Preview
ELECTRONICALLY FILED
Superior Court of California
County of Santa Cruz
12/19/2018 1:40 PM
Alex Calvo, Clerk
Jason
Lee Weisberg, Esq. (Bar No. 150436) 5 japéSalsedo, Deputy
SISBERG
LAW OFFI
24013 Ventura Boulevard, Suite 200
Calabasas, Califomia 91302
Telephone: (818) 925-7400
Jason@WeisbergLaw.net
Attomeys for Defendant Jerome L Dodson
Trustee of the Jerome L. Dodson Revocable Trust of 2012
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CRUZ
10
SANTA CRUZ COURTHOUSE
11
12 GARY L. POLDER,; DONNA M. CASE NO. 18CV03599
STODDARD,
13 Division 5
Plaintiffs, Hon. Paul Burdick, PJ.
14
VS. MEMORANDUM OF POINTS AND
15 AUTHORITIES IN OPPOSITION TO
EROME L. DODSON, TRUSTEE OF THE ORDER TO SHOW CAUSE RE:
16 JEROME L. DODSON REVOCABLE PRELIMINARY INJUNCTION
TRUST OF 2012; SUN PACIFIC
17 MORTGAGE & REAL ESTATE; and DOES Date: December 27, 2018
1 through 50, inclusive Time: 8:30A.m.
18 Dept:5
Defendants.
19 Complaint Filed: December 13, 2018
Trial Date: None Set
20
21
Defendant Jerome Dodson, Trustee of the Jerome L. Dodson Revocable Trust Dated 2012,
respectfully submits this Memorandum of Points and Authorities in Opposition to the Court’s Order
23
to Show Cause Re: Preliminary Injunction.
25
26
27
i
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
TABLE OF CONTENTS
TABLE OF AUTHORITIES
MEMORANDUM OF POINTS AND AUTHORITIES
I INTRODUCTION
Factual Summary
b. The Temporary Restraining Order Should Be Allowed to
re and No Preli: junction Should Issue
Il. IS NO EVIDEN i RE WAS ANY VIOLATION OF
TILA OR HOEPA
THE FIVE FACTORS ARTICULATED IN THORNS V.
