Onofrio v. Rice

• Decision Date: 29 May 1997
• Docket Number: No. G015003,G015003
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 4077, 97 Daily Journal D.A.R. 6846 Evelyn J. ONOFRIO, Plaintiff and Respondent, v. Marshall D. RICE et al., Defendants and Appellants.

Page 74

64 Cal.Rptr.2d 74

55 Cal.App.4th 413, 97 Cal. Daily Op. Serv. 4077,

97 Daily Journal D.A.R. 6846

Evelyn J. ONOFRIO, Plaintiff and Respondent, v. Marshall D. RICE et al., Defendants and Appellants.

No. G015003.

Court of Appeal, Fourth District, Division 3, California.

May 29, 1997.

Rehearing Denied June 16, 1997.

Review Denied Aug. 13, 1997.

[55 Cal.App.4th 416] Michael J. Migan, Anaheim, for Defendants and Appellants.

Harbin & Frost and Donald R. McConnell, Long Beach, for Plaintiff and Respondent.

SONENSHINE, Associate Justice.

Marshall D. and Myra Rice appeal from a judgment entered against them and in favor of Evelyn J. Onofrio after a court trial.

I

In June 1990, Onofrio was in serious financial trouble. The home in which she had lived since 1971 was in foreclosure and she was in bankruptcy. Delinquent on her first and second mortgages as well as community association dues, Onofrio was working with Ruth Gold to obtain new financing.

Although Marshall did not know Onofrio, he visited her on June 29 to inquire about the foreclosure sale scheduled for later that day. Onofrio told him the matter was taken care of, but he nevertheless attended the sale. Learning it had been postponed, Marshall approached Onofrio and gave her a business card, indicating he was a real estate broker specializing in foreclosure properties. Telling Onofrio he knew Gold and believed she did not know what she was doing, he invited Onofrio to call him for help.

Onofrio was satisfied with Gold's services, but Marshall's comments made her leery. In response to Onofrio's call, the two met again. Wasting no time, Marshall prepared a promissory note and deed of trust indicating his Onofrio executed the documents, but $14,000 proved insufficient, and Marshall prepared an identical note and trust deed, except now the amount of the loan was $21,000. The escrow statement acknowledged, "Marshall D. Rice is a licensed Real Estate Broker in the State of California and is acting as the BROKER and the escrow company in this transaction. No escrow fee is charged." Escrow closed on July 5. Although Marshall should have produced a settlement statement within 24 hours, he failed to do so until July 11. Marshall never prepared a disclosure document or a foreclosure consultant contract.

wife, Myra Rice, would lend Onofrio $14,000 from her sole and separate property. The deed described Myra's beneficial interest in the same terms. The accompanying disclosure statement indicated a 35 percent annual interest rate.

Matters did not improve for Onofrio, and the Rices were in hot pursuit. On September 21, 1991, Myra recorded a notice of default and election to sell under her deed of trust. By April 30, 1992, the Rices had purchased the second deed of trust. On May 7, the couple, as husband and wife and joint tenants, recorded an assignment of deed of trust from the second lienholder ¹ and on June 10 bought the property at the foreclosure sale conducted pursuant to Myra's September 1991 notice of default. Finally on June 17, the Rices recorded a trustee's deed upon sale acknowledging they now owned the property.

Onofrio initiated the underlying lawsuit alleging federal truth in lending violations in the first eight causes of actions. The court dismissed those pursuant to the Rices' summary adjudication motion. The Rices were not so lucky with the rest of the complaint. The court found against them on the ninth through the fourteenth causes of action and on the sixteenth cause of action based on Marshall's violations of his duties as a Business and Professions Code section 10131 real estate broker and as a foreclosure consultant pursuant to Civil Code section 2945 et. seq. ² They also lost on the fifteenth cause of action alleging Myra's violations of section 2924 et seq. The court entered judgment against Myra and Marshall, awarding $230,097 in damages and $52,788 in attorney fees and costs. The court rescinded the foreclosure and voided the Rices' note and purchase of the second.

II

In its statement of decision, the trial court found, inter alia, Marshall was acting as a real estate broker pursuant to Business and Professions Code section 10131 et seq. and as a foreclosure consultant pursuant to Civil Code section 2945 et seq. The Rices contend "these two code sections are mutually exclusive, and [ ] they cannot be in violation of both." More specifically, they explain if Marshall was acting as a real estate broker for Myra, then, as a matter of law, he was exempt from the statutes governing financial consultants. The Rices misconstrue the relevant statutory schemes.

When enacting the mortgage consultant foreclosure act in 1979, the Legislature was very specific in delineating its purpose. Section 2945, subdivision (a) states: "The Legislature finds and declares that homeowners whose residences are in foreclosure are subject to fraud, deception, harassment, and unfair dealing by foreclosure consultants from the time a Notice of Default is recorded ... until the time of the foreclosure sale. Foreclosure consultants represent that they can assist homeowners who have defaulted on obligations secured by their residences. These foreclosure consultants, however, often charge high fees, the payment of which is often secured by a deed of trust on the residence to be saved, and perform no service or essentially a worthless service. Homeowners, relying on the foreclosure consultants' promises of help, take no other action, are diverted from lawful businesses which could render beneficial services, and often lose their homes, sometimes to the Section 2945.1, subdivision (a) defines a foreclosure consultant as "any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following: [p] (1) Stop or postpone the foreclosure sale. [p] (2) Obtain any forbearance from any beneficiary or mortgagee. [p] (3) Assist the owner to exercise the right of reinstatement provided in Section 2924c. [p] (4) Obtain any extension of the period within which the owner may reinstate his or her obligation. [p] (5) Obtain any waiver of an acceleration clause contained in any promissory note or contract, secured by a deed of trust or mortgage on a residence in foreclosure or contained in any such deed of trust or mortgage. [p] (6) Assist the owner to obtain a loan or advance funds. [p] (7) Avoid or ameliorate the impairment of the owner's credit resulting from the recording of a notice of default or the conduct of a foreclosure sale. [p] (8) Save the owner's residence from foreclosure."

foreclosure consultants who purchase homes at a fraction of their value before the sale."

Section 2945.1, subdivision (b)(3) exempts real estate brokers who, with their own funds, make direct loans to homeowners secured by a deed of trust on the property. This transaction fails to qualify because Myra, not Marshall, loaned the money to Onofrio. The result would be the same even if we considered this a direct loan from Marshall because the section also mandates the broker must in good faith attempt to assign the loan to a lender. Marshall did not do this. ³

Our inquiry does not end here because the same section also exempts real estate brokers who, "(A) engage[ ] ... in acts whose performance requires licensure under [the real estate licensing statutes], (B) [are] entitled to compensation for the acts performed in connection ... with the arranging of a loan secured by a lien on a residence in foreclosure, (C) do[ ] not claim, demand, charge, collect, or receive any compensation until the acts have been performed ... and (D) do[ ] not acquire any interest in a residence in foreclosure directly from an owner for whom the person agreed to perform the acts other than as a trustee or beneficiary under a deed of trust given to secure the payment of a loan or that compensation." (§ 2945.1, subd. (b)(3).)

Marshall's activities come within the parameters of A, B and C. Business and Professions Code section 10130 provides in part, "It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker ... without first obtaining a real estate license from the department." Business and Professions Code section 10131, subdivision (d) defines a real estate broker as one who "negotiates loans ... or performs services for borrowers ... in connection with loans secured directly or collaterally by liens on real property...." ⁴ Therefore, anyone who solicits borrowers or lenders for loans in connection with secured real property liens "must hold a real estate broker's license." (Greenwald & Asimow, Cal. Prac. Guide: Real Property Transactions (The Rutter Group 1996) p 6:166, p. 6-32, original italics; Stickel v. Harris (1987) 196 Cal.App.3d 575, 583-584, 242 Cal.Rptr. 88.) Moreover, Marshall secured a loan for which he was entitled to compensation. (Bus. & Prof.Code, § 10131.) ⁵

Marshall's problem arises in connection with section 2945.1, subdivision (b)(3). He acquired an interest in Onofrio's residence directly from foreclosure when it was Myra and not he who loaned Onofrio the money. And as explained, even if we assume it was Marshall's loan, he fails to qualify for the exemption because he did not attempt to place the loan. Indeed, the Senate Judiciary Committee in its original analysis of Senate Bill No. 1128, 1979-1980 Regular Session warned of just this kind of conduct. "Many homeowners who have found themselves in default on their home mortgage payments have actually lost their homes through deceptive loans made to them by unscrupulous business[people.] [p] These 'loans' usually require the homeowner in default to convey, via a Trust Deed, the homeowner's interest in his [or her] home (i.e. [ ] equity) in exchange for the payment of the full amount of the regular...