1. Loan Prepared by Real Estate Broker is no Exempt from Usury

A $15,000 loan was made by Burger to Gibbo, which was memorialized by a promissory note and secured by a deed of trust on Gibbo’s residence. The note was for 15% simple interest. Myrna Bravender, a licensed real estate broker, was asked to prepare the loan documents as well as obtain a lender’s policy of title insurance, which she did. Bravender also disbursed the $15,000 funds. She did all this for a set fee for preparing the work, documents, and disbursing the funds.

Gibbo made all interest payments until Burger died. Burger’s daughter started a non-judicial foreclosure when Gibbo stopped making payments. Gibbo filed a quiet title action, alleging that the 15% interest was usurious. The trial court ruled in favor of Burger, lender, and against Gibbo, the borrower, finding the loan was exempt from the protections against usury.

The California Court of Appeal in the case of Gibbo v. Burger, Case No. E035201 reversed the trial court, and held that the California Constitution exempts from the usury statute a loan arranged by a licensed real estate broker. A loan is “arranged” by a person licensed as a real estate broker when the broker acts for compensation for arranging the loan. The legislature created the exemption for those loans to make more money available for non-consumer loans. To further that purpose, the phrase “arranged by” must be interpreted to refer to conduct by a real estate broker, acting as a third-party intermediary that causes a loan to be obtained or procured. Because Bravender only functioned as a scrivener and as an escrow officer, but did not act in any way to draft the terms or structure the loan, she did not arrange the loan. Therefore, the loan was not exempt from the constitutional usury provision.

Comment: I have had two similar cases in my career, wherein the loan was not exempt from protection against usury because the broker did not arrange the loan by negotiating the terms of the loan, the points, the interest rate, and structuring the loan, but merely acted as a scrivener for a fee.