SUNDANCE PROPERTIES ALL COMPEL A FINDING THIS WAS A BUSINESS
LOAN TO WHICHTILA AND HOEPA DO NOT APPLY
10
A Mr. Polder’s Occupationas a Real Estate Broker Who
11 Loans Secured Apartment Building Is Very
Highly Related
to Saving
12 Foi rele ad Rol ay itera Pre it
13 The Plaintiffs Have Co ete Control Over the Vacant.
Land,and Thus, Perso! ly Manage the Acquisition
14
The Plaintiffs Potential Profit of $4 Million Dwarves
15 Their Stated Annual Income of $273,600.
16 $1.5 Million Is Not Pocket Change and Indicates this
Was a Business
17
E. The Plaintiffs Expressly Represented the Loan Was for
18 Busi
PLAINIT HAVE NOT SHOWN THAT DODSON IS A
19 “CREDITOR” UNDER TILA
TILA AND HOEPA ARE NOT FORECLOSURE PREVENTION
20 STATUTES, INSTEAD THEY ALLOW CONSUMER BORROWERS TO RESCIND.
AN APPLICABLE TRANSACTION AND REQUIRE THE BORROWER TO TENDER
21 THE PROCEEDS OF THE LOAN BACK TO THE LEND
VI EVEN IF TILA APPLIED, THE FIRST PRIORITY TRUST DEED
AGAINST THE VACANT FLORA LINDA PROPERTY CANNOT BE RESCINDED 10
ESTMENT IN VACANT LAND IS NOT SUBJECT TO
TILA. 1
VIII. IF ANY INJUNCTION IS GRANTED, A SUBSTANTIAL BOND
SHOULD BE REQUI wll
CONCLUSION, 12
25
26
27
ii
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION
TO OSC RE: PRELIMINARY INJUNCTION
TABLE OF AUTHORITIES
Cases
Am Mortg. Network, Inc. v. Shelton (4th Cir 2007) 486 F.3d 815
Corcoran v. Saxon Mo! . Servs., Inc. (D. Mass. 2) Civ. No. 09-11468-NMG, 3010
US. Dist. LEXIS 511 2010 WL 2106179,
Estillorev. Co ide Bank FSB (E.D. Cal. St 2011 U.S. Dist. LEXIS 13530 B
In re Booth (5th Cir. 1988) 858 F. 1051 -8-
Pacific Shore Funding v. Lozo (2006) 138 Cal. A Ath 1342 -5-
Powers v. Sims & Levin (4th Cir. 1976) 542 F.2d 13
Tachibanav. Colo. Mt. Dev., Inc. (D. Haw. 2010) 2010 U.S. Dist. LEXIS 101988 14
ns v. Sundance Pro) Cir. 1984) 726 F.2d 1417 -9-
Yamamoto v. Bank of New York (9th Cir. 2003) 329 F.3d 1167 13
Statutes
1S5U.S.C. § 1602(17)(v) -7-
15 U.S.C. § 1602(h) -6-
ISUS.C. § 1603(1) -6-
15U.S.C. § 1635 12
10 ISUS.C. § 1635(a) -5-
ISUS.C. § 1639(a) -5-
11
Regulations
12 CER. § 1026.1 -8-
CER. § 1026.2(a 12
13 12CER. § 1026.23(a) _7-
12C.ER. § 1026.23(a)(1) 13
14 12 CER. § 226.23(b) -5-
12 CER § 226.3 -6-
15 12C.FR. 1026.2(17)( -6-
16
17
18
19
20
21
23
25
26
27
iii
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
MEMORANDUM OF POINTS AND AUTHORITIES
I INTRODUCTION
A. Factual Summary
Most of the pertinent
facts are not in dispute. Plaintiff Gary L. Polder has been
a licensed.
teal estate broker since 1979, and maintains a website, nationalapartmentlending.com, which.
advertises, “Fixed Rate Multi Family Loans Available Now at Only 3.75% to 4.5%.” Exhibit 2.
In 2014, Plaintiffs sold the property located at 500 Flora Linda Lane, Watsonville,
Califomia, Assessor’ s Parcel Numbers 10908101 and 10907117 (the “Flora Linda Property”) to
Randa Chahwan Hadaiya for $3,000,000, which was financed by a $1,100,000 loan from Robert
10 Bass, LLC, and a second priority $1,900,000 loan carried back by Mr. Polder. Both loans went into
11 default, and Plaintiffs took back the Property on March 19, 2018.
12 On Apmil 24, 2018, Mr. Polder filed a Chapter 13 Bankruptcy, case number 18-50906, which
13 ‘was dismissed on May 9, 2018 for failure to file the appropriate documents. On information and
14 belief, the foreclosure sale on the Robert Bass, LLC trust deed was scheduled for May 16, 2018.
15 The Plaintiff’
s needed aloan, and they needed
it quick. They submitted
a “Business
16 Purpose/Commercial Loan Application” [Exhibit 1] to Sun Pacific Mortgage and Real Estate (“Sun
17 Pacific’). The application indicated they had a monthly income of $28,200 from National
18 Apartment Lending Inc. Plaintiff's also submitteda “Loan Purpose Declaration” [Exhibit 5] in
19 which they were asked whether the loan would be for “personal use of purpose, “business use or
20 purpose, or “agricultural purpose.” They wrote:
21 USE:
Personal = “P’ ITEMIZED PURPOSE (INTENDED USE) OF NET LOAN
AMOUNT
(Total should
Business ="B" PROCEI equal the)
Agricultural = [Further =xplanation of “P,” “B,” and/or "A") approximate net
loan proceeds)
{ Reet F ey $C TE IPB)
tora. | 78927
25
26 See, Danielsv. SCME Mortg. Bankers, Inc. (C.D. Cal. 2010) 680 F.Supp.2d 1126, 1130
27 (Plaintiff checking “investment” as purpose of loan precluded the possibility the loan was subject to
28 TILA)..
1
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
Based on these representations, Sun Pacific arrangeda $1.5 million loan from Jerome L.
Dodson, Trustee of the Jerome L. Dodson Revocable Trust of 2012 (“Dodson”) that would be
secured by a first position trust deed on the Flora Linda Property [Exhibit 6], and a third position
trust deed on Plaintiffs’ residence [Exhibit 7]. $1,138,602.29 from the proceeds of the loan were
used to prevent foreclosure of the Flora Linda Property [Exhibit 8], which is presently for sale for
$5.9 million. $78,937.37 was distributed to the Borrowers [Exhibit 8]. The remainder
of the loan.
consisted or points and other origination charges.
