial lenders to rely on a borrower's loan purpose affidavit because Milestone and other
15 commercial lenders generally do not track a borrower' s post-lending spending activity and do not have
16 an obligation to track such activity.
17 11. Milestone is also known as a "wholesale" lender. As a wholesale lender, Milestone
18 generally does not deal directly with borrowers before loan closing. It deals with a borrower's
19 representative(s), one of whom must be a licensed broker. The borrower selects and pays for the licensed
20 broker. The borrower represents to Milestone, in multiple documents: the broker's identity; that the
21 broker is licensed (which Milestone also verifies); and that the broker is arranging the loan for the
22 borrower. If Milestone is contacted directly by a borrower or unlicensed representative for a potential
23 loan, Ms. Hamilton sometimes sends the person a Notice to Borrower which: states Milestone does not
24 represent borrowers; lists several licensed area brokers as non-exclusive options; and urges the borrower
25 to interview several licensees. Milestone has never required or demanded that a borrower use a
26 particular broker; it is the borrower's sole decision. A true and correct copy of a form of Notice to
27 Borrower used by Milestone when contacted by a potential borrower who has not already hired a
28 licensed broker is Trial Exhibit ("TE") 25.
4
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 12. Milestone does not directly solicit borrowers. It only mails flyers to licensed brokers.
2 Generally, Milestone obtains brokers' lists by purchasing them from the California Department of Real
3 Estate. The flyers have never stated that Milestone makes consumer loans or that it holds a Consumer
4 Loan License. Milestone's website has never stated that Milestone makes consumer loans, or that it
5 holds a Consumer Loan License, or that it holds a real estate broker's license.
6 13. In 2018, Milestone obtained a California Finance Lender's license - 60DB073257. See
7 TE 109, a true and correct copy of the Milestone Financial, LLC Finance Lender and Broker License
8 dated February 23, 2018.
9 PANIAGUA AND THE FUNSTON PROPERTY
10 14. The subject Milestone-Paniagua Loan was funded in March 2014, and it was secured by
11 property owned solely by Paniagua, located at 1228 Funston Ave., San Francisco, CA 94122 (the
12 "Funston Property" or "Funston"). Paniagua, and his wife, Elena Asturias ("Asturias"), who is an
13 attorney and was a named Plaintiff in this action until she recently dismissed her claims, had acquired a
14 50% interest in Funston by a grant deed recorded with the San Francisco Assessor-Recorder ("SFR") on
15 December 14, 2009. TE 14 is a true and correct copy of the 12114/09 recorded grant deed. Thereafter,
16 by a grant deed recorded with the SFR on December 9, 2011, the Funston Property owners deeded 100%
17 of the Funston Property to Paniagua, a married man as his sole and separate property. TE 15 is a true
18 and correct copy of the 12/9/11 recorded grant deed.
19 15. It is my understanding now, and it was my understanding at around the time of the Loan,
20 that Paniagua has been an owner of Paniagua Construction, Inc. ("PCI") which he operates from 176
21 Randall St., San Francisco, CA 94132 ("Randall Property"). TE 105 is a true and correct copy of the
22 printout from the California Contractor's State Licensing Board regarding PCI.
23 PANIAGUAc:S FIX-AND-FLIP FUNSTON PROJECT, RUFFRAGE, MJF, AND THE MARCH
24 2014 MILESTONE LOAN
25 16. Paniagua is the only borrower on the subject Loan. I first became aware of Paniagua and
26 Funston in or around January 2014 shortly after Jose Ruffrage ("Ruffrage"), who described himself to
27 Milestone as Paniagua's loan "agent," had contacted Zoe Hamilton, who handles intake for Milestone.
28 Based on the paperwork submitted by Paniagua and/or Ruffrage, it was my understanding that Ruffrage
5
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 was seeking a loan, on behalf of Paniagua, for a "fix and flip" project on Funston, which was a non-
2 owner occupied, rental property that Paniagua owned. It was also my understanding that Paniagua
3 wanted a loan from an asset-based lender like Milestone because he was in a rush to start major
4 construction on the Funston Project, and Milestone, and other asset-based lenders, can and do fund loans
5 more quickly than banks or other conventional lenders.
6 17. The Loan closed on or around March 20, 2014. Through the Loan closing, I never spoke
7 with Paniagua or his wife Asturias. Prior to loan closing, I never communicated (orally or in writing)
8 with either of them. I never offered either of them a consumer residential mortgage loan, and I never
9 represented to either of them that Milestone or any other Defendant in this action had a Consumer Loan
10 License. My involvement with the Loan through the closing was limited to the review of Loan-related
11 documents submitted by Paniagua, Ruffrage, MJF Funding Corp., and/or Mary Lazo (the Old Republic
12 Title Officer) and making the lending decision based on those documents. Neither Milestone, nor I, ever
13 represented to the public that Milestone could offer, accept, enter into, or otherwise make consumer
14 residential mortgage loans primarily for personal, family or household purposes.
15 18. There was no document presented to Milestone prior to the Loan closing indicating that
16 the Loan being sought by Paniagua was anything other than a "fix and flip" profit-making loan for the
17 borrower - i.e. a commercial loan.
18 19. In late January- early February 2014, Ruffrage, who I understood was acting on behalf
19 of and for Paniagua, sent Milestone documents relating to Paniagua' s request for a commercial loan,
20 including:
21 ~ A loan quote worksheet ("LQW"), which identified Paniagua as the borrower and Ruffrage as his
22 "agent;" identified the Funston Property; and stated (somewhat illegibly) that the "loan purpose" was
23 "to make it into a 3000 sffhome & Flip" for the "vacant" Funston Property. TE 18 is a true and
24 correct copy ofRuffrage's fax/Loan Quote Worksheet. (The fax has a wrong date stamp of
25 2/23/2010.);
26 ~ An estimated budget for remodeling and addition to the Property for $450,200. TE 26 is a true and
27 correct copy of the estimated budget Milestone received;
28
6
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 >- Two signed Disbursement Requests & Authorizations ("DRA") for the renovation Project at
2 Funston. TE 34 and 37 are true and correct copies of the DRAs for the construction for Funston that
3 Milestone received;
4 >- 10 pages of site plans for the Funston Project. TE 128 is a true and correct copy of the site plans that
5 Milestone received;
6 >- A January 2014 appraisal for Funston previously submitted to another private lender (a competitor),
7 showing the Property was vacant (as shown on page 2 of the 55 page exhibit next to the left side tab
8 labelled "Subject" on the line starting with "Occupant.") TE 28 is a true and correct copy of the
9 appraisal; and
10 >- Milestone, through me, relied upon each of these documents in deciding to make the Loan.
11 20. The practice at Milestone is to verify, by looking at the BRE/DRE website, that a
12 potential borrower's representative is a licensed loan broker. Hamilton and/or I determined, by looking
13 at the BRE/DRE website, that Ruffrage was not a licensed broker, so Hamilton sent Paniagua and/or
14 Ruffrage a standard Notice to Borrower that Milestone sends when it is contacted by a non-licensed
15 person. The Notice: stated Milestone does "not represent borrowers" in obtaining real estate loans;
16 stated "[w]e strongly urge you to interview several licensees before selecting one;" and identified three
17 licensed brokers, including MJF Funding Inc. dba Bluewater Funding ("MJF")/Marc Fournier, that
18 borrowers had used for prior loans. TE 25 is a true and correct copy of the Notice. TE 106 is a true and
19 correct copy of the Department of Real Estate website printout confirming the licensing status of MJF
20 Funding Corporation, with a dba ofBluewater Funding, and Licensed Officer Marc J. Fournier (through
21 2018).
22 21. Paniagua had the sole discretion to choose any licensed broker; Milestone never required
23 Paniagua or any other borrower to use a particular broker, or to use a broker listed in the Notice. In
24 response, in 2014, 2016, and 2017, Paniagua represented to Milestone, in at least nine (9) documents he
25 signed and that were sent to Milestone, that MJF was Paniagua's chosen, licensed broker and his
26 fiduciary. These documents include: Conditional Loan Quote [TE 33]; Agreement to Arrange Credit
27 [TE 32]; two Loan Applications [TE 41, 42]; Mortgage Loan Disc. Stmt [TE 43]; Escrow Instructions
28 (two) [TE 44; TE 134, pp 109-116]; two Settlement Agreements [TE 61, 66]; and the Promissory Note
7
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
[TE 36]. Milestone (through me), in deciding whether to approve and fund the Loan, relied on
2 Paniagua's seven (7) written representations prior to the loan and that Paniagua ratified in the two
3 Settlement Agreements he signed after Milestone funded the loan.
4 22. In making the Loan, Milestone, through me, relied on Paniagua's representations in the
5 2014 Loan documents as described above. Based on those representations, Milestone (through Zoe
6 Hamilton) communicated with MJF, including MJF's Eric Ciaverelli (Operations Manager) and Raychel
7 Cooke (loan processor/assistant), who worked with and for MJF's Mark Fournier. In my decades of
8 experience in the commercial lending business, it is common that a commercial lender does not deal
9 directly with the borrower but instead deals with a broker's office (MJF) and its processors/assistants
10 (Ciaverelli and Cooke), while the broker's office (MJF) deals directly with its client/borrower
11 (Paniagua) and his/her agents (Ruffrage) without the lender's (Milestone's) involvement. Here, at all
12 relevant times, MJF's Fournier was a licensed real estate broker, license number #01813532, with a dba
13 ofBluewater Funding. TE 106 is a true and correct copy of the DRE listing for MJF dba Bluewater
14 Funding and its formerly licensed broker (through 2018), Marc Fournier.
15 23. In February 2014, Zoe Hamilton sent to MJF's Ciaverelli a standard letter that Milestone
16 sends with its conditional loan quotes. The letter (TE 29) stated that Milestone only provides loans "for
17 use as business, investment, non-consumer, and secured by non owner-occupied property."
