Thursday, December 22, 2011
Court Revives Bid to Block Foreclosure on Home of Man Claiming Enticement to Take Out Unaffordable Loan
By KENNETH OFGANG, Staff Writer
A man whose home went into foreclosure after he defaulted on $1.5 million in mortgage loans, which he was able to obtain even though his annual income was less than $40,000, has a viable action to set aside the trustee’s sale, the Sixth District Court of Appeal ruled yesterday.
The justices revived a suit by Jonas Lona of Hollister against Citibank, N.A. and other defendants, overturning a grant of summary judgment.
Lona alleged that he agreed to refinance the home, on which he owed $1.24 million at the time, in response to a “marketing enticement” in January 2007. With the monthly payments being more than three times his income, he defaulted within five months and the home was sold at a nonjudicial sale in August 2008.
The refinancing consisted of two loans. The first was for $1.125 million, with a 30-year term and an interest rate that was fixed at 8.25 percent for five years and adjustable annually after that, with a cap of 13.25 percent.
The second loan was for $375,000, with a term of 15 years, a fixed interest rate of 12.25 percent, monthly payments of nearly $4,000, and a balloon payment of $327,000 at the end of the term.
Testifying through an interpreter at his deposition, he said he was about 50 years old at the time of the refinancing and had an eighth grade Mexican education. He was married, although the house was entirely his.
There was no evidence as to the evidence of his wife, who owned a collection business.
Lona said he did not understand the loan documents, which were explained to him “very fast,” and that he did not read all of the documents, although the interest rate and payment amounts were discussed.
The original lender, Franklin Financial, assigned its interest in the first loan to Citibank. After several postponements, the sale went forward, and Citibank purchased the property and sued to evict Lona.
The unlawful detainer action was ultimately consolidated with the action to set aside the sale. Citibank’s counsel noted at the summary judgment hearing that Lona had been “living for free” in the house and had not posted bond or paid any “impound funds.”
San Benito Superior Court Judge Harry Tobias said Lona’s “bare allegations” were not enough to persuade him that the bank or the broker had engaged in misconduct and that it was “hard to believe” that the Lonas weren’t “responsible for their own conduct,” especially since they owned other property that had been foreclosed upon.
But Justice Franklin Elia, while agreeing that the trial judge “had a right to be concerned about the equities in this case,” said the defendants had not shown they were entitled to summary judgment.
The primary issue, the justice explained, is whether the loan terms were unconscionable, given the plaintiff’s testimony regarding his income, his lack of English proficiency, and the failure of the defendants to explain what he was signing, and the clearly unequal bargaining power of the parties.
There was sufficient evidence of procedural and substantive unconscionability, Elia concluded, to allow a trial, particularly given the defendants’ failure to address the plaintiff’s evidence in their response.
The justice went on to say that the case arguably falls within one or more of three recognized exceptions to the requirement that the borrower seeking to set aside a trustee’s sale offer to pay the full amount of the debt—that the deed of trust was illegal from the time of formation, that the plaintiff’s claims would offset any amounts claimed to be due under the void agreements, and that the claim was based on the illegality of the loan contract, rather than on an irregularity in the sale.
The case is Lona v. Citibank, N.A., H036140.
Copyright 2011, Metropolitan News Company