The Plaintiffs defaulted on their second payment.
By bringing the instant proceeding, the Plaintiffs are attempting to continue to use the
10 Defendant’ s money without paying contractual interest for an indefinite period until the Flora Linda
11 Property sells.
12
B The Temporary Restraining Order Should Be Allowed to Expire and No
13
Preliminary Injunction Should Issue
14
1. Thereis no evidence of a Truth in Lending Act (“TILA”) orthe Homeowners’ Equity
15
Protection Act (“HOEPA”) violation. “TILA requires that specific disclosures be
16
provided to bomowers of qualifying consumer credit transactions that are secured by the
17
borrowers’ residence, including that borrowers have a right to rescind the transaction
18
until midnight of the third business day following consummation of the transaction.”
19
Pacific Shore Funding v. Lozo (2006) 138 Cal. App. 4th 1342, 1349 (citing 15 U.S.C. §
20
1635(a); 12 C.E.R. § 226.23(b) (emphasis added)). HOEPA similarly requires additional
21
disclosures. 15 U.S.C. § 1639(a)(1) & (a)(2). The Declaration
of Gary L. Polder, which
is the only Plaintiff’s evidence before this court, does not discuss whether any
23
disclosures
were made when the loan was originated
or not. There are no Exhibits
attached
to his declaration. Mr. Polder's declaration
is silent with regard to what he was
25
provided by Sun Pacific or what
he signed. He does not declare that he and his wife
26
were consumers or that the loan was “primarily for personal, family, or household
27
purposes.” In the absence
of such documents
or declarations, it is impossible
to
2
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
determine whether the loan complied with TILA or HOEPA, and it cannot therefore be
said that the plaintiff
has established
the probability of prevailing
on the merits. The
closest Mr. Polder comes to alleging a TILA or HOEPA violation is to say there were
“oppressive terms and many defects in the loan agreement.” Polder Dec. 3:9 (emphasis
added). This does not even come close to even a threshold showing there were TILA or
HOEPA violations. This was a big “swing and a miss” on the part of Plaintiffs. Put
colloquially, “Where's the beef?”
TILA and HOEPA are only applicable to consumer loans, in which “the money,
property, or services which are the subject of the transaction are primarily for personal,
10 family, or household purposes.” 15 U.S.C. § 1602(h) (emphasis added). As a corollary,
11 15 U.S.C. § 1603(1) provides that TILA “does not apply
to ... [clredit transactions
12 involving extensions of credit primarily for business, commercial, or agricultural
13 purposes.” (Emphasis added.) As an amendment
to TILA, HOEPA also does not apply
14 to extensions of credit primarily for business or commercial purposes. See 12 C.F.R. §
15 226.3; Provencherv. T&M Mortg. Solutions, Inc. (D. Me. June 18, 2008) 2008 U.S.
16 Dist. LEXIS 47616; Dunn v. Meridian Mortgage (W.D. Va. 2009) 2009 U.S. Dist.
17 LEXIS 37593, *6. Here, the loan in question
was used to “pay off the first [$1, 100,000,
18 Polder Dec. 2:21-24] mortgage
to Robert Bass, LLC on the Flora Linda Property”
19 [Polder Dec. 3:5-6] to “prevent losing the Flora Linda Property,” [Complaint 22-23]
20 which “had been listed for sale by Polder for $4,950,000,” [Complaint 18-20] and is “is
21 presently listed for sale at $5.9! ” [Plaintiffs’ Memorandum of Points and Authorities
3:10.] The profit motivation
behind the taking out of the instant
loan negates the
23 possibility
that this was a consumerloan. This was a business
loan and TILA and
HOEPA are not applicable here.
25 The Plaintiffs have made no attempts whatsoever to substantiate
that Dodson is a
26 “creditor” within
the meaning of TILA or HOEPA. A “creditor” is “[a] person who
27 regularly extends consumer credit...” 12 C.F.R. 1026.2(17)(i). “A person regulary
extends consumer credit only if it extended credit (other than credit subject to the
3
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
requirements of § 1026.32) more than 25 times (or more than 5 times for transactions
secured
by a dwelling) in the preceding calendar year. If a person did not meet these
mumerical standards in the preceding calendar year, the numerical standards shall be
applied to the current calendar
year. A person regularly extends consumer credit if, in
any 12-month period, the person originates more than one credit extension that is subject
to the requirements of § 1026.32 or one or more such credit extensions througha
mortgage broker.” 15 U.S.C. § 1602(17)(v). Plaintiffs have supplied no evidence of this
whatsoever.