18 24. In March 2014, Hamilton prepared, and I reviewed and approved (which approval is
19 required before it goes out), a Conditional Loan Quote ("CLQ") that was sent to Paniagua's chosen
20 licensed broker, MJF, for a $500,000 commercial loan to Paniagua for his Funston "fix and flip" Project.
21 The CLQ identified Funston and stated the loan purpose is "Investment" (the Loan Purpose Statement).
22 The CLQ identified Paniagua's loan agent as Blue Water Funding, which is MJF's dba. On around
23 March 12, 2014, the CLQ was sent back from MJF's offices to Milestone (and to the Old Republic
24 Escrow Officer, Mary Lazo; see TE Ex. 134, p. 13), reflecting the signatures of both Paniagua and
25 MJF's Fournier. TE 33 is a true and correct copy of the executed CLQ. I relied on the Loan Purpose
26 Statement in the CLQ and the signatures of Paniagua and Fournier in having Milestone agree to make
27 the loan to Paniagua.
28 25. Prior to Milestone making the loan to Paniagua, I personally went to Funston to view the
8
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 Property. I already had the Appraisal (TE 28) which had been forwarded by Ruffrage to Milestone and
2 which stated Funston was vacant. When I was at the Property, I saw the residence was open and was
3 partially boarded up, was under construction, and was vacant. This vacant status further confirmed that
4 Paniagua was using the Loan for non-consumer, "fix and flip" purposes. I relied upon the appraisal
5 indicating the Property was vacant and my inspection in having Milestone agree to make the loan to
6 Paniagua.
7 26. In March 2014, in connection with Paniagua's request for a Commercial Loan for his
8 Funston "fix and flip" Project, Milestone received from Paniagua, Ruffrage, MJF, and/or Old Republic
9 Title Co. (the escrow company), numerous documents that Milestone, through me, relied on in making
10 the Loan to Paniagua, including:
11 >- Paniagua's executed and notarized Affidavit Regarding Loan Purpose ("Affidavit"). He represented
12 in the Affidavit that the Loan was not a consumer loan for consumer, family, household or other
13 consumer purposes, and that Funston is not currently or intended to be occupied by the borrower.
14 TE 31 is a true and correct copy of the Affidavit;
15 >- Paniagua's executed and initialed (each page) Agreement to Arrange Credit ("AAC"), which also
16 reflected MJF/Fournier's signature. The AAC, an agreement between Paniagua ("Borrower") and
17 MJF ("Broker"), stated MJF is currently licensed as a broker; is actively involved in getting
18 Paniagua the Loan and is not affiliated with Paniagua; that Paniagua contacted MJF to procure the
19 Loan; they have agreed upon terms; and the proceeds will be used for business, commercial or
20 investment purposes. TE 32 is a true and correct copy of the AAC;
21 >- Paniagua's signed Loan Applications (signed twice - on 3/12/14 and 3/20/14), which also reflected
22 MJF/Fournier's signature as "Loan Originator" and: identified the Funston Property as "R" ("rental
23 being held for income") and "IP" ("investment property"); and stated the Property's gross and net
24 monthly rental income was $5,500 and $4,125, respectively. That the Property was used as a rental
25 property is consistent with the Loan not being a consumer loan. TE 41 and 42 are true and correct
26 copies of the Applications received by Milestone;
27 >- Mortgage Loan Disclosure Statement for the Loan ("MLDS"), which is a document prepared by the
28 broker (MJF), not Milestone. The Statement was executed by Paniagua and also reflected Fournier's
9
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 signature, and: identifies MJF as Paniagua's broker, sets forth closing Loan cost estimates, including
2 Paniagua's "processing fee" to Ruffrage and his "Mtg Broker Commission/Fee" to MJF. TE 43 is a
3 true and correct copy of the MLDS;
4 );>- Signed Escrow Instructions for the Loan (two/revised), which state the escrow officer shall pay,
5 from Paniagua's funds, a "Broker fee" to MJW, and a "processing fee" to Ruffrage. TE 44 is a true
6 and correct copy of the 3/13/14 Escrow Instructions; TE 134, pp. 110-116 appears to be a true and
7 correct copy of the earlier, 3/11/14 Lender's Escrow Instructions in the Loan's Escrow File;
8 );>- A $500,000 Promissory Note Secured by Deed of Trust in favor of Milestone, in which Paniagua
9 represented: i) the proceeds "are strictly for business, commercial, or investment purposes ONLY";
10 ii) "this Note was negotiated and arranged by a licensed real estate broker. Borrower has executed
11 that written Affidavit Regarding Loan Purpose dated March 11, 2014;" and iii) "This Note and each
12 of the Loan Documents have been negotiated, prepared and arranged through licensed broker, MJF
13 Funding Corporation of Alameda, CA. TE 36 is a true and correct copy of the Promissory Note; and
14 );>- A signed Deed of Trust ("DOT"), wherein Paniagua represented the DOT would be a "second"
15 position lien on the Property. TE 35 is a true and correct copy of the recorded DOT.
16 Milestone, through me, relied upon each of these documents in deciding to make the loan to Paniagua
17 secured by the Funston Property.
18 27. TE 45 is a true and correct copy of the Borrower's Closing Statement relating to the
19 Loan, showing that Paniagua paid his licensed loan broker, MJF, a $650.00 broker fee and paid his loan
20 agent, Jose Ruffrage, a $7,500 fee. This loan was funded over nine (9) years ago and, as discussed
21 below, went through two (2) different post-loan settlements.
22 28. Milestone relied upon the representations and statements made by Paniagua in his Loan-
23 related documents, including, but not limited to, in the Loan Quote Worksheet, CLQ, Affidavit, AAC,
24 loan escrow instructions, Promissory Note Secured by Deed of Trust, the Deed of Trust, the construction
25 disbursement documents, the Application, and the First and Second Settlement Agreements. I know this
26 because I am the final decision maker concerning whether loans are funded by Milestone. I have held
27 this position since the Company began in 2007. Milestone only makes Non-consumer Loans that are
28 secured by real property, which means loans that are not primarily for personal, family or household
10
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 purposes. Since the Milestone Loan to Paniagua was not a consumer residential mortgage loan
2 primarily for personal, family or household purposes, Milestone did not need a lender's License/MLO
3 Endorsement to make the Loan.
4 PANIAGUA~ OTHER COMMERCIAL LOANS USED TO FINANCE AND REFINANCE HIS
5 FUNSTON PROJECT
6 29. I understand that Paniagua, starting in late 2013, also sought and obtained numerous
7 other loans to finance and refinance his Funston, for-profit, fix and flip project, including: (1) a
8 $725,000 loan from East West Bank in late 2013 (TE 22) (which Paniagua did disclose in his Milestone
9 Loan application); (2) a $150,000 loan from private lender Debra Resnik ($150,000) in January 2014
10 (which Paniagua did not disclose in his Milestone Loan application); (3) a $400,000 loan from private
11 lender Nina Geneson in July 2015; (4) a $500,000 loan from private lender, James Nunamacher, in
12 January 2016; (5) a $850,000 loan from a private lender, Jennifer Smorgon, in March 2018; (6) two
13 loans totaling $2.4 million from entities of private lender Tom Malgesini in April 2019. I searched the
14 website at www.nmlsconsumeraccess.org and determined that neither James Nunemacher, Debra
15 Resnik, Jennifer Smorgon, Tom Malgesini, nor Yosemite Capital, LLC, had the License/MLO
16 Endorsement applicable to lenders of consumer, residential mortgage loans. TE 91, 92 and 93 contain
17 true and correct copies of the printout pages from that website based on searches for those persons. As
18 to the East West Loan, based on the paperwork (TE 19), it was clearly a commercial loan as it was on
19 "investment property." As to the Geneson Loan (TE 129) and Malgesini Loans (TE 130), they likewise
20 are clearly both commercial loans and were sought and obtained by Paniagua for the same reason and
21 purpose as the Milestone Loan. Further, Paniagua and Asturias signed a "Terms of Business Purpose
22 Loan' statement in his Malgesini loan package. (TE 130). They also signed a "Certificate of Business
23 Purpose Use of Proceeds" statement for that loan with the representation "I have represented to Broker
24 that the loan will be used primarily for business purposes exclusive of loan fees, costs and expenses
25 incurred to obtain the loan. I understand that any Lender will rely upon this representation." (TE 130).
26 PANIAGUA~ COMPLETION OF THE FUNSTON PROJECT, HIS LOAN DEFAULTS, THE
27 TWO SETTLEMENT AGREEMENTS/RELEASES, AND HIS LOAN PAYOFF
28 30. By August 2014, Paniagua defaulted on the Loan. To protect its rights, Milestone
11
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 recorded a Notice of Default and Election to Sell Under Deed of Trust ("NOD"). TE 49 is a true and
2 correct copy of the recorded NOD that was recorded with the County Recorder on August 22, 2014.
