In re Dawson
| Decision Date | 09 April 2008 |
| Docket Number | Bankruptcy No. 04-00531.,Adversary No. 04-10083. |
| Parties | In re Ethel J. DAWSON, Debtor. Ethel J. Dawson, Plaintiff, v. James B. Thomas, et al., Defendants. |
| Court | United States Bankruptcy Courts. District of Columbia Circuit |
James Leonardo Neher, Law Office of Jim Neher, College Park, MD, for Debtor/Plaintiff.
Kenneth S. Kaufman, Garson Claxton LLC, Bethesda, MD, for Defendants.
(FINDINGS OF FACT AND CONCLUSIONS OF LAW)
By her amended complaint, the plaintiff, Ethel J. Dawson, objects to the proof of claim filed by James B. Thomas (who made a $35,000 loan to Dawson secured by her residence pursuant to a deed of trust, a form of mortgage utilized in the District of Columbia) and seeks affirmative relief against Thomas and Jack Merwin (the broker of the loan from Thomas) under various statutes regulating consumer lending activity. This constitutes the court's findings of fact and conclusions of law.1
Dawson owns real property ("the Property") which is a single family residence located at 500 23rd Place, N.E., Washington, D.C. Dawson has resided there since at least the early 1990s, and has continuously resided there. The tax assessment records reflect that despite the property being her only residence, she has never availed herself of the homestead deduction for real estate tax purposes. She was unaware that she was not taking the deduction, a reflection of her sophistication level. Dawson has never bought or owned rental real estate.
Sometime prior to September 2003, Dawson fell into arrears in paying the holder of a note secured by the first deed of trust on the Property, and the trustees under that deed of trust issued a notice of foreclosure sale to be held on September 18, 2003. By the eve of the foreclosure sale, the reinstatement amount was $8,629.77.
Thomas is a real estate agent who has also, for some time, engaged in making real estate loans. By the end of 1999, he decided not to engage in any residential lending due to the laws regulating such lending, and has turned away any borrowers requesting that he make loans secured by owner-occupied property. Thomas engages principally in renovation loans, which he considers to be bridge loans that permit an owner of rental property to renovate the property for sale. The primary reason Thomas extends such loans has been to obtain the listing to sell the property as the borrower's real estate agent.
Starting in approximately 1998, Merwin and Thomas began a business relationship in which Merwin would act as a mortgage broker to originate borrowers for real-estate-secured loans to be extended by Thomas, with Merwin receiving a commission for loans that went to closing. Merwin became aware of the imminent foreclosure sale of Dawson's Property by consulting public notices of such sales. Acting as Thomas's agent, Merwin mailed a flyer to Dawson at the Property address. The flyer offered Thomas's help in avoiding foreclosure. The precise contents of that flyer are unknown, but such flyers generally offered to help avoid foreclosure by way of a loan, meeting Thomas's criteria for commercial non-owner occupied property loans, to bring current the payments on the note secured by the deed of trust which was the subject of the foreclosure. Within three or four days before the scheduled foreclosure sale, Dawson placed a telephone call to the number provided on the flyer and spoke to Merwin.
Merwin stood to earn a handsome commission of $5,000 if Dawson borrowed from Thomas, and he was well aware that Thomas's loan terms would be legally impermissible if treated as a consumer rather than as a commercial loan. This may explain why, when speaking with Dawson on the telephone, Merwin did not probe with any depth to verify that Dawson did not occupy the Property and why he never even asked if she intended to occupy the Property in the future. During the telephone conversation, Merwin merely asked Dawson if she lived at the Property and she replied that she did not, after which Merwin turned to such topics as the Property's value and arranging to meet with Dawson. Merwin did not inquire into Dawson's income, including whether she worked, and did not request that she bring any documents with her to their meeting, which was scheduled to take place the following day.