4. The Truth in Lending Act (“TILA”) and the Homeowners’ Equity Protection Act
10 (“HOEPA”) are not foreclosure prevention statutes, they are disclosure and rescission
11 statutes. 12 C.F.R. § 1602(a). As such, restoration of the status quo ante requires the
12 plaintiffs tender the $1.5 million loan proceeds to Defendant Jerome L. Dodson, Trustee
13 of the Jerome L. Dodson Revocable Trust (“Dodson”) as a an absolute pre-condition of
14 the Plaintiffs’ alleged
right of rescission. In the absence of such a meaningful tender, the
15 Plaintiffs’ attemptto invoke TILA and HOEPA are “doomed.” Estillorev. Countrywide
16 Bank FSB (E.D. Cal. 2011) 2011 U.S. Dist. LEXIS 13530, *24-25.
17 5. To the extent that TILA or HOEPA may apply, “[tJhe right of rescission applies only to
18 the addition of the security interest [in a consumer's principal dwelling] and not the
19 existing obligation.” 12 C.F.R. § 1026.23(a). As such, evenif TILA or HOEPA
20 applied, which they do not, only the Valley View Property would be protected. The
21 Flora Linda Property is fair game.
22 Insum, the Plaintiffs have not put forth any evidence that the loan was subject
to TILA or
23 HOEPA, that the loan documents were not compliant with TILA or HOEPA, or that they can tender
24 back the loan proceeds
to Dodson. This was a complete “swing
and a miss” on the Plaintiffs’ part,
25 and Dodson should not be enjoined from foreclosing his security interest on the Flora Linda
26 Property.
27
4
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
II. THERE IS NO EVIDENCE THERE WAS ANY VIOLATION OF TILA OR HOEPA
Lenders
to consumers secured by a lien on a consumer borrower's primary residence must
provide
a TILA disclosure statement that includes information about
the amount of the loan, the
annual percentage rate (A PR), finance charges (including application fees, late charges, prepayment
penalties), a payment schedule and the total repayment
amount over the lifetime of the loan.
Consumer borrowers must also be notified that there is a three day period in which a loan may be
rescinded. Se 12 C.F.R. § 1026.1, et seq.
The Plaintiffs advance dramatic and sweeping claims, but the only evidence before this
Court is the Declaration of Gary L. Polder.
Mr. Polder’s declaration does not state that he and his wife were consumers. Mr. Polder's
10
declaration does not state that the proceeds of the loan were used primarily for personal, family, or
11
household purposes. Mr. Polder’s declaration does not state that any right of rescission was not
12
disclosed. Mr. Polder’s declaration does not state that the APR of the loan was not disclosed. Mr.
13
Polder’s declaration does not state that the finance charges were not disclosed. Mr. Polder’s
14
declaration does not state that a payment schedule was not provided. Mr. Polder's declaration does
15
not state
the total amount of payments over the lifetime of the loan was not disclosed.
16
Instead, the only evidence conceming TILA or HOEPA consist of vague statements about
17
undated hiking across the Flora Linda Property and, there were “oppressive
terms and many defects
18
in the loan agreement.” Polder Dec. 2:19; 3:9.
19
Plaintiffs have failed to establish even the barest outlines of a TILA or HOEPA violation.
20
Plaintiffs have not shown they have a likelihood of prevailing on the merits and a preliminary
21
injunction should not be issued.
23 IlL.THE FIVE FACTORS ARTICULATED IN THORNS V. SUNDANCE PROPERTIES
ALL COMPEL A FINDING THIS WAS A BUSINESS LOAN TO WHICH TILA
25 AND HOEPA DO NOT APPLY
26 As ageneral matter, when a party obtains a loan in order to make a profit, that loan is not
27 considered a “perso! ” loan under TILA. See, e.g., In re Booth (5th Cir. 1988) 858 F.2d 1051,
5
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
1054-55 (“Cases decided
under the Truth in Lending Act indicate that when the credit transaction
involves a profit motive, it is outside the definition of consumer credit.”)