3 31. On or about November 25, 2015, Paniagua's agent signed a Residential Water
4 Conservation Inspection and Certificate of Compliance form ("Form") recorded with the SFR on
5 November 25, 2015 as instrument number 2015-K161333-00 representing the inspection was for resale
6 of the Property, as opposed to a property Paniagua would live in. TE 55 is a true and correct copy of the
7 Form.
8 32. Beginning in or about 2015, Paniagua (either directly or through his wife Asturias)
9 sought to extend the maturity date of the Loan.
10 33. In January 2016, after conferring with me, Zoe Hamilton emailed both Paniagua and his
11 attorney wife, Asturias, a Settlement Agreement, Indemnity and First Amendment to Promissory Note
12 Secured by Deed of Trust ("First Settlement Agreement"). The First Settlement Agreement was the
13 result of negotiations between Milestone and Paniagua, who was represented by his attorney wife, Elena
14 Asturias, and they were completely satisfied with its terms as Paniagua chose not to refinance the loan
15 with another lender and remain a Milestone borrower based on those terms. The settlement agreement is
16 lengthy and was intended to resolve all claims of every kind between the parties. On or about January
17 26, 2016, Paniagua signed the First Settlement and his signature was notarized. Under its terms: 1)
18 Milestone extended the Loan maturity date to March 2017, lowered the interest rate to 10.75%, and
19 changed the terms so Paniagua would only make interest payments up to payoff; 2) Paniagua agreed
20 $425,631.44 was due; 3) Paniagua agreed to release any claims against Milestone and the other
21 Defendants (ifl6) arising from th~ Note, and all loan documents (with a Civil Code§ 1542 waiver ifl 7),
22 and to indemnify Milestone and the other Defendants from any claims (if3 such as the claims by
23 Paniagua and Asturias (Asturias has now dismissed her claims) in this action which are the subject of
24 the Cross-Complaint); and 4) Paniagua represented the Loan was arranged through a California licensed
25 broker, MJF, and the Agreement was reviewed by his attorney. TE 61 is a true and correct copy of the
26 First Settlement Agreement.
27 34. In early 2017, after they defaulted, Plaintiff and his wife Asturias again asked Milestone
28 to extend the Loan. After conferring with me, Zoe Hamilton emailed both Plaintiff and Asturias a draft
12
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 Settlement Agreement, Indemnity and Second Amendment to Promissory Note Secured by Deed of
2 Trust ("Second Settlement Agreement"). On January 24, 2017, Paniagua signed the Second Settlement
3 Agreement. Paniagua's signature was notarized and it was returned to Milestone. TE 66 is a true and
4 correct copy of the Second Settlement Agreement. Under its terms: 1) Milestone extended the Loan
5 maturity date to March 2019; 2) Paniagua agreed $444,478 was due; 3) Paniagua agreed to release his
6 claims against all Defendants (~22 with a Civil Code § 1542 waiver ~23) and to indemnify Milestone and
7 the other Defendants claims (~3 such as the claims by Paniagua and Asturias in this action which are the
8 subject of the Cross-Complaint); and 4) he represented the Loan was arranged through licensed broker
9 Bluewater Funding Inc. (dba of MJF), and the Agreement was reviewed by Paniagua's attorneys, as his
10 wife was an attorney. Plaintiff never objected to any terms in either Agreement and agreed that this
11 again resolved all claims between the parties as of that date. The new terms and fees charged for the
12 settlement were among the lowest fees Milestone has ever charged a borrower in these circumstances.
13 35. Paniagua paid off the Milestone loan in April 2018, and Milestone recorded a
14 Substitution of Trustee and Deed of Reconveyance on May 1, 2018. Since Paniagua's loan from
15 Milestone was paid off in 2018, there have not been any further contracts, loans or business conducted
16 between the parties. TE 108 is a true and correct copy of the Substitution of Trustee and Deed of
17 Reconveyance that was recorded.
18 THE NMLS AND DRE/BRE WEBSITES
19 36. Before and after the March 2014 Milestone Loan, Plaintiff could have found out that
20 Milestone did not have a Consumer Loan License by accessing the free publicly available NMLS
21 consumer website (www.nmlsconsumeraccess.org), a government website which existed in 2014 and
22 which provides free verification of state licenses of California financial services providers.
23 37. I understand that Plaintiff bases his claims on a 2015 Order from the BRE (now DRE)
24 regarding residential mortgage loans. [See below.] At all relevant times, the DRE/BRE website has had
25 links to those documents. Plaintiff could at any time have looked up Milestone, BBV, me and/or
26 Hamilton and discovered any relevant orders. The website where they are all located for free to the
27 public is https://www2.dre.ca.gov/.
28
13
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 PLAINTIFFS DID NOT CONTRACT WITH BBV, MS. HAMILTON OR ME
2 38. Paniagua's lawsuit named BBV, Zoe Hamilton, and me personally as defendants.
3 Paniagua never had any loan from or any other transaction or business with BBV, which has never
4 charged Paniagua any interest or received any interest from him. Paniagua has never had any loan from
5 me or done any business with me personally, and I have never charged Paniagua any interest and he has
6 not paid any interest to me. Finally, I am not aware of any facts suggesting that Paniagua ever had any
7 loan from Zoe Hamilton, or has done any business with her, or that Ms. Hamilton ever charged Paniagua
8 any interest, or that Paniagua has ever paid any interest to Ms. Hamilton.
9 PANIAGUAcS LOAN FRAUD AND UNCLEAN HANDS AS TO MILESTONEcS LIEN
10 POSITION AND LOAN
11 39. Paniagua did not disclose in either of his two (2) loan applications (TE 41 and 42) that,
12 prior thereto, he had already borrowed $150,000 from Debra Resnik and had executed a Short Form
13 Deed of Trust in her favor secured by the Funston Property. TE 45 is a true and correct copy of the
14 Short Form Deed of Trust in favor of Resnik which was executed on January 30, 2014 by Paniagua as
15 notarized and recorded on March 18, 2014,just two (2) days before Milestone's deed of trust was
16 recorded. Had I known of Paniagua's nondisclosure in the applications of the Resnik loan and lien, I
17 would not have had Milestone make the loan to Paniagua. The Resnik loan would have changed all the
18 loan ratios, his cash flow levels, the risk levels and other factors that would have caused me to not make
19 the loan. Further, the discovery of his nondisclosure would have caused me to not have had Milestone
20 make the Loan, since the Loan would be secured by a third-position deed of trust, not second in priority
21 as Paniagua had represented to Milestone.
22 40. Of the approximately thirty-eight (38) Loan payments that Paniagua or his company
23 (PCI) made to Milestone over the life of the Loan, twenty-nine (29) of those payments were late.
24 Moreover, Paniagua completely missed other Loan payments that were due.
25 THE LIQUIDATED DAMAGES FEE WAS REASONABLE AND PANIAGUA AGREED TO IT
26 THREE (3) SEPARATE TIMES
27 41. The Note's liquidated damages fee on maturity was agreed to by Paniagua and included
28 in the original loan. [See TE 36 ~13 - "including the final or balloon payment".] This same provision
14
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 for the liquidated damages on maturity was in the First Settlement Agreement and agreed to by Paniagua
2 again. (TE 61, if l 3 ). This same provision for the liquidated damages on maturity was in the Second
3 Settlement Agreement and agreed to by Paniagua a third time. [TE 66, ifl l .]. This was negotiated and
4 the parties agreed that this was a reasonable approximation or estimate of the damages that Milestone
5 would suffer based on Paniagua' s default.
6 42. Here, the liquidated damages fee for default and acceleration is reasonable as failure to
7 pay off the full note amount, when due, prevented Milestone from re-lending the funds with new
8 initiation points and other fees that are charged at the initiation of a loan that can range up to ten percent
9 or ten points in lending common parlance. These are fees Milestone earns on loan initiation that also
10 fund its business. Milestone relies upon and budgets the receipt of the balloon payment in a timely
11 manner to efficiently operate its business based on loan requests and funding needs. If a loan is not
12 timely paid off, that failure by the borrower negatively impacts Milestone's ability to re-lend those funds
13 and tarnishes its reputation with new borrowers and their loan brokers who must be able to count on
14 Milestone's funding commitments. Milestone's funding commitments are based on the assumption that
15 loans will be paid off in full when due. When Paniagua defaulted under the terms of the Second
16 Settlement Agreement, I sent him a default and acceleration notice. TE 133 is a true and correct copy of
17 the Memorandum which contained the default and acceleration notice that I sent to Paniagua. Paniagua
18 did not cure the default or make any payment within ten days as required by the notice and Milestone
19 accelerated the loan and imposed the late fee. The default and acceleration notice informed Paniagua of
20 the consequences of his failure to pay off the loan.
21 43. The precise dollar figure of the anticipated loss of these fees on re-lending is impractical
22 and extremely difficult to fix at the time a loan is funded and will be a future loss when a default
23 prevents Milestone from "turning" its money. This is no different than a waiter losing tips if a guest
24 comes at 6:00 p.m. and stays at the table until closing, rather than two other groups coming and tipping
25 as well. Additionally, Milestone's business reuses funds to make new loans. Its ability to manage deal
26 flow in part depends on the expectation of timely payoffs to fund new loans and its business. The failure
27 of borrowers to timely payoff loans disrupts business and funding availability. When Paniagua
28 defaulted and the Loan was accelerated and he failed to timely pay it in full, Milestone lost opportunities
15
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 to re-lend the funds on that date and earn loan initiation fees and points and charges. It was reasonable
2 when the Loan was made and the Settlement Agreement was made that Milestone would suffer damages
3 of approximately 10% if the borrower deprived Milestone of the ability to obtain its funds when due.
