Stevens v. Security Pacific Mortg. Corp.
| Decision Date | 17 January 1989 |
| Docket Number | 20968-0-I,Nos. 20918-3-,s. 20918-3- |
| Citation | 768 P.2d 1007,53 Wn.App. 507 |
| Parties | Lorelei P. STEVENS, Appellant, v. SECURITY PACIFIC MORTGAGE CORPORATION, and Westinghouse Credit Corporation, Respondents. Lorelei P. STEVENS, Respondent, v. SECURITY PACIFIC MORTGAGE CORPORATION, Respondent, Advance Mortgage Corporation, Appellant. |
| Court | Washington Court of Appeals |
David Spencer, Charles F. Vulliet, Stoel, Rives, Boley, Jones & Grey, Seattle, for Security Pacific Mortg.
Richard C. Coyle, Constance M. Jones, Perkins Coie, and William H. Grady, Law Offices of William H. Grady, Seattle, for Advance Mortg. Corp. Michael D. Bohannon, Robert B. Leslie, Hatch & Leslie, Seattle, for Westinghouse Credit Corp.
The plaintiff, Lorelei Stevens, appeals the dismissal of her usury claims. She also seeks reversal of defendant Westinghouse's judgment against her on the loan, which it purchased from the lender, Security Pacific. Security Pacific seeks reversal of Westinghouse's judgment against it for breach of contract and also seeks judgment for contractual attorney's fees from Westinghouse, and judgment against Stevens for its costs and attorney's fees. Security Pacific also seeks damages and attorney's fees against Advance, who prepared the loan. Advance seeks reversal of Security Pacific's judgment against it for indemnity, while Westinghouse seeks judgment against Security Pacific for its costs and attorney's fees. We affirm.
The plaintiff Stevens is president and owner of Wall Street Brokers in Seattle. Wall Street Brokers is engaged in purchasing and reselling at a profit seller-financed notes and real estate contracts.
In 1977, Stevens bought a residential lot in Seattle. She then borrowed various sums at high interest rates from 21 people, most of whom were business acquaintances, to finance construction of a home. In 1981, when the house was approximately 80 percent complete, she approached Dan Halligan, a loan officer at Advance Mortgage Corporation, to obtain a home mortgage loan.
Acting as Advance's agent, Halligan obtained the information necessary to complete a loan application for Stevens, including verification of borrower's income, assets, liabilities, and employment, appraisal of the residence, and purpose of the loan. In June 1981, Advance loaned Stevens $164,000 secured by a first deed of trust on the Stevens residence.
Prior to receiving the $164,000, Stevens obtained, without payment, satisfactions of the mortgage liens held by her Halligan and Stevens discussed the purpose of the second loan. Stevens told Halligan she needed the loan for expenses incurred in connection with the construction of the residence. The court made a finding that Halligan, aware of lenders' concerns with usury at that time because of extraordinarily high interest rates then prevailing, told Stevens that she would have to certify that the loan was for business purposes. Halligan stated in his deposition that he does not recall the purpose of the second loan to Stevens. However, the trial court found that Halligan was fully aware of Stevens' intended use of the proceeds of the second loan.
private lenders to clear title and place the Advance deed of trust in first position. After receiving the $164,000, Stevens still had unpaid obligations to some of her private lenders, and she rerecorded their mortgages against the property. She continued to incur costs and debts in connection with the residence. In December 1981, she decided to obtain a second loan and again contacted Halligan at Advance
Notwithstanding his awareness of the intended purpose, Halligan prepared a second loan application for Stevens as a business or commercial loan to be secured by her residence. Halligan did so knowing that Advance would not make the loan, but that it would be "brokered" to another lender; that is, Advance would prepare a complete loan package and submit it to another lender which would fund the loan. As he had with the Advance loan of $164,000, Halligan obtained the information necessary to compile the loan package, including verification of Stevens' income, assets, liabilities and employment, and an appraisal of the residence. The information obtained for the second loan package was based primarily upon information obtained from Stevens. The loan application prepared by Stevens and Advance stated that it was for investment purposes. Stevens' liabilities were also incorrectly stated as relating to her business, and the cost of the property was understated by at least $50,000.
The second package was for a loan of $125,000 at 18 1/2 percent interest, a rate then usurious for noncommercial loans. Advance processed the loan documentation and obtained an appraisal from the firm of Lamb, Hanson & Lamb, prepared by Gregory Reynolds, showing a market value of $370,000. The combined loans upon the Stevens property would total $289,000, or 78.11 percent of the appraised value (the "loan-to-value ratio").
Security Pacific is a mortgage banker which engages in the origination and purchase of residential mortgage loans for subsequent resale in the secondary market to institutional investors, such as Westinghouse Credit Corporation. Prior to the second loan, Advance had knowledge of Security Pacific's loan programs and the specifications and requirements for such loans. Advance sent the loan package to Security Pacific for approval, and Security Pacific subsequently agreed to make the second loan, provided it was for a business purpose, and documented appropriately. Prior to closing the loan, Stevens again obtained, without payment, satisfactions of the mortgage from her private lenders to clear title. With her own money, she satisfied an industrial insurance lien recorded by the Department of Labor and Industries.
The loan was then closed at Heritage Escrow in February 1982. Stevens was accompanied at the closing by her attorney. There, she signed an affidavit attesting that the loan proceeds would be used for business rather than personal purposes. Both Stevens and her attorney reviewed this document before she signed it. Neither of them questioned it or objected to it. At this time, Stevens learned that the lender was Security Pacific.
Security Pacific had no direct dealing or contact with Stevens, as everything was handled by Advance. At no time was Security Pacific aware that the proceeds of this second loan would not be used for business purposes.
The trial court found that Stevens used most of the proceeds of the second loan for personal purposes. A large portion of the proceeds was used to satisfy construction In 1982, Security Pacific sold the second Stevens loan to Westinghouse as part of a $10 million second mortgage loan portfolio. The portfolio was sold pursuant to the terms of a letter from Earl M. Baldwin of Security Pacific to O.O. Osburn of Westinghouse and a "Sale and Servicing Agreement" under which Security Pacific retained the loan servicing for the portfolio. The documents prepared by Advance--the loan application, the note, the deed of trust, and the appraisal--were among the supporting documents Westinghouse received in the transaction.
costs and construction loans for her residence. Some loan proceeds financed a dining room set, furs, and personal travel. A portion of the loan proceeds was, in fact, used for investment as represented
In 1984, Stevens defaulted on both loans, and Advance commenced foreclosure on the first loan. The house was eventually sold and purchased at a trustee sale by Advance on December 20, 1985, for $192,243, which satisfied the first loan and left the second loan wholly unsatisfied. Westinghouse did not bid at the trustee sale. At the time of the trustee sale, the outstanding principal balance on the second loan (held by Westinghouse) was $123,431, plus substantial unpaid interest.
Prior to the trustee sale, Stevens brought a declaratory judgment action against Security Pacific and Westinghouse, seeking to have the second loan declared usurious. Security Pacific and Westinghouse brought third party claims for indemnity against Advance. Subsequently, Stevens brought usury and indemnity claims against Advance, and Advance asserted counterclaims and cross-claims against Stevens, Security Pacific, and Westinghouse. On January 24, 1986, Charles Vulliet, attorney for Security Pacific and Westinghouse, filed a notice of intent to withdraw as attorney for Westinghouse. On May 8, 1986, following the trustee sale, Westinghouse filed an amended answer, which included a claim against Security Pacific for breach of contract.
On December 4, 1986, the trial court dismissed Stevens' claims against Security Pacific and Westinghouse on Trial commenced June 23, 1987. The court dismissed Stevens' claims against all parties on grounds that the loan was made for business purposes, and Stevens was estopped by her affidavit of purpose.
grounds that (1) the loan was not usurious because it was made for business purposes, (2) Stevens was estopped from asserting a claim of usury by her affidavit of purpose, (3) Advance was not the agent of Security Pacific, and (4) Westinghouse was a holder in due course of the Stevens note. The trial court granted Westinghouse's counterclaim on the Stevens note, entering judgment in the amount of $123,431.65, plus interest at 18 1/2 percent from February 1, 1984, plus costs and attorney's fees of $13,840. Advance's motions for summary judgment against Stevens, Security Pacific, and Westinghouse, and Security Pacific's cross-motion for summary judgment against Advance were denied on March 18, 1987. Security Pacific's motion to dismiss the Westinghouse cross-claim against it was denied on April 10, 1987
The second part of the trial was concerned with the various claims between Security Pacific, Advance and...
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