The next day, Merwin met with Dawson at the Property. Present at the Property when Merwin arrived were Dawson, a woman introduced as a neighbor, and a man introduced as a tenant. Merwin cannot recall what words were used to introduce the man as a tenant other than that the word "roomer" was not used. Dawson has, on occasion, rented out a room in the Property, and at the time of the meeting with Merwin she was renting a room to a Mr. Spencer. Dawson has never rented the entire Property. Merwin engaged in no conversation with the tenant separate from Dawson. Merwin did not obtain a copy of the tenant's lease or inquire into the terms of the lease, including whether the tenant was renting the entire house. Nor did he request a copy of the first deed of trust on the Property.2 Merwin was not concerned regarding whether Dawson had ever occupied the Property as he relied on her statement that she did not live at the Property.
Dawson told Merwin that she was living with her daughter, and gave Merwin the daughter's address, which was within walking distance of the Property. Dawson's daughter has from time to time lived with Dawson in the Property, and was doing so at the time that the foreclosure sale was imminent. Dawson has never lived with her daughter elsewhere, as the daughter has never had a place of her own where Dawson could live with her. Her daughter lives "here and there," as Dawson put it, living for free with various persons. Merwin did not inquire whether Dawson's stated arrangement of living with her daughter was only temporary. Nor did Merwin request any statement from the daughter verifying the arrangement, or verifying that the daughter was rightfully in possession of a residence at which Dawson could live. Nor did Merwin request bank account statements, a driver's license, or other documents showing Dawson as living anywhere other than at the Property.
On the one occasion that Merwin visited the Property, he went into the Property with Dawson, stood in the kitchen and looked in the living room. He outlined to Dawson Thomas's normal lending terms, and asked Dawson if she thought she would be successful in repaying the loan. Dawson said that she was going to sell the Property and move in with her son, that she regretted having to sell the Property but that she and her son had determined that she should move in with her son. Merwin apparently did not probe Dawson as to why she regretted selling the Property if it was rented out to someone else and she was already living elsewhere with her daughter. In fact, Dawson had no intention of renting the Property, selling the Property, or moving out of the Property. Merwin never explained to Dawson the meaning of the term commercial loan.
Either before or after the visit, Merwin examined the tax assessment record for the Property as posted on the internet by the District of Columbia government. It revealed the Property's assessed value, and also that Dawson was not receiving the homestead deduction. However, it also listed Dawson's mailing address as being the same as the Property's address. Merwin did not inquire of Dawson why she was using the Property as her mailing address if she was renting it out to someone else. Nor did Merwin inquire of Dawson whether she had ever lived at the Property or claimed the homestead exemption when she was living there. Dawson's failure to take the homestead exemption while living there would have been indicative that the failure presently to claim the homestead exemption ought not be taken as evidence that she was not living there now.
Merwin contacted Thomas to refer Dawson as a borrower, and reported to Thomas what he, Merwin, had learned. Thomas's file contains a note reciting:
Referral from Jack
500 23rd Pl NE
Owner Ethel Dawson
Facing foreclosure
Rental
No Homestead Exemption in the record
son (attorney)
says she will sell
Needs: $15,000 for repairs
= $9,000 to reinstate
Thomas, who is a real estate broker, did a so-called competitive market analysis and satisfied himself that there was sufficient equity in the property to cover the existing secured debt as well as the loan he would make. Accordingly, Thomas approved a loan for $35,000 which was to cover reinstatement of the note secured by the first deed of trust, settlement charges, and any cash to be received by Dawson.
Either before or after he called Thomas to refer the requested loan for Thomas's approval, Merwin called Cosmopolitan Real Estate Settlements, Inc. ("Cosmopolitan") to order a title report which ordinarily is made available within 24 hours. The title was acceptable for loan purposes. Accordingly, Merwin arranged for a paralegal at Cosmopolitan to call Dawson to arrange the settlement at which the loan would be closed.
The closing of the loan occurred on September 17, 2003, at Cosmopolitan's office in Silver Spring, Maryland. Thomas delivered a check for the loan amount to Cosmopolitan's offices on the morning of the day the loan was to close, but he did not stay for the closing. Included in the closing costs were a $5,000 "Lender's Fee" to be paid to Thomas and a $5,000 "Consulting Fee" to be paid to Merwin.
Dawson's son, who lives in Philadelphia, Pennsylvania, called Merwin the day of the closing and explained that Dawson was still planning to borrow, but wanted to know if additional dollars...
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