4 ESCROW STATEMENTS FOR OTHER MJF-BROKERED LOANS
5 44. I understand that Marc J. Fournier has testified or will testify that he and his company,
6 MJF, have never brokered loans involving Milestone as lender. Any such allegation is false. TE 127
7 are business records of Milestone and are true and correct copies of some of the (redacted) escrow
8 statements relating to Milestone loans to other borrowers during the 2014-17 period where "MJF
9 Funding Corp dba Bluewater Funding" acted as the licensed broker for the borrower. In addition to the
10 loans reflected in TE 127, I am generally aware that MJF and Fournier acted as the borrower's broker on
11 numerous other Milestone Loans before and after 2014; that MJF/Fournier was paid and he retained
12 broker fees on all such loans; and that MJF/Fournier never tried to return such broker fees or contacted
13 Milestone and advised they were not acting as broker on any such loans. Moreover, MJF was listed on
14 the Notice to Borrowers (TE 25) because Milestone had previously successfully funded loans where
15 MJF represented the borrowers in the transactions. That is the reason it was on the list.
16 THE 2015 BRE ORDERS (to the extent the Court deems them admissible)
17 45. On March 13, 2015, the Bureau of Real Estate ("BRE") issued an Order to Desist and
18 Refrain ("ODR") against Milestone, me and others. That order was overbroad and our attorney
19 communicated with the BRE to have it amended. This led to the BRE issuing a Second Amended ODR
20 ("SODR") on April 27, 2015 (collectively, the "2015 BRE Order"; see TE 51, 52 ). I understand that
21 Plaintiff is somehow relying on the BRE Order as support for his lawsuit. The BRE Order has nothing
22 to do with Paniagua or his Loan.
23 46. From the time Paniagua approached Milestone for a Loan up through Loan funding in or
24 around March 20, 2014, there was no BRE Order in existence against any Defendant, including
25 Milestone, to Desist and Refrain from any real estate or lending activities.
26 47. I have reviewed the BRE Order, including the ten (10) Findings of Fact. None of those
27 findings indicated that I, personally, took any specific action, made any specific statements, or engaged
28 in any specific identified conduct as to any lender or borrower.
16
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 48. The Findings of Fact correctly state (ifif 1, 2, 4) that at all relevant times: i) C. Stuart has
2 been licensed as a real estate broker; ii) I have been licensed as a real estate salesperson; and iii) Bear,
3 dba Page Mill Funding, has been licensed as a corporate real estate broker.
4 49. Paragraph 6 is a general, catchall finding of fact that:
5 "During the period of time set forth below, C. STUART, W. STUART,
6 HAMIL TON, BEAR, and MILESTONE solicited borrowers or lenders
for or negotiated loans or collected payments or performed services for
7 borrowers or lenders or note owners in connection with loans secured
directly or collaterally by liens on real property or on a business
8 opportunity." (Emphasis added)
9
I do not understand exactly what this recitation claims I did. The finding has eight (8) different "or"
10
conjunctions that make it impossible for me to understand what exactly the alleged finding is. The
11
other, remaining factual findings do not allege that I did any of those acts.
12
50. Paragraph 7 references a flier attached as Exhibit "A." I have retrieved the 2015 BRE
13
Order from the DRE website and there is no flier attached to it. I am not aware of what flier the 2015
14
BRE Order is referring to. The 2015 BRE Order does not state that the flyer misrepresented anything. I
15
have never prepared a flier for Milestone or sent a flier on behalf of Milestone in which Milestone has
16
offered to make Consumer Loans or makes loans primarily for personal, family, or household use.
17
1. Paragraph 8 refers to Milestone's website. I am familiar with the Milestone website, and
18
it has never stated that Milestone or any other Defendant makes Consumer Loans, or makes loans
19
primarily for personal, family, or household use, or holds a Consumer Loan license.
20
51. The 2015 BRE Order sets forth 3 Conclusions of Law. The first Conclusion of Law
21
finds:
22
"Based on the findings of fact contained in paragraphs 1 through 10, C.
23 STUART, W. STUART, HAMILTON, BEAR, and MILESTONE
solicited, offered, and/or negotiated terms of a residential mortgage loan
24 for one or more borrowers without obtaining a mortgage loan originator
license endorsement in violation of Section 10166.02(b) of the Code."
25
26 I understand that Business and Professions Code ("B&P") § 10166.02(b) prohibits an individual from
27 engaging in business as a "mortgage loan originator" unless the individual has certain licenses - i.e., a
28 consumer loan license. I further understand that B&P §10166.0l(b)(l) defines the term as follows,
17
DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL
1 "'Mortgage loan originator' means an individual who takes a residential mortgage loan application or
2 offers or negotiates terms of a residential mortgage loan for compensation or gain." (Emphasis added) I
3 further understand that B&P §10166.0l(d) defines a residential mortgage loan as follows,
4
'"Residential mortgage loan' means any loan primarily for personal,
5 family, or household use that is secured by a mortgage, deed of trust, or
other equivalent consensual security interest on a dwelling, or residential
6 real estate upon which is constructed or intended to be constructed a
dwelling. 'Dwelling' means a residential structure that contains one to
7 four units, whether or not that structure is attached to real property. The
term includes an individual condominium unit, cooperative unit,
8
mobilehome, or trailer, if it is used as a residence." (Emphasis added).
9
Paniagua's Loan was not primarily for personal, family, or household use, and Milestone does not make
10
loans primarily for personal, family, or household use. If the borrower is not intending to use the loan
11
proceeds primarily for business, commercial or investment purposes, I will not quote the loan for
12 Milestone. Milestone quotes loans by use of a form of Conditional Loan Quote, as was done for the
13 Paniagua loan. (See TE 33). The form always confirms the loan purpose and it is never primarily for
14 personal, family, or household use.
Preview
1 MEYLAN DAVITT JAIN AREVIAN & KIM LLP VINCENT J. DAVITT, ESQ. (State Bar No. 130649) ELECTRONICALLY 2 ANITA JAIN, ESQ. (State Bar No. 192961) 444 S. Flower St., Suite 1850 FILED 3 Superior Court of California, Los Angeles, CA 90071 County of San Francisco 4 Tel (213) 225-6000 - Fax (213) 225-6660 10/18/2023 vdavitt@mdjalaw.com I ajain@mdjalaw.com Clerk of the Court BY: RONNIE OTERO 5 Deputy Clerk HARRIS L. COHEN, ESQ., State Bar# 119600 6 HARRIS L. COHEN, A PROF. CORP. 5305 Andasol Ave. 7 Encino, CA 91316 8 Tel (818) 905-5599 I fax (818) 905-5660 hcohenOO@aol.com 9 Attorneys for Defendants and Cross-Complainants, 10 Milestone Financial, LLC, Bear Bruin Ventures, Inc., William R. Stuart, Carolyn Stuart, Zoe Hamilton 11 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 FOR THE COUNTY OF SAN FRANCISCO 14 15 Eduardo Paniagua and Elena Asturias, ) CASE NO. CGC-18-571279 individuals, ) 16 ) DECLARATION OF WILLIAM R. STUART Plaintiffs, ) AS DIRECT TESTIMONY FOR TRIAL 17 vs. ) 18 Milestone Financial, LLC, a California ) Date: October 24, 2023 corporation, Bear Bruin Ventures, Inc. a ) Time: 8:30 a.m. 19 California Corporation, William R. Stuart, an ) Dept.: 611 individual, Carolyn Stuart, an individual, Zoe ) 20 Hamilton, an individual, and DOES 1-100, ) inclusive, ) 21 ) Defendants. 22 ) ) 23 RELATED CROSS-ACTIONS ) ) 24 ) 25 26 27 28 1 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 DECLARATION OF WILLIAM R. STUART 2 I, William R. Stuart, hereby declare and state: 3 1. I am the Managing Member of Defendant/Cross-Complainant MILESTONE 4 FINANCIAL, LLC ("Milestone") and the president of Bear Bruin Ventures, Inc. I submit this 5 Declaration as my direct testimony in the trial in this action. I have personal knowledge of the facts set 6 forth herein and, if called as a witness, I could and would testify competently thereto. 7 BACKGROUND, EDUCATION, TRAINING, ASSOCIATIONS, AND LICENSES 8 2. I reside in the San Francisco Bay area with my wife Carolyn Stuart. I graduated from 9 Miramonte High School in Orinda, California. I graduated from UCLA in 1985, with a degree in 10 Political Science and was selected to study at Cambridge University. Since graduating from UCLA, I 11 have successfully completed post-graduate courses in finance, commercial brokerage, and real estate 12 investments, and have taken classes and professional training relating to the lending and/or real estate 13 industries, including conferences with the California Mortgage Association, and UCLA extension 14 classes on mortgage laws and real estate. I have taken Department of Real Estate ("DRE") continuing 15 education as required. I also frequently attend asset based lending seminars and lectures to stay current 16 on legal and business issues affecting the industry and trends in the industry. I have been a speaker at 17 various conferences involving real estate and/or lending issues. During my professional career, I have 18 been involved in multitudes of transactions with multitudes of banks and other lenders/financial 19 institutions, either in representing the lenders or in transactions with them. 20 3. I am licensed by the State of California as a real estate salesperson, License ID 21 00908287, and have held that license in good standing since 1985. 22 4. I have been appointed by several U.S. bankruptcy courts to assist in liquidating various 23 real-estate based assets. I have testified and been qualified as an expert in real estate valuation of 24 contaminated property and have been hired as a witness by the United States Small Business 25 Administration and have testified in Federal Court relating to real estate matters. 