In Corcoran
v. Saxon Mortg. Servs., Inc. (D. Mass. 2010) Civ. No. 09-11468-NMG, 2010
US. Dist. LEXIS 51040, 2010 WL 2106179, at *3, the court held TILA inapplicable where “[alt
the time the plaintiff obtained the loan, he represented to the lender that it would be used to
purchase an ‘investment property’ and that he did not intend to occupy the premises personally.”
Defendant respectfully askes the court to recall that the Plaintiffs expressly represented this
would be a business loan and the proceeds were used to prevent foreclosure of a $1.1 million loan
against the Flora Linda Property, “121 acres of completely undeveloped and unmanaged costal
10 wildemess,” so Plaintiffs could put it on the market for $5.9 million. Polder Dec. 2:16-17. If the
11 property were to be sold at that price, the Plaintiffs could net $4 million profit after repayment of
12 the subject
loan and real estate commissions.
13 Courts have developed
a formula to determine whether a loan is characterized
as a
14 “business” loan or as a “consumer” loan, which involves a “fact based analysis” carried out on a
15 case by case basis. Thorns v. Sundance Properties (9th Cir. 1984) 726 F.2d 1417, 1419.
16 The Thorns court set forth a five part analysis that must be undertaken in determining
17 whether
a loan is a personal or business loan. The factors are:
18 1 The relationship of the borrower's primary occupation to the acquisition. The more
19 Closely related, the more likely it is to be business purpose.
20 2. The degree to which the borrower will personally
manage the acquisition. The more
21 personal involvement there is, the more likely it is to be business purpose.
3, The ratio of income from the acquisition to the total income of the borrower. The
23 higher
the ratio, the more likely it is to be business purpose.
4. The size of the transaction. The larger the transaction, the more likely
it is to be
25 business purpose.
26 5, The borrower's statement of purpose for the loan.
27
6
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
A Mr. Polder’s Occupation as a Real Estate Broker Who Arranges Loans Secured
by Apartment Building Is Very Highly Related to Saving Vacant Property from
Foreclosure and Reselling it for a Profit
Although Mr. Polder claims to have been retired for the past four years, he has been, and
still is, licensed as a Real Estate Broker since 1979. On his loan application, which was completed
in May 2018, he claimed to have an income of $22,800 per month from National Apartment
Lending, Inc.
It is clear the Plaintiffs knew what they were doing. They
had nominal title to the Flora
Vista Property, but were about to lose it to a senior creditor who was owed $1.1 million plus
10 accrued charges and interest within the seven (7) day period between
the dismissal of Mr. Polder’s
11 bankruptcy on May 9, 2018 and the impending foreclosure sale on May 16, 2018. They took outa
12 hard money $1.5 million loan from Dodson, paid off the senior lien, pocketed $78,937.37 from the
13 transaction, and are seeking to sell the Flora Linda Property for $5.9 million.
14 As a Real Estate Broker
with 39 years’ experience, borrowing
against and selling real estate
15 for his own account in order to make approximately $4 million is closely related to his profession of
16
17
B. The Plaintiffs Have C omplete C ontrol Over the Vacant Land, and Thus,
18
Personally Manage the Acquisition
19
With the satisfaction of the Robert Bass, LLC trust deed, the Plaintiffs have complete
20
21 control over the vacant
land. They
can sell it. They
can develop it. They can further encumbrance
it. They are free to use it for any legal purpose.
23 Cc The Plaintiffs Potential Profit of $4 Million Dwarves Their Stated Annual
Income of $273,600
25
The Vacant Land is encumbered
with a first trust deed of $1.5 million. Defendant
is aware
26
of ajunior encumbrance, but is not privy to the details. The most recent sale price was $3 million in
27
a slower real estate market. If the Plaintiffs
are retired, as they claim, the yield from the sale of the
7
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
Vacant Land would dwarf their annual income. Even if they make $28,500 per month, as they
Claimed in their loan application, if they receive their asking price of $5.9 million, their net profit
will be asale price for the Flora Linda Property, 120 acres with a spring and a lake stocked with
fish, could easily yield the Plaintiffs $4 million after repayment of the Dodson loan and payment of
real estate commissions. This was no consumer loan transaction.
D $1.5 Million Is Not Pocket C hange and Indicates this Was a Business Loan
$1.5 million is more money than many people will eam ina lifetime. Usually, the largest
purchase a person makes in a lifetime is a house. In most areas, $1.5 million would buy a very nice
house. $1.5 million is almost enough to buy five (5) brand new Rolls Royces. In fact, the loan
10 proceeds were used to prevent foreclosure of a vacant parcel that is worth much more than that.
