Lender’s published refusal to conduct business with broker does not constitute defamation

Reported by Anthony Renaud

A mortgage loan broker encouraged borrowers to apply for loans at high interest rates and then to refinance early. The broker produced loan applications for a mortgage banker who packaged and funded the loan, and then sold the loans to Freddie Mac in the secondary mortgage money market where they were bundled into pools of loans. Certificates of factional interest were then sold to investors who held them as portfolio investments. The broker’s actions caused the loans he was producing to have a high prepayment rate, thus reducing the investor’s anticipated rate of return. While the broker’s activities were not unlawful, the loans he helped produce caused investors to reap diminished returns. As a result, Freddie Mac suffered losses due to their inability to sell certificates of participation in loans produced by the broker. To stop receiving loans produced by the broker, Freddie Mac put the broker on an exclusionary list which identifies persons with whom it would not conduct business. The list was created to exclude those who may have committed fraud or who dealt with loans that were not of investment quality. The list was then distributed only to lenders selling loans to Freddie Mac. The broker claimed the lender had defamed him and unlawfully interfered with his business relationship with mortgage bankers when the lender included him on its exclusionary list since listing him effectively blocked his access to lenders that would accept applications he produced and fund the loans.Freddie Mac claimed its actions did not constitute defamation, nor had it denied the broker access to lenders or the secondary money market, since placing the broker on the exclusionary list was a means of protecting itself from buying loans the broker produced and suffering further loss from loans that were not investment quality. A California appeals court held the lender’s placement of the broker on its exclusionary list did not constitute defamation or unlawful interference with the brokers business relationship with lenders since Freddie Mac had a legitimate business reason to discontinue buying loans produced by the broker based on the need to protect itself from the broker’s disadvantageous business practices. [Family Home and Finance Center, Inc. v. Federal Home Loan Mortgage Corporation (May 7, 2008) 525 F3d 822]

Land Use and Zoning

Approved development plans that expire subject to limited CEQA review on resubmission

Reported by Anthony Renaud

An owner of land submitted an application to a planning department to subdivide and develop the land. His development plans, including a tentative subdivision map, were approved and the planning commission adopted a mitigated negative declaration based on the project’s insignificant environmental impact on the water flowing in a creek which passed through the property. The permit to develop his land expired. Later the owner filed a new application with the commission for approval of the same tentative map. In the interim between the prior approval of his plans and the current resubmission, the demands on the water from the creek by a downstream user and previously unconsidered biological resources (fish) had arisen. The planning commission subjected his plans to a full California Environmental Quality Act (CEQA) review given all newly submitted plans as well as an environmental impact review (EIR). The landowner claimed his development plans were not new and should not be subject to a CEQA or an EIR since the current plans were unchanged from those he previously submitted which were found to have no environmentally significant impact. The commission claimed the owner’s resubmitted plans were subject to a full CEQA review and an EIR since the initial application had expired and environmental impacts not previously considered had come to their attention. A California appeals court held the landlord’s resubmitted development plans, while not a new submission requiring a CEQA review, were subject to review by CEQA and an EIR since environmental conditions in the area had changed prior to the resubmission of the development plans, but the reviews were limited to the significant environmental impacts not previously considered and effects which are now more severe than at the time of the prior approval of the plans. [Moss v. County of Humboldt (May 7, 2008) 162 CA4th 1041]

Property Management

Prior assault on tenant imposed duty on landlord to upgrade passive security

Reported by Anthony Renaud

An apartment complex was fenced in and two security gates installed after a non-tenant assaulted a tenant on the grounds. The leasing office parking lot was separate and left ungated and available for tenant parking after business hours. A second tenant was assaulted by a non-tenant in the leasing office parking lot. Later, a third tenant was also assaulted while parking as authorized in the ungated leasing office parking lot. That tenant sought to recover his injury related money losses from the landlord, claiming the landlord had a duty to provide further security measures by relocating the existing gates to include the now ungated parking lot since the assault was foreseeable due to the prior incident in the ungated portion of the complex. The landlord claimed he had no duty and was not liable for the tenant’s losses since the assault on the tenant was not foreseeable and security measures beyond those in place at the time of the attack were not financially justifiable. A California appeals court held the landlord was liable for the tenant’s injuries since the prior criminal activity constituted a foreseeable risk to apartment tenants and imposed a duty on the landlord to prevent future assaults by relocating the security gate, the expense of which would be reasonable for a complex of its size. [Tan v. Arnel Management Company (April 29, 2008) 162 CA4th 621]