26 EMPLOYMENT BACKGROUND PRIOR TO MILESTONE 27 5. Prior to starting Milestone in 2007, I worked in the commercial real estate and lending 28 industries for approximately 22 years. This employment involved commercial lending, wholesale 2 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 lending, and "asset-based" lending. After graduating from UCLA, I worked for 7-8 years as a 2 commercial office leasing agent for Schneider Real Estate Co., a real estate management company 3 ("Schneider"), located in Santa Ana. After Schneider, I went to work as a commercial real estate agent 4 for Mr. Robert Braun in the Moreno Valley area. I worked for Mr. Braun for approximately 2 years. 5 6. Next, I worked for a large, commercial real estate company, Marcus & Mill chap 6 ("M&M") in Palo Alto. M&M was and is a commercial real estate company engaged in, among other 7 things, brokerage, mortgage brokerage, and advisory services. While at M&M, I was an investment real 8 estate agent and listed and sold investment properties such as shopping centers, other commercial 9 properties, raw land, and industrial properties. I was promoted a number of times while at M&M, 10 achieving the level of Vice President of Investments. I worked at M&M for approximately 19 years. 11 7. During my professional career prior to Milestone, I was involved with wholesale, 12 commercial, and/or asset based lending by, among other things, purchasing loan portfolios and 13 representing banks and other lending institutions as a commercial agent. 14 MILESTONE BACKGROUND, STRUCTURE, AND PERSONNEL 15 8. At all times from prior to the subject March 2014 "Loan" from Milestone to Plaintiff 16 Eduardo Paniagua ("Paniagua") through the 2018 Loan payoff, Milestone has been a Limited Liability 17 Company organized under California law and has been owned by me and my wife, Carolyn Stuart. 18 During this time, Milestone has had between 2-5 people working for Milestone. I was the president of 19 Bear Bruin Ventures, Inc. dba Page Mill Funding, a licensed real estate broker ("BBV"). BBV was the 20 managing member of Milestone at the time of the Loan. Milestone's Zoe Hamilton ("Hamilton") has 21 been the person primarily responsible for loan intakes from licensed real estate brokers and for filling in 22 lending forms and processing loans. I make the high level decisions at Milestone, including all loan 23 quotes, what loans are funded, and the loan terms. Hamilton and I were the only people at Milestone 24 who worked on the Paniagua Loan. I currently hold and have held a California Real Estate 25 Salesperson's license #00908287 since prior to 1990. 26 9. Since the company was founded, Milestone has only made non-consumer loans - i.e., 27 commercial, business, and/or investment purpose loans (hereinafter "Non-consumer Loans" or 28 "Commercial Loans"). In addition, Milestone only makes loans that are arranged through third-party, 3 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 licensed real estate brokers who represent the borrowers. Milestone does not make consumer residential 2 mortgage loans or represent borrowers. Thus, Milestone has never needed the license and endorsement 3 that applies to lenders of consumer, residential mortgage loans (hereinafter a "License/MLO 4 Endorsement" or "Consumer Loan License"). Milestone only makes a loan if a borrower first 5 represents, in a notarized loan purpose affidavit and in other documents, that the proceeds are being used 6 for commercial, investment, or business purposes. Milestone does not make a loan without first 7 obtaining such an Affidavit of business purpose, and Milestone relies on the borrower's non-consumer 8 loan representations in making a loan. 9 10. Milestone is in the commercial lending industry. I have been in the commercial lending 10 industry for roughly 35 years and am familiar with the customs and practices of the commercial lending 11 industry. In the commercial lending industry, a loan secured by a non-owner occupied, residential rental 12 income property, where the borrower represents the proceeds are being used to renovate and sell the 13 property, is a commercial loan and a for-profit loan. It is also the custom and practice of Milestone and 14 other commercial lenders to rely on a borrower's loan purpose affidavit because Milestone and other 15 commercial lenders generally do not track a borrower' s post-lending spending activity and do not have 16 an obligation to track such activity. 17 11. Milestone is also known as a "wholesale" lender. As a wholesale lender, Milestone 18 generally does not deal directly with borrowers before loan closing. It deals with a borrower's 19 representative(s), one of whom must be a licensed broker. The borrower selects and pays for the licensed 20 broker. The borrower represents to Milestone, in multiple documents: the broker's identity; that the 21 broker is licensed (which Milestone also verifies); and that the broker is arranging the loan for the 22 borrower. If Milestone is contacted directly by a borrower or unlicensed representative for a potential 23 loan, Ms. Hamilton sometimes sends the person a Notice to Borrower which: states Milestone does not 24 represent borrowers; lists several licensed area brokers as non-exclusive options; and urges the borrower 25 to interview several licensees. Milestone has never required or demanded that a borrower use a 26 particular broker; it is the borrower's sole decision. A true and correct copy of a form of Notice to 27 Borrower used by Milestone when contacted by a potential borrower who has not already hired a 28 licensed broker is Trial Exhibit ("TE") 25. 4 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 12. Milestone does not directly solicit borrowers. It only mails flyers to licensed brokers. 2 Generally, Milestone obtains brokers' lists by purchasing them from the California Department of Real 3 Estate. The flyers have never stated that Milestone makes consumer loans or that it holds a Consumer 4 Loan License. Milestone's website has never stated that Milestone makes consumer loans, or that it 5 holds a Consumer Loan License, or that it holds a real estate broker's license. 6 13. In 2018, Milestone obtained a California Finance Lender's license - 60DB073257. See 7 TE 109, a true and correct copy of the Milestone Financial, LLC Finance Lender and Broker License 8 dated February 23, 2018. 9 PANIAGUA AND THE FUNSTON PROPERTY 10 14. The subject Milestone-Paniagua Loan was funded in March 2014, and it was secured by 11 property owned solely by Paniagua, located at 1228 Funston Ave., San Francisco, CA 94122 (the 12 "Funston Property" or "Funston"). Paniagua, and his wife, Elena Asturias ("Asturias"), who is an 13 attorney and was a named Plaintiff in this action until she recently dismissed her claims, had acquired a 14 50% interest in Funston by a grant deed recorded with the San Francisco Assessor-Recorder ("SFR") on 15 December 14, 2009. TE 14 is a true and correct copy of the 12114/09 recorded grant deed. Thereafter, 16 by a grant deed recorded with the SFR on December 9, 2011, the Funston Property owners deeded 100% 17 of the Funston Property to Paniagua, a married man as his sole and separate property. TE 15 is a true 18 and correct copy of the 12/9/11 recorded grant deed. 19 15. It is my understanding now, and it was my understanding at around the time of the Loan, 20 that Paniagua has been an owner of Paniagua Construction, Inc. ("PCI") which he operates from 176 21 Randall St., San Francisco, CA 94132 ("Randall Property"). TE 105 is a true and correct copy of the 22 printout from the California Contractor's State Licensing Board regarding PCI. 23 PANIAGUAc:S FIX-AND-FLIP FUNSTON PROJECT, RUFFRAGE, MJF, AND THE MARCH 24 2014 MILESTONE LOAN 25 16. Paniagua is the only borrower on the subject Loan. I first became aware of Paniagua and 26 Funston in or around January 2014 shortly after Jose Ruffrage ("Ruffrage"), who described himself to 27 Milestone as Paniagua's loan "agent," had contacted Zoe Hamilton, who handles intake for Milestone. 28 Based on the paperwork submitted by Paniagua and/or Ruffrage, it was my understanding that Ruffrage 5 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 was seeking a loan, on behalf of Paniagua, for a "fix and flip" project on Funston, which was a non- 2 owner occupied, rental property that Paniagua owned. It was also my understanding that Paniagua 3 wanted a loan from an asset-based lender like Milestone because he was in a rush to start major 4 construction on the Funston Project, and Milestone, and other asset-based lenders, can and do fund loans 5 more quickly than banks or other conventional lenders. 6 17. The Loan closed on or around March 20, 2014. Through the Loan closing, I never spoke 7 with Paniagua or his wife Asturias. Prior to loan closing, I never communicated (orally or in writing) 8 with either of them. I never offered either of them a consumer residential mortgage loan, and I never 9 represented to either of them that Milestone or any other Defendant in this action had a Consumer Loan 10 License. My involvement with the Loan through the closing was limited to the review of Loan-related 11 documents submitted by Paniagua, Ruffrage, MJF Funding Corp., and/or Mary Lazo (the Old Republic 12 Title Officer) and making the lending decision based on those documents. Neither Milestone, nor I, ever 13 represented to the public that Milestone could offer, accept, enter into, or otherwise make consumer 14 residential mortgage loans primarily for personal, family or household purposes. 