11 The size of the transaction show that this was no consumer loan.
12
E The Plaintiffs Expressly Represented the Loan Was for Business Purposes
13
The Plaintiffs
took out aloan, representing that it was for business purposes and that they
14
15 had the abilityto make monthly payments. Recall that Plaintiff Gary Polder
is a highly experienced
Real Estate Broker and mortgage
lender who took out a loan, expressly representing
it was for
16
17 business purposes, and then tumed around and is trying to assert a TILA violation. It does not
18 appear the Plaintiffs had any intention of making payments on the loan.
Notwithstanding
that, the Plaintiffs expressly represented this was a business transaction and
19
20 they should
be held to their word.
Taken together, every one of the Thomes factors indicates this was a business loan that was
21
not subject to TILA or HOEPA.
23 IV. PLAINTIFF’S HAVE NOT SHOWN THAT DODSONISA “CREDITOR” UNDER
TILA
25
Not all lenders are subject
to TILA.
26
(17) Creditor means:
27 (i) A person who regularly extends consumer credit that is subject to a
finance charge or is payable itten in more than four
installments (not including a ywn payment), and to whom the obligation is
8
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
initially payabl
‘al le, either on the face of the note or contract, or by agreement
no note or contract.
>koK
(v) A person
(other than eats larly extends consumer credit only if it extended credit
it subject to the requirementsof § 1026.32) more than 25
times (or more than 5 times for transactions secured by a dwelling) in the
ing calendar year. If a person did not meet these numerical standards in
the preceding calendar year, the numerical standards shall be applied to the
current calendar year. A person regularly extends consumer credit if, in any
12-month period, the person originates more than one credit extension that is
ject to the requirements of § 1026.32 or one or more such credit
extensions through a mortgage broker.
12 CFR. § 1026.2(a)(17)(i), (v).
Plaintiffs have made no attempt to prove that Dodson falls within any of the categories that
would make hima “creditor” subject
to TILA.
10
V. TILA AND HOEPA ARE NOT FORECLOSURE PREVENTION STATUTES,
1
INSTEAD THEY ALLOW CONSUMER BORROWERS TO RESCIND AN
12
APPLICABLE TRANSACTION AND REQUIRE THE BORROWER TO TENDER THE
13
PROCEEDS OF THE LOAN BACK TO THE LENDER
14
TILA provides a potent remedy to consumers for violations of certain disclosure provisions -
15
rescission. 15 U.S.C. § 1635. “[A]s with any rescission
remedy, the intent is to retum the parties to
16
the status quo ante.” U.S. Bank National Assn. v. Naifeh (2016) 1 Cal. App. 5th 767, 780.
17
A timely notice of rescission automatically renders the security interest void
18 under section 1635(b), where the creditor acquiesces in the rescission or
ignores it. However, once the creditor contests the notice of rescission, the
19 court may alter the procedure otherwise dictated by the TILA, determine
there were inadequate disclosures that would extend the rescission
20 period to three years, and decide whether equity compels a requirement that
the borrower tender the loan proceeds before the lender retums the amounts
21 paid and releases
respond to
Sm none
its securi interest. This accomplishes the legislative goals
of protecti the borrower nondisclosures, motivating the lender to
bomower's concems, and the parties to the status quo
ante in a manner consistent with the facts and equities of the particular
23 situation.
Id. at 784.
25 In Yamannto
v. Bank of New York (9th Cir. 2003) 329 F.3d 1167, 1170-1173, the borrowers
26 sent the lender a notice of rescission and then sued, seeking damages and rescission. The district
27 court ruled that the borrowers
had to tender the loan proceeds; when they were unable to do so, the
9
MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
court dismissed their lawsuit. Noting that section 1635(b) expressly permits a court to modify the
procedures
set forth in that section, the Ninth Circuit Court of Appeals held that the trial judge had
the discretion to “condition” rescission on the borrower's tender.
In Powersv. Sims & Levin
(4th Cir. 1976) 542 F.2d 1216, 1220, the Court rejected the
argument that § 1635 compelled
a creditor to remove a mortgage lien in the absence of the debtor's
tender of the loan proceeds. The Powers
Court held that, “when rescission
is attempted under
circumstances which would deprive the lender of its legal due, the attempted rescission will not be
judicially enforced unless it is so conditioned that the lender will be assured of receiving its legal
due.” Id. at 1222.
