![]() The Moons breached the agreement shortly after entering into it. This agreement was not negotiated through any broker. This agreement lowered the monthly interest to 11.05% but retained the late payment rate of 10%, adding that it was applicable even to the final payment due under the note. ![]() ”Īfter falling behind on the loan, the Moons entered into a settlement agreement with the lender which explicitly stated that it was not intended to be a new loan or a forbearance agreement, but merely an extension and modification of the existing loan. ![]() Civil Code § 1916.1(1): “For purposes of this section, a loan or forbearance is arranged by a person licensed as a real estate broker when the broker (1) acts for compensation or in expectation of compensation for soliciting, negotiating, or arranging the loan for another, …. Due to the involvement of the Moons’ broker, the original loan qualified for the “broker” exception to California’s usury limit of 10%. The lender was not licensed as either a broker or a mortgage loan originator however, the Moons were represented in the original transaction by a licensed broker. The Moons took out a business purpose loan with an original interest rate of 11.3% per annum. Had the BAP stopped there, the ruling in Moon would only affect the rare situation where a loan extension was negotiated without a broker involved.īut, the BAP went a step further in its dicta, indicating in a footnote that it agreed with the bankruptcy court’s determination that the involvement of a broker in negotiating or drafting the forbearance would not have mattered because loan extensions/forbearances do not, from a practical standpoint, qualify for the broker exception to California’s Usury Law unless the forbearance is part of a transaction involving the “selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business,” which is unlikely to be the case. In a case of no good deed going unpunished, the Ninth Circuit Bankruptcy Appellate Panel (BAP) recently affirmed the holding of the bankruptcy court in the case of In re Moon that a private money lender’s settlement agreement with its defaulting borrowers violated California’s usury laws by including a provision for interest at a higher rate than that allowed by California law-even though the original loan permissibly charged an even higher rate! The difference, according to the BAP, was that the original loan was made in a transaction involving a licensed broker while the settlement was just between the unlicensed lender and the Borrowers.
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