15 18. There was no document presented to Milestone prior to the Loan closing indicating that 16 the Loan being sought by Paniagua was anything other than a "fix and flip" profit-making loan for the 17 borrower - i.e. a commercial loan. 18 19. In late January- early February 2014, Ruffrage, who I understood was acting on behalf 19 of and for Paniagua, sent Milestone documents relating to Paniagua' s request for a commercial loan, 20 including: 21 ~ A loan quote worksheet ("LQW"), which identified Paniagua as the borrower and Ruffrage as his 22 "agent;" identified the Funston Property; and stated (somewhat illegibly) that the "loan purpose" was 23 "to make it into a 3000 sffhome & Flip" for the "vacant" Funston Property. TE 18 is a true and 24 correct copy ofRuffrage's fax/Loan Quote Worksheet. (The fax has a wrong date stamp of 25 2/23/2010.); 26 ~ An estimated budget for remodeling and addition to the Property for $450,200. TE 26 is a true and 27 correct copy of the estimated budget Milestone received; 28 6 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 >- Two signed Disbursement Requests & Authorizations ("DRA") for the renovation Project at 2 Funston. TE 34 and 37 are true and correct copies of the DRAs for the construction for Funston that 3 Milestone received; 4 >- 10 pages of site plans for the Funston Project. TE 128 is a true and correct copy of the site plans that 5 Milestone received; 6 >- A January 2014 appraisal for Funston previously submitted to another private lender (a competitor), 7 showing the Property was vacant (as shown on page 2 of the 55 page exhibit next to the left side tab 8 labelled "Subject" on the line starting with "Occupant.") TE 28 is a true and correct copy of the 9 appraisal; and 10 >- Milestone, through me, relied upon each of these documents in deciding to make the Loan. 11 20. The practice at Milestone is to verify, by looking at the BRE/DRE website, that a 12 potential borrower's representative is a licensed loan broker. Hamilton and/or I determined, by looking 13 at the BRE/DRE website, that Ruffrage was not a licensed broker, so Hamilton sent Paniagua and/or 14 Ruffrage a standard Notice to Borrower that Milestone sends when it is contacted by a non-licensed 15 person. The Notice: stated Milestone does "not represent borrowers" in obtaining real estate loans; 16 stated "[w]e strongly urge you to interview several licensees before selecting one;" and identified three 17 licensed brokers, including MJF Funding Inc. dba Bluewater Funding ("MJF")/Marc Fournier, that 18 borrowers had used for prior loans. TE 25 is a true and correct copy of the Notice. TE 106 is a true and 19 correct copy of the Department of Real Estate website printout confirming the licensing status of MJF 20 Funding Corporation, with a dba ofBluewater Funding, and Licensed Officer Marc J. Fournier (through 21 2018). 22 21. Paniagua had the sole discretion to choose any licensed broker; Milestone never required 23 Paniagua or any other borrower to use a particular broker, or to use a broker listed in the Notice. In 24 response, in 2014, 2016, and 2017, Paniagua represented to Milestone, in at least nine (9) documents he 25 signed and that were sent to Milestone, that MJF was Paniagua's chosen, licensed broker and his 26 fiduciary. These documents include: Conditional Loan Quote [TE 33]; Agreement to Arrange Credit 27 [TE 32]; two Loan Applications [TE 41, 42]; Mortgage Loan Disc. Stmt [TE 43]; Escrow Instructions 28 (two) [TE 44; TE 134, pp 109-116]; two Settlement Agreements [TE 61, 66]; and the Promissory Note 7 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL [TE 36]. Milestone (through me), in deciding whether to approve and fund the Loan, relied on 2 Paniagua's seven (7) written representations prior to the loan and that Paniagua ratified in the two 3 Settlement Agreements he signed after Milestone funded the loan. 4 22. In making the Loan, Milestone, through me, relied on Paniagua's representations in the 5 2014 Loan documents as described above. Based on those representations, Milestone (through Zoe 6 Hamilton) communicated with MJF, including MJF's Eric Ciaverelli (Operations Manager) and Raychel 7 Cooke (loan processor/assistant), who worked with and for MJF's Mark Fournier. In my decades of 8 experience in the commercial lending business, it is common that a commercial lender does not deal 9 directly with the borrower but instead deals with a broker's office (MJF) and its processors/assistants 10 (Ciaverelli and Cooke), while the broker's office (MJF) deals directly with its client/borrower 11 (Paniagua) and his/her agents (Ruffrage) without the lender's (Milestone's) involvement. Here, at all 12 relevant times, MJF's Fournier was a licensed real estate broker, license number #01813532, with a dba 13 ofBluewater Funding. TE 106 is a true and correct copy of the DRE listing for MJF dba Bluewater 14 Funding and its formerly licensed broker (through 2018), Marc Fournier. 15 23. In February 2014, Zoe Hamilton sent to MJF's Ciaverelli a standard letter that Milestone 16 sends with its conditional loan quotes. The letter (TE 29) stated that Milestone only provides loans "for 17 use as business, investment, non-consumer, and secured by non owner-occupied property." 18 24. In March 2014, Hamilton prepared, and I reviewed and approved (which approval is 19 required before it goes out), a Conditional Loan Quote ("CLQ") that was sent to Paniagua's chosen 20 licensed broker, MJF, for a $500,000 commercial loan to Paniagua for his Funston "fix and flip" Project. 21 The CLQ identified Funston and stated the loan purpose is "Investment" (the Loan Purpose Statement). 22 The CLQ identified Paniagua's loan agent as Blue Water Funding, which is MJF's dba. On around 23 March 12, 2014, the CLQ was sent back from MJF's offices to Milestone (and to the Old Republic 24 Escrow Officer, Mary Lazo; see TE Ex. 134, p. 13), reflecting the signatures of both Paniagua and 25 MJF's Fournier. TE 33 is a true and correct copy of the executed CLQ. I relied on the Loan Purpose 26 Statement in the CLQ and the signatures of Paniagua and Fournier in having Milestone agree to make 27 the loan to Paniagua. 28 25. Prior to Milestone making the loan to Paniagua, I personally went to Funston to view the 8 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 Property. I already had the Appraisal (TE 28) which had been forwarded by Ruffrage to Milestone and 2 which stated Funston was vacant. When I was at the Property, I saw the residence was open and was 3 partially boarded up, was under construction, and was vacant. This vacant status further confirmed that 4 Paniagua was using the Loan for non-consumer, "fix and flip" purposes. I relied upon the appraisal 5 indicating the Property was vacant and my inspection in having Milestone agree to make the loan to 6 Paniagua. 7 26. In March 2014, in connection with Paniagua's request for a Commercial Loan for his 8 Funston "fix and flip" Project, Milestone received from Paniagua, Ruffrage, MJF, and/or Old Republic 9 Title Co. (the escrow company), numerous documents that Milestone, through me, relied on in making 10 the Loan to Paniagua, including: 11 >- Paniagua's executed and notarized Affidavit Regarding Loan Purpose ("Affidavit"). He represented 12 in the Affidavit that the Loan was not a consumer loan for consumer, family, household or other 13 consumer purposes, and that Funston is not currently or intended to be occupied by the borrower. 14 TE 31 is a true and correct copy of the Affidavit; 15 >- Paniagua's executed and initialed (each page) Agreement to Arrange Credit ("AAC"), which also 16 reflected MJF/Fournier's signature. The AAC, an agreement between Paniagua ("Borrower") and 17 MJF ("Broker"), stated MJF is currently licensed as a broker; is actively involved in getting 18 Paniagua the Loan and is not affiliated with Paniagua; that Paniagua contacted MJF to procure the 19 Loan; they have agreed upon terms; and the proceeds will be used for business, commercial or 20 investment purposes. TE 32 is a true and correct copy of the AAC; 21 >- Paniagua's signed Loan Applications (signed twice - on 3/12/14 and 3/20/14), which also reflected 22 MJF/Fournier's signature as "Loan Originator" and: identified the Funston Property as "R" ("rental 23 being held for income") and "IP" ("investment property"); and stated the Property's gross and net 24 monthly rental income was $5,500 and $4,125, respectively. That the Property was used as a rental 25 property is consistent with the Loan not being a consumer loan. TE 41 and 42 are true and correct 26 copies of the Applications received by Milestone; 27 >- Mortgage Loan Disclosure Statement for the Loan ("MLDS"), which is a document prepared by the 28 broker (MJF), not Milestone. The Statement was executed by Paniagua and also reflected Fournier's 9 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 signature, and: identifies MJF as Paniagua's broker, sets forth closing Loan cost estimates, including 2 Paniagua's "processing fee" to Ruffrage and his "Mtg Broker Commission/Fee" to MJF. TE 43 is a 3 true and correct copy of the MLDS; 4 );>- Signed Escrow Instructions for the Loan (two/revised), which state the escrow officer shall pay, 5 from Paniagua's funds, a "Broker fee" to MJW, and a "processing fee" to Ruffrage. TE 44 is a true 6 and correct copy of the 3/13/14 Escrow Instructions; TE 134, pp. 110-116 appears to be a true and 7 correct copy of the earlier, 3/11/14 Lender's Escrow Instructions in the Loan's Escrow File; 8 );>- A $500,000 Promissory Note Secured by Deed of Trust in favor of Milestone, in which Paniagua 9 represented: i) the proceeds "are strictly for business, commercial, or investment purposes ONLY"; 10 ii) "this Note was negotiated and arranged by a licensed real estate broker. Borrower has executed 11 that written Affidavit Regarding Loan Purpose dated March 11, 2014;" and iii) "This Note and each 12 of the Loan Documents have been negotiated, prepared and arranged through licensed broker, MJF 13 Funding Corporation of Alameda, CA. TE 36 is a true and correct copy of the Promissory Note; and 14 );>- A signed Deed of Trust ("DOT"), wherein Paniagua represented the DOT would be a "second" 15 position lien on the Property. TE 35 is a true and correct copy of the recorded DOT. 16 Milestone, through me, relied upon each of these documents in deciding to make the loan to Paniagua 17 secured by the Funston Property. 18 27. TE 45 is a true and correct copy of the Borrower's Closing Statement relating to the 19 Loan, showing that Paniagua paid his licensed loan broker, MJF, a $650.00 broker fee and paid his loan 20 agent, Jose Ruffrage, a $7,500 fee. This loan was funded over nine (9) years ago and, as discussed 21 below, went through two (2) different post-loan settlements. 