10 “Clearly it was not the intent of Congress
to reduce the mortgage companyto an unsecured
11 creditor
or to simply penmit
the debtor to indefinitely extend the loan without interest.” Am Mortg.
12 Network, Inc. v. Shelton (4th Cir. 2007) 486 F.3d 815, 820-21 (emphasis added). “Without [the
13 borrower's] meaningful tender, his purported [TILA] claims are doomed.” Estillorev. Countrywide
14 Bank FSB (E.D. Cal. 2011) 2011 U.S. Dist. LEXIS 13530, *24-25.
15 In the absence of the Plaintiffs showing they have the ability to tender $1.5 million
to the
16 Defendant, their TILA claim should fail. However, the Plaintiffs have made it abundantly clear that
17 they will not, or cannot, tender the loan proceeds
back to Dodson. Dodson should therefore
not be
18 enjoined from foreclosing
on a defaulted loan in the absence
of a meaningful tender.
19
VI.EVEN IF TILA APPLIED, THE FIRST PRIORITY TRUST DEED AGAINST THE
20
VACANT FLORA LINDA PROPERTY CANNOT BE RESCINDED
21
12 C.ER. § 1026.23(a)(1) (emphasis added) provides:
Consumer's right to rescind.
23
dn @ treet gemscicon in weblion huss or will be retained or
in aconsumer's |, each consumer whose ownership
Sniest is or wil De ealject to the Soouity iferest all howe the right to
25 rescind the transaction, except for transactions described in paragraph (f) of
this section. For purposes of this section, the addition to an existing
26 obligation of a security interest in a consumer's isa
transaction. The right of rescission applies only to the addition of the security
27 interest and not the existing obligation. The creditor shall deliver the notice
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MEMORANDUM OF POINTS AND AUTHORITIES IN
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required by paragraph (b) of this section but need not deliver new material
disclosures. Delivery of the required notice shall begin the rescission period.
In light of this regulation, even if TILA applied to this loan transaction, which it does not,
Plaintiffs’ right of rescission would only apply to the third priority trust deed against their principal
residence. Defendant Dodson’s first trust deed against vacant Flora Linda Property is not subject to
rescission under TILA.
VII AN INVESTMENT IN VACANT LAND IS NOT SUBJECT TO TILA
In Tachibana
v. Colo. Mt. Dev., Inc. (D. Haw. 2010) 2010 U.S. Dist. LEXIS 101988, the
Plaintiffs borrowed money to purchase residential lots in a subdivision in Lone Oak, Texas, but the
subdivision was never built. They sued, in part, fora violation of TILA. The lender moved for
10 summary judgment. The Court emphasized
that TILA was intended
to protect only consumers.
11 Plaintiffs do not dispute that all of Plaintiffs' loans were secured vacant
lots—lots that did not contain residential structures. At best, Plaintiffs
12 intended to build structures on the vacant land. BOA's loans to Plaintiffs
allowed them to the land, not fund the construction of the intended
13 structures. Had BOA's loans to Plaintiffs been for construction of principal
dwellings on the vacant lots, TILA would have applied.
14
Id. at *23.
15
Just as in Tachibana, the Plaintiffs
in this case took out a loan to invest in vacant land,
16
which they intended
to resell fora profit. This was not a consumer transaction. This was a business
17
transaction, and TILA has no application here.
18
19 VIII IF ANY INJUNCTION IS GRANTED, A SUBSTANTIAL BOND SHOULD BE
20 REQUIRED
21 At this point, the Loan has been in default for approximately six (6) months. When the
payoff was last calculated, as of September 10, 2018, the payoff amount was $1,651,789.66. Since
23 that time, an additional $51,000 in interest has accrued on the loan. Assuming
this case is resolved
within
one year, another $204,000
in interest will have accrued. That does not include late charges
25 or other fees.
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MEMORANDUM OF POINTS AND AUTHORITIES IN
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Defendant is secured for $1.5 million, but it is not clear what a foreclosure sale will yidd
enough to satisfy
that amount, let alone accrued interest and fees. As such, Defendant requests that
the posting of a bond in the amount of $1,925,000.
IX.CONCLUSION
In May 2018, Plaintiffs were desperate to prevent the Flora Linda Property from being sold
at a foreclosure sale scheduled for May 16, 2018. They approached Sun Pacific, and applied fora
business loan. They executed
a Declaration of Loan Purpose, under penalty of perjury, attesting
to
the fact that the loan proceeds would be used for business purposes. Based on their representations,
Defendant Dodson extended Plaintiffs a $1.5 million
loan secured by a first trust deed against
the
10 Flora Linda Property and a third trust deed against their residence.
11 The loan proceeds
were used to discharge
the then existing $1.1 million
first trust deed
12 against the Flora Linda Property, and a portion of the proceeds were pocketed by the Plaintiffs.
13 Plaintiffs took out this loan to prevent foreclosure of and retain the Flora Linda Property, which is
14 now on the market for $5.9 million.
15 Tt takes real chutzpah
for a real estate broker who has been licensed since 1979 to attempt
to
16 fashion this as a consumer transaction, but that is what the Plaintiffs are doing here.
17 Plaintiffs seek to prevent foreclosure of either of the trust deeds held by Dodson. They are
18 taking the position that a purported TILA violation allows them to retain Dodson’s $1.5 million
19 indefinitely, without interest, while they try to eam a profit of approximately $4 million from this
20 “consumer” transaction. The Plaintiffs are wrong.
21 First, the Plaintiffs have not introduced any evidence that there has been a violation of TILA
orHOEPA. The Polder declaration does not describe any of the documents that were signed when
23 this loan was originated. The declaration does not state facts sufficient to establish even a threshold.
TILA violation. The best the plaintiffs can do is say there were “oppressive terms and many defects
25 in the loan documents.” Again, the declarant
has been a licensed real estate broker
for nearly 40
26 years and has been in the lending business himself, and that conclusory statement
is the best he can
27 do.
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MEMORANDUM OF POINTS AND AUTHORITIES IN
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Second, this was no consumer loan, which precludes the application of TILA to it. The
transaction fell squarely within Polder’ s profession as a real estate broker. The Plaintiffs have
complete control over the Flora Linda Property. The potential profit to the Plaintiffs from the sale
of that property would dwarf theirincome. The loan was large, $1.5 million. Hardly a consumer
amount. And the Plaintiffs expressly represented under penalty of perjury that the loan was a
business loan.
Third, there is no showing whatsoever that Dodson is a “creditor” within
the meaning of
TILA.
Fourth, the Plaintiffs are unable
or unwilling to tender the amount
due to Dodson. They are
10 holding his money hostage while they make specious claims in this lawsuit and try to hold his
11 money indefinitely without interest.
12 Fifth, even if the Plaintiffs
were to be proven to be totally
right, any right
of rescission
13 would apply only to the third trust deed against their residence. The Flora Linda Property
is vacant,
14 and vacant land cannot
be the subject of
a TILA claim.
15 Injunctions are a matter of equity, and this Honorable Court should consider whether the
16 Plaintiffs are acting in good faith. A highly experienced real estate broker with extensive lending
17 experience took out a significant hard money loan to preserve an investment property, declaring
18 under penalty of perjury that it was fora business purpose. Dodson’s loan saved
the investment
19 property from foreclosure and the Plaintiffs are marketing it for $5.9 million, which would net them
20 in the neighborhood
of $4 million. Then the highly experienced
real estate broker
tumed around.
21 and is now playing the aggrieved consumer, despite all indications under any applicable
test that
this was a business loan. The equities in this case weigh heavily against injunctive relief.
23 Respectfully submitted.
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MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
EISBER‘ES
LAW OF!
iy
Dated: December 19, 2018
By
tions
Weisbebg,gs Esq
Xttoprieys for Defendant Jerome 1, Dodson
dstee of the Jerome L. Dodsofi Revocab
Trust of 2012
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MEMORANDUM OF POINTS AND AUTHORITIES IN
OPPOSITION TO OSC RE: PRELIMINARY INJUNCTION
PROOF OF SERVICE
STATE OF CALIFORNIA,
COUNTY OF LOS ANGELES
I amemployed in the County of Los Angeles, State of Califomia. I am over the age
of 18 and not a party to the within action; my business address is: 24013 Ventura Blvd., Ste.
200, Calabasas, CA 91302. On December 19, 208,1 I served the foregoi document
described as: MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION
TO ORDER TO SHOW CAUSE RE: PRELIMINARY INJ UNCTIO