![]() The Court granted partial summary judgment to the Moons on their claim relating to usury and also sustained their challenge to the “prepayment penalty.” It refused summary judgment on the remaining claims for breach of contract, interference and the fraud claims, for the reason that these involved unresolved issues of fact. that the loan was usurious, that the “prepayment penalty” was unenforceable, and that Milestone could not impose both a late charge and default interest. The Moons presented unpleaded claims in their motion, viz. The lawsuit was removed to the Bankruptcy Court, and after an unsuccessful mediation, both sides moved for summary judgment. The Moons filed a Chapter 13 petition, and the case was later converted to Chapter 11. The superior court issued a TRO but denied a preliminary injunction. While the lawsuit was pending, Milestone commenced a nonjudicial foreclosure. In November, 2019, the Moons sued Milestone in San Mateo County Superior Court alleging causes of action for (i) declaratory relief (ii) breach of contract: (iii) fraud and (iv) interference with contract in relation to the refinance. ![]() The demand was for $1.288.792.28, and included a “prepayment penalty” of $115,615.06 which Milestone later referred to in the litigation as a late charge on the balloon payment. In March 2019, the Moons sought to refinance the loan and requested a payoff demand from Milestone. It increased the default interest rate and added language which applied the late charge to “any payment then due, including the final (balloon) payment.” These provisions were again supported by language reciting that these charges were reasonable liquidated damages. It recited that the new principal balance was $902,525.34. The Extension moved back the loan maturity date for an additional two years and provided for a slightly reduced interest rate of 11.05%. In August, 2016, Milestone and the Moons entered into an agreement titled “Settlement Agreement, Indemnity, and First Amendment to Promissory Note Secured by Deed of Trust” (the “Extension”). The Moons struggled with payments during the first year, and Milestone advanced taxes and insurance. The Note included a savings clause that limited the interest charged to the applicable legal rate (10%) in the event that a court found that the interest charged was “in excess of applicable law.” Both provisions were supported by language reciting that these were reasonable liquidated damages. The promissory note (“Note”) provided for a 10% late charge on delinquent monthly payments and a default interest rate of 17.3% plus late fees. The loan required monthly payments of interest only at 11.3% per annum and was all due and payable in two years. Two months earlier, the California Department of Real Estate had issued a cease and desist order forbidding Milestone from making mortgage loans until the appropriate licenses were obtained. Milestone did not have a real estate broker’s license and was not licensed as a mortgage loan originator under the California Finance Law or the California Residential Mortgage Lending Act. The Moons were represented by a California licensed real estate broker. In June, 2015, Mark and Lori Moon borrowed $759,000 for business purposes from Milestone Financial, LLC, secured by their residence. a member of the firm of Kirby & McGuinn, A P.C., analyzing a recent decision of interest: SUMMARYīankruptcy Judge Montali applied California law to find that a “settlement agreement” extending the term of a business purpose mortgage loan was usurious, and that a late charge, applied to a balloon payment was unenforceable as liquidated damages. The following is a case update written by Dean T.
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