22 28. Milestone relied upon the representations and statements made by Paniagua in his Loan- 23 related documents, including, but not limited to, in the Loan Quote Worksheet, CLQ, Affidavit, AAC, 24 loan escrow instructions, Promissory Note Secured by Deed of Trust, the Deed of Trust, the construction 25 disbursement documents, the Application, and the First and Second Settlement Agreements. I know this 26 because I am the final decision maker concerning whether loans are funded by Milestone. I have held 27 this position since the Company began in 2007. Milestone only makes Non-consumer Loans that are 28 secured by real property, which means loans that are not primarily for personal, family or household 10 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 purposes. Since the Milestone Loan to Paniagua was not a consumer residential mortgage loan 2 primarily for personal, family or household purposes, Milestone did not need a lender's License/MLO 3 Endorsement to make the Loan. 4 PANIAGUA~ OTHER COMMERCIAL LOANS USED TO FINANCE AND REFINANCE HIS 5 FUNSTON PROJECT 6 29. I understand that Paniagua, starting in late 2013, also sought and obtained numerous 7 other loans to finance and refinance his Funston, for-profit, fix and flip project, including: (1) a 8 $725,000 loan from East West Bank in late 2013 (TE 22) (which Paniagua did disclose in his Milestone 9 Loan application); (2) a $150,000 loan from private lender Debra Resnik ($150,000) in January 2014 10 (which Paniagua did not disclose in his Milestone Loan application); (3) a $400,000 loan from private 11 lender Nina Geneson in July 2015; (4) a $500,000 loan from private lender, James Nunamacher, in 12 January 2016; (5) a $850,000 loan from a private lender, Jennifer Smorgon, in March 2018; (6) two 13 loans totaling $2.4 million from entities of private lender Tom Malgesini in April 2019. I searched the 14 website at www.nmlsconsumeraccess.org and determined that neither James Nunemacher, Debra 15 Resnik, Jennifer Smorgon, Tom Malgesini, nor Yosemite Capital, LLC, had the License/MLO 16 Endorsement applicable to lenders of consumer, residential mortgage loans. TE 91, 92 and 93 contain 17 true and correct copies of the printout pages from that website based on searches for those persons. As 18 to the East West Loan, based on the paperwork (TE 19), it was clearly a commercial loan as it was on 19 "investment property." As to the Geneson Loan (TE 129) and Malgesini Loans (TE 130), they likewise 20 are clearly both commercial loans and were sought and obtained by Paniagua for the same reason and 21 purpose as the Milestone Loan. Further, Paniagua and Asturias signed a "Terms of Business Purpose 22 Loan' statement in his Malgesini loan package. (TE 130). They also signed a "Certificate of Business 23 Purpose Use of Proceeds" statement for that loan with the representation "I have represented to Broker 24 that the loan will be used primarily for business purposes exclusive of loan fees, costs and expenses 25 incurred to obtain the loan. I understand that any Lender will rely upon this representation." (TE 130). 26 PANIAGUA~ COMPLETION OF THE FUNSTON PROJECT, HIS LOAN DEFAULTS, THE 27 TWO SETTLEMENT AGREEMENTS/RELEASES, AND HIS LOAN PAYOFF 28 30. By August 2014, Paniagua defaulted on the Loan. To protect its rights, Milestone 11 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 recorded a Notice of Default and Election to Sell Under Deed of Trust ("NOD"). TE 49 is a true and 2 correct copy of the recorded NOD that was recorded with the County Recorder on August 22, 2014. 3 31. On or about November 25, 2015, Paniagua's agent signed a Residential Water 4 Conservation Inspection and Certificate of Compliance form ("Form") recorded with the SFR on 5 November 25, 2015 as instrument number 2015-K161333-00 representing the inspection was for resale 6 of the Property, as opposed to a property Paniagua would live in. TE 55 is a true and correct copy of the 7 Form. 8 32. Beginning in or about 2015, Paniagua (either directly or through his wife Asturias) 9 sought to extend the maturity date of the Loan. 10 33. In January 2016, after conferring with me, Zoe Hamilton emailed both Paniagua and his 11 attorney wife, Asturias, a Settlement Agreement, Indemnity and First Amendment to Promissory Note 12 Secured by Deed of Trust ("First Settlement Agreement"). The First Settlement Agreement was the 13 result of negotiations between Milestone and Paniagua, who was represented by his attorney wife, Elena 14 Asturias, and they were completely satisfied with its terms as Paniagua chose not to refinance the loan 15 with another lender and remain a Milestone borrower based on those terms. The settlement agreement is 16 lengthy and was intended to resolve all claims of every kind between the parties. On or about January 17 26, 2016, Paniagua signed the First Settlement and his signature was notarized. Under its terms: 1) 18 Milestone extended the Loan maturity date to March 2017, lowered the interest rate to 10.75%, and 19 changed the terms so Paniagua would only make interest payments up to payoff; 2) Paniagua agreed 20 $425,631.44 was due; 3) Paniagua agreed to release any claims against Milestone and the other 21 Defendants (ifl6) arising from th~ Note, and all loan documents (with a Civil Code§ 1542 waiver ifl 7), 22 and to indemnify Milestone and the other Defendants from any claims (if3 such as the claims by 23 Paniagua and Asturias (Asturias has now dismissed her claims) in this action which are the subject of 24 the Cross-Complaint); and 4) Paniagua represented the Loan was arranged through a California licensed 25 broker, MJF, and the Agreement was reviewed by his attorney. TE 61 is a true and correct copy of the 26 First Settlement Agreement. 27 34. In early 2017, after they defaulted, Plaintiff and his wife Asturias again asked Milestone 28 to extend the Loan. After conferring with me, Zoe Hamilton emailed both Plaintiff and Asturias a draft 12 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 Settlement Agreement, Indemnity and Second Amendment to Promissory Note Secured by Deed of 2 Trust ("Second Settlement Agreement"). On January 24, 2017, Paniagua signed the Second Settlement 3 Agreement. Paniagua's signature was notarized and it was returned to Milestone. TE 66 is a true and 4 correct copy of the Second Settlement Agreement. Under its terms: 1) Milestone extended the Loan 5 maturity date to March 2019; 2) Paniagua agreed $444,478 was due; 3) Paniagua agreed to release his 6 claims against all Defendants (~22 with a Civil Code § 1542 waiver ~23) and to indemnify Milestone and 7 the other Defendants claims (~3 such as the claims by Paniagua and Asturias in this action which are the 8 subject of the Cross-Complaint); and 4) he represented the Loan was arranged through licensed broker 9 Bluewater Funding Inc. (dba of MJF), and the Agreement was reviewed by Paniagua's attorneys, as his 10 wife was an attorney. Plaintiff never objected to any terms in either Agreement and agreed that this 11 again resolved all claims between the parties as of that date. The new terms and fees charged for the 12 settlement were among the lowest fees Milestone has ever charged a borrower in these circumstances. 13 35. Paniagua paid off the Milestone loan in April 2018, and Milestone recorded a 14 Substitution of Trustee and Deed of Reconveyance on May 1, 2018. Since Paniagua's loan from 15 Milestone was paid off in 2018, there have not been any further contracts, loans or business conducted 16 between the parties. TE 108 is a true and correct copy of the Substitution of Trustee and Deed of 17 Reconveyance that was recorded. 18 THE NMLS AND DRE/BRE WEBSITES 19 36. Before and after the March 2014 Milestone Loan, Plaintiff could have found out that 20 Milestone did not have a Consumer Loan License by accessing the free publicly available NMLS 21 consumer website (www.nmlsconsumeraccess.org), a government website which existed in 2014 and 22 which provides free verification of state licenses of California financial services providers. 23 37. I understand that Plaintiff bases his claims on a 2015 Order from the BRE (now DRE) 24 regarding residential mortgage loans. [See below.] At all relevant times, the DRE/BRE website has had 25 links to those documents. Plaintiff could at any time have looked up Milestone, BBV, me and/or 26 Hamilton and discovered any relevant orders. The website where they are all located for free to the 27 public is https://www2.dre.ca.gov/. 28 13 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 PLAINTIFFS DID NOT CONTRACT WITH BBV, MS. HAMILTON OR ME 2 38. Paniagua's lawsuit named BBV, Zoe Hamilton, and me personally as defendants. 3 Paniagua never had any loan from or any other transaction or business with BBV, which has never 4 charged Paniagua any interest or received any interest from him. Paniagua has never had any loan from 5 me or done any business with me personally, and I have never charged Paniagua any interest and he has 6 not paid any interest to me. Finally, I am not aware of any facts suggesting that Paniagua ever had any 7 loan from Zoe Hamilton, or has done any business with her, or that Ms. Hamilton ever charged Paniagua 8 any interest, or that Paniagua has ever paid any interest to Ms. Hamilton. 9 PANIAGUAcS LOAN FRAUD AND UNCLEAN HANDS AS TO MILESTONEcS LIEN 10 POSITION AND LOAN 11 39. Paniagua did not disclose in either of his two (2) loan applications (TE 41 and 42) that, 12 prior thereto, he had already borrowed $150,000 from Debra Resnik and had executed a Short Form 13 Deed of Trust in her favor secured by the Funston Property. TE 45 is a true and correct copy of the 14 Short Form Deed of Trust in favor of Resnik which was executed on January 30, 2014 by Paniagua as 15 notarized and recorded on March 18, 2014,just two (2) days before Milestone's deed of trust was 16 recorded. Had I known of Paniagua's nondisclosure in the applications of the Resnik loan and lien, I 17 would not have had Milestone make the loan to Paniagua. The Resnik loan would have changed all the 18 loan ratios, his cash flow levels, the risk levels and other factors that would have caused me to not make 19 the loan. Further, the discovery of his nondisclosure would have caused me to not have had Milestone 20 make the Loan, since the Loan would be secured by a third-position deed of trust, not second in priority 21 as Paniagua had represented to Milestone. 22 40. Of the approximately thirty-eight (38) Loan payments that Paniagua or his company 23 (PCI) made to Milestone over the life of the Loan, twenty-nine (29) of those payments were late. 24 Moreover, Paniagua completely missed other Loan payments that were due. 25 THE LIQUIDATED DAMAGES FEE WAS REASONABLE AND PANIAGUA AGREED TO IT 26 THREE (3) SEPARATE TIMES 27 41. The Note's liquidated damages fee on maturity was agreed to by Paniagua and included 28 in the original loan. [See TE 36 ~13 - "including the final or balloon payment".] This same provision 14 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 for the liquidated damages on maturity was in the First Settlement Agreement and agreed to by Paniagua 2 again. (TE 61, if l 3 ). This same provision for the liquidated damages on maturity was in the Second 3 Settlement Agreement and agreed to by Paniagua a third time. [TE 66, ifl l .]. This was negotiated and 4 the parties agreed that this was a reasonable approximation or estimate of the damages that Milestone 5 would suffer based on Paniagua' s default. 6 42. Here, the liquidated damages fee for default and acceleration is reasonable as failure to 7 pay off the full note amount, when due, prevented Milestone from re-lending the funds with new 8 initiation points and other fees that are charged at the initiation of a loan that can range up to ten percent 9 or ten points in lending common parlance. These are fees Milestone earns on loan initiation that also 10 fund its business. Milestone relies upon and budgets the receipt of the balloon payment in a timely 11 manner to efficiently operate its business based on loan requests and funding needs. If a loan is not 12 timely paid off, that failure by the borrower negatively impacts Milestone's ability to re-lend those funds 13 and tarnishes its reputation with new borrowers and their loan brokers who must be able to count on 14 Milestone's funding commitments. Milestone's funding commitments are based on the assumption that 15 loans will be paid off in full when due. When Paniagua defaulted under the terms of the Second 16 Settlement Agreement, I sent him a default and acceleration notice. TE 133 is a true and correct copy of 17 the Memorandum which contained the default and acceleration notice that I sent to Paniagua. Paniagua 18 did not cure the default or make any payment within ten days as required by the notice and Milestone 19 accelerated the loan and imposed the late fee. The default and acceleration notice informed Paniagua of 20 the consequences of his failure to pay off the loan. 21 43. The precise dollar figure of the anticipated loss of these fees on re-lending is impractical 22 and extremely difficult to fix at the time a loan is funded and will be a future loss when a default 23 prevents Milestone from "turning" its money. This is no different than a waiter losing tips if a guest 24 comes at 6:00 p.m. and stays at the table until closing, rather than two other groups coming and tipping 25 as well. Additionally, Milestone's business reuses funds to make new loans. Its ability to manage deal 26 flow in part depends on the expectation of timely payoffs to fund new loans and its business. The failure 27 of borrowers to timely payoff loans disrupts business and funding availability. When Paniagua 28 defaulted and the Loan was accelerated and he failed to timely pay it in full, Milestone lost opportunities 15 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 to re-lend the funds on that date and earn loan initiation fees and points and charges. It was reasonable 2 when the Loan was made and the Settlement Agreement was made that Milestone would suffer damages 3 of approximately 10% if the borrower deprived Milestone of the ability to obtain its funds when due. 4 ESCROW STATEMENTS FOR OTHER MJF-BROKERED LOANS 5 44. I understand that Marc J. Fournier has testified or will testify that he and his company, 6 MJF, have never brokered loans involving Milestone as lender. Any such allegation is false. TE 127 7 are business records of Milestone and are true and correct copies of some of the (redacted) escrow 8 statements relating to Milestone loans to other borrowers during the 2014-17 period where "MJF 9 Funding Corp dba Bluewater Funding" acted as the licensed broker for the borrower. In addition to the 10 loans reflected in TE 127, I am generally aware that MJF and Fournier acted as the borrower's broker on 11 numerous other Milestone Loans before and after 2014; that MJF/Fournier was paid and he retained 12 broker fees on all such loans; and that MJF/Fournier never tried to return such broker fees or contacted 13 Milestone and advised they were not acting as broker on any such loans. Moreover, MJF was listed on 14 the Notice to Borrowers (TE 25) because Milestone had previously successfully funded loans where 15 MJF represented the borrowers in the transactions. That is the reason it was on the list. 16 THE 2015 BRE ORDERS (to the extent the Court deems them admissible) 17 45. On March 13, 2015, the Bureau of Real Estate ("BRE") issued an Order to Desist and 18 Refrain ("ODR") against Milestone, me and others. That order was overbroad and our attorney 19 communicated with the BRE to have it amended. This led to the BRE issuing a Second Amended ODR 20 ("SODR") on April 27, 2015 (collectively, the "2015 BRE Order"; see TE 51, 52 ). I understand that 21 Plaintiff is somehow relying on the BRE Order as support for his lawsuit. The BRE Order has nothing 22 to do with Paniagua or his Loan. 23 46. From the time Paniagua approached Milestone for a Loan up through Loan funding in or 24 around March 20, 2014, there was no BRE Order in existence against any Defendant, including 25 Milestone, to Desist and Refrain from any real estate or lending activities. 26 47. I have reviewed the BRE Order, including the ten (10) Findings of Fact. None of those 27 findings indicated that I, personally, took any specific action, made any specific statements, or engaged 28 in any specific identified conduct as to any lender or borrower. 16 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 48. The Findings of Fact correctly state (ifif 1, 2, 4) that at all relevant times: i) C. Stuart has 2 been licensed as a real estate broker; ii) I have been licensed as a real estate salesperson; and iii) Bear, 3 dba Page Mill Funding, has been licensed as a corporate real estate broker. 4 49. Paragraph 6 is a general, catchall finding of fact that: 5 "During the period of time set forth below, C. STUART, W. STUART, 6 HAMIL TON, BEAR, and MILESTONE solicited borrowers or lenders for or negotiated loans or collected payments or performed services for 7 borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business 8 opportunity." (Emphasis added) 9 I do not understand exactly what this recitation claims I did. The finding has eight (8) different "or" 10 conjunctions that make it impossible for me to understand what exactly the alleged finding is. The 11 other, remaining factual findings do not allege that I did any of those acts. 12 50. Paragraph 7 references a flier attached as Exhibit "A." I have retrieved the 2015 BRE 13 Order from the DRE website and there is no flier attached to it. I am not aware of what flier the 2015 14 BRE Order is referring to. The 2015 BRE Order does not state that the flyer misrepresented anything. I 15 have never prepared a flier for Milestone or sent a flier on behalf of Milestone in which Milestone has 16 offered to make Consumer Loans or makes loans primarily for personal, family, or household use. 17 1. Paragraph 8 refers to Milestone's website. I am familiar with the Milestone website, and 18 it has never stated that Milestone or any other Defendant makes Consumer Loans, or makes loans 19 primarily for personal, family, or household use, or holds a Consumer Loan license. 20 51. The 2015 BRE Order sets forth 3 Conclusions of Law. The first Conclusion of Law 21 finds: 22 "Based on the findings of fact contained in paragraphs 1 through 10, C. 23 STUART, W. STUART, HAMILTON, BEAR, and MILESTONE solicited, offered, and/or negotiated terms of a residential mortgage loan 24 for one or more borrowers without obtaining a mortgage loan originator license endorsement in violation of Section 10166.02(b) of the Code." 25 26 I understand that Business and Professions Code ("B&P") § 10166.02(b) prohibits an individual from 27 engaging in business as a "mortgage loan originator" unless the individual has certain licenses - i.e., a 28 consumer loan license. I further understand that B&P §10166.0l(b)(l) defines the term as follows, 17 DECLARATION OF WILLIAM R. STUART AS DIRECT TESTIMONY FOR TRIAL 1 "'Mortgage loan originator' means an individual who takes a residential mortgage loan application or 2 offers or negotiates terms of a residential mortgage loan for compensation or gain." (Emphasis added) I 3 further understand that B&P §10166.0l(d) defines a residential mortgage loan as follows, 4 '"Residential mortgage loan' means any loan primarily for personal, 5 family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling, or residential 6 real estate upon which is constructed or intended to be constructed a dwelling. 'Dwelling' means a residential structure that contains one to 7 four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, 8 mobilehome, or trailer, if it is used as a residence." (Emphasis added). 9 Paniagua's Loan was not primarily for personal, family, or household use, and Milestone does not make 10 loans primarily for personal, family, or household use. If the borrower is not intending to use the loan 11 proceeds primarily for business, commercial or investment purposes, I will not quote the loan for 12 Milestone. Milestone quotes loans by use of a form of Conditional Loan Quote, as was done for the 13 Paniagua loan. (See TE 33). The form always confirms the loan purpose and it is never primarily for 14 personal, family, or household use.