Ljepya v. MLSC PROPERTIES, C-72-2003.

• Decision Date: 19 January 1973
• Docket Number: No. C-72-2003.,C-72-2003.
• Citation: 353 F. Supp. 866
• Parties: Nick LJEPYA and Chris Ljepya, Jr., Plaintiffs, v. M. L. S. C. PROPERTIES et al., Defendants.
• Court: U.S. District Court — Northern District of California

353 F. Supp. 866

Nick LJEPYA and Chris Ljepya, Jr., Plaintiffs, v. M. L. S. C. PROPERTIES et al., Defendants.

No. C-72-2003.

United States District Court, N. D. California.

January 18, 1973.

Judgment January 19, 1973.

James W. Funsten, San Francisco, Cal., for plaintiffs.

Robert J. Williams, San Jose, Cal., for defendants Paulson and Lopes.

John A. Colistra, San Rafael, Cal., and Sanford N. Diller, San Jose, Cal., for defendants M. L. S. C. Properties, Inc., Mortgage Loan Servicing Corporation, HLC Financial, and certain individual defendants not otherwise represented.

OPINION

WYZANSKI, District Judge, sitting by designation.

The issue is the meaning of the term "itemized" as used in § 1639(a) (2) of Title 15 U.S.C., referred to as the Federal Truth in Lending Act or The Consumer Protection Act, 15 U.S.C. § 1601 et seq. This court has clear jurisdiction. 15 U.S.C. § 1640(e).

Plaintiffs, landowners, are borrowers; defendant Lopes, a real estate agent, acted for them and for defendant Paulson, a real estate broker, and defendants HLC and M.L.S.C. Properties, Inc. which created a trust to hold a mortgage for the benefit of numerous individual defendants. These are the circumstances.

Plaintiffs are brothers, each having only grade school education, but having jointly acquired through inheritance a 16 acre tract of land which, because of the possibilities of development into 15 (not 16) one-acre lots for dwelling houses, has had, since at least 1970, a market value of about $225,000. Plaintiffs had placed some time ago a first mortgage of somewhat over $93,000 on their land. Then, after an earlier second mortgage, which had been paid off, and which is not relevant to this case, plaintiffs, in January 1971, placed through Arms, a real estate broker, an $18,000 second mortgage with one of Arms' customers.

Plaintiffs were delinquent in paying interest on their new second mortgage. Solely to accommodate his customer, Arms, through his wife, took from that customer an assignment of that new $18,000 second mortgage, and then recorded a notice of default. Plaintiffs wrongly supposed that Arms was scheming to foreclose to deprive them of their property.

Responding to defendant Lopes' inquiry, plaintiffs in late April and early May 1972 pressed him to secure a new second mortgage so that they could pay off Arms. On May 9, asserting that there were grave difficulties, Lopes (acting not only for plaintiffs but for his constant associate, defendant Paulson, a real estate broker, and simultaneously for defendant HLC and its parent corporation, M.L.S.C. Properties, Inc., which, as part of a conglomerate, were in the business of setting up trusts in mortgages and disposing of participations in those trusts to individual beneficiaries such as all the defendant individuals herein except Lopes and Paulson) represented that he could not get the mortgage which plaintiffs sought unless they paid, in addition to the commission to Lopes and his principal, the broker Paulson, an additional commission to HLC for getting the beneficiaries of its trust to invest in the mortgage. On that May 9 Lopes did not disclose that the double commissions for a $24,000 mortgage would be $6,120 to HLC Financial and $5,400 to Paulson, doing business as Paulson Mortgage Company, or a total of $11,520, or 48% of the principal amount of the second mortgage. Nor did Lopes or Paulson or HLC ever explain to plaintiffs that the commission to Paulson was for placing the mortgage, and the other commission to HLC was for securing investors to participate as beneficiaries in a mortgage of which HLC and its affiliates would be trustees.

May 11 Lopes prepared, and he and plaintiffs executed, a disclosure statement pursuant to the Federal Truth in Lending Statute. That statement, in reference to the standard question as to bonuses, brokerage, and commissions, stated merely "HLC Financial $6,120, Paulson Mtg. $5,400." The statements were true so far as they went, but they concealed, deliberately it seems to this court, the fact that the commission to Paulson was for placing as plaintiffs' agent their mortgage, and that the commission to HLC was for its role in accepting the mortgage as trustee for individual beneficiaries who had been encouraged by HLC and its affiliates to make an investment as beneficiaries of the mortgage.

Plaintiffs did not realize when they executed the disclosure statement that Lopes was procuring commissions from persons with adverse interests and that in combination these commissions were unusual if not improper in character because of the conflict of interest, and that the commissions in combination were oppressive because in total they amounted to 48% of the amount of the mortgage at a time when, as Arms' wholly credible testimony shows, the property covered by the mortgage had a value far in excess of the combined amounts of the first and second mortgages and at a time when because of the...