In re Moon

Facts: A property owner in bankruptcy takes out a mortgage arranged by a broker to pay off the outstanding mortgage balance. The mortgage includes an interest rate which exceeds usury limits. The property owner defaults on payments and the mortgage lender modifies the note extending the expiration date and lowering the interest rate which still exceeds usury limits. A broker does not arrange the mortgage modification. The property owner defaults on the modification terms and the mortgage lender calls the mortgage due and payable. The property owner seeks to void all accrued interest.

Claim: The property owner claