Year in Review: 2020 Court Decisions Impacting Private Lending

January 5, 2021 by Dennis R. Baranowski, Esq.

A lot happened in the year 2020. While much of the focus remained on the U.S. elections and COVID-19, courts continued working, handing down decisions affecting the private lending industry in a variety of ways.

A few of those decisions will create a lasting impact across our space and we have compiled them here for you.

The 9th Circuit Expands the Scope of “Consumer Credit Transactions” to include Trusts under Certain CircumstancesGilliam v. Levine (9th Cir. 2020)

In this case, a trustee acting on behalf of a trust obtained a loan to make repairs on a personal residence occupied by the trustee’s niece. The 9th Circuit Court of Appeals found that:

 “A trust created by an individual for tax and estate planning purposes does not lose all state and federal consumer disclosure protections when it seeks to finance repairs to a personal residence for the trust beneficiary, rather than for the trustee herself, but, instead, such a loan transaction remains a ‘consumer credit transaction’ within the meaning of TILA, RESPA, Regulation Z, and California’s Rosenthal Fair Debt Collection Practices Act.”

In order to ensure compliance with applicable consumer lending regulations, it is critical for lenders to understand the intended use of funds when making a loan to a trust.

The Hawaii Supreme Court recalculates deficiency judgmentsHawaiiUSA Fed. Credit Union v. Monalim (HI 2020)

In a majority of states, now including Hawaii, the amount of a deficiency judgment is equal to the balance due on a mortgage loan less the greater of (i) the fair market value of the property as of the date of foreclosure or (ii) the sale price of the property. Hawaii previously followed the less frequently adopted view that a deficiency judgment is equal to the balance due on the mortgage less the foreclosure sale price.

The California Supreme Court weighs increasing servicer liabilitySheen v. Wells Fargo Bank, N.A. (CA 2019)

This case is pending appeal by the CA Supreme Court. The Court granted review in this case to determine whether mortgage loan servicers owe struggling homeowners a duty to act with reasonable care when handling their requests for mortgage modification. California Attorney General Becerra is urging the California Supreme Court to recognize a duty of care, thereby opening mortgage servicers to liability when they are negligent in processing requests for mortgage modification.

A Purchaser of a Deed of Trust may not rescind a sale where loss stems from Purchaser’s negligence Matson v. S.B.S. Tr. Deed Network (CA 2020)

The plaintiff, Matson SDRE Group, purchased a deed of trust at a nonjudicial foreclosure sale. Using the information on a software program called PropertyRadar, the plaintiff believed, in error, that the loan being foreclosed existed as a first position lien and had a much lower market value than the reality. After purchasing the property, the plaintiff discovered his error and attempted to rescind his purchase based on his own unilateral error. The court found that the plaintiff had obtained a 94-page title report “but did not read it thoroughly”. The California Court of Appeal of the 5th District found that because the plaintiff “did not act as a cautious businessperson in deciding to bid at a nonjudicial foreclosure sale in full reliance on a private software application, without [plaintiff’s] own thorough investigation of the liens on the property”, he could not rescind the sale. The impact to the private lending industry is that the responsibility for a failure to conduct due diligence in the purchase of a deed of trust rests upon the purchaser.

While 2020 was wrought with uncertainty across the nation and the world, the court system remained vigilant in its processes and made many decisions that have far-reaching consequences to our industry as a whole. The effect of these cases will likely vary; however, 2021 is poised to bring even more decisions affecting the private lending industry. Geraci LLP will continue to remain vigilant in identifying and alerting you to significant legal developments and stands by to assist with the legal issues affecting your business.

If you have any questions, please contact Dennis Baranowski here.

About the Authors

Dennis Baranowski is a Partner at Geraci LLP and a supervising attorney in the Banking and Finance group. He has extensive experience in helping banks, credit unions, mortgage funds, private lenders, brokers, developers, and loan servicers navigate through complex transactions, including negotiation of terms, transaction review, and drafting of documents. He developed and manages Geraci’s cannabis lending and compliance practice and has regularly presented on cannabis lending, as well as had articles on the topic published in national trade publications.

Caleb Nissley, J.D. is a recent graduation of the University of California Irvine School of Law and an incoming Associate at Geraci. Before joining Geraci Law Firm, he studied Finance and Political Science at university and spent several years working in finance and on legal issues at J.P. Morgan, the California Attorney General, and the Ohio Attorney General.

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