- Long Beach Jury Awards 30.5 Million Dollars In a Foreclosure Abuse Case Against Lender.
In the case of Behm vs. Cervenka, Ms. Behm purchased a 7,400 sqft Victorian era home in Los Angeles for $400,000.00 in 2010. After acquiring the home she did extensive remodels and renovations to the property. She sought a loan to upgrade the house further in 2014 from Defendant, Cervenka & Lukes Mortgage.
In a scheme designed to skirt the laws protecting consumers, the mortgage lender used a loophole to issue a 1.6 million dollar business loan instead of a homeowner consumer loan to plaintiff. The lender claimed that since borrower rented out her home to visitors on Airbnb, Inc. she was operating a business. Therefore, she could qualify for a business loan. The Dodd-Frank Act and the California Homeowners Bill of Rights were written to stop banks and other lenders from lending to people who couldn’t afford the loans. These acts and laws do not apply to a commercial business loan.
The borrower could not afford the payments on the loan which were approximately $11,000.00 a month and after missing two payments the lender triggered a 25% default interest rate causing the payments to increase from $11,000.00 per month to $30,000.00 per month. A Notice of Default was soon recorded on the loan. The lender then proposed a new lender under the guise of a lender who will take over the loan and try to do a loan workout/modification with the borrower. The new lenders, Mr. and Mrs. Vorzimer, were really friends/associates of the original lender. Rather than do a loan workout/modification they completed the foreclosure and owned the then current 3 million dollar valued home for the 1.6 million loan.
The Long Beach jury on Friday determined that the foreclosure sale was a shell game in which the Vorzimers were portrayed as rescue lenders, but instead there were a number of hidden agreements, loans and commission agreements between the lenders and the Vorzimers in a scheme to unlawfully repossess plaintiff’s home. The jury determined this was a “loan to own” scheme depriving the plaintiff of her major asset. The jury also found that the lenders intentionally concealed the default rate of interest in the loan documents which were not explained to the borrower. The borrower, after foreclosure and a bankruptcy filing, was moved out of the property by 6 sheriff’s deputies, after an unlawful detainer judgment for possession, who showed up with the defendant’s lawyer to force her out of her home.
Last Friday the jury awarded 4.9 million for economic damages, 13.4 million for past emotional distress and 12.1 million for future emotional distress. On Tuesday, November 2nd, just before testimony was to be taken on the amount of punitive damages phase of the trial the parties settled that part of the case with the amount of punitive damages being confidential. As part of that Settlement Agreement the plaintiff got her home back and substantial compensation.
Comment: Lenders who do not conduct proper underwriting to determine if the borrower can afford the loan are susceptible to lawsuits since January 2013 for violating the Dodd-Frank Act and the California Homeowners Bill of Rights. Furthermore, laws in California prohibit onerous terms in a note that are deemed to be unconscionable and/or unfair. It looks like this lender violated all of the consumer protection laws. The jury let it be known how they felt about the defendants with such a substantial verdict.
About the Author
Scott Souders is a real estate attorney who has practiced real estate law in excess of 42 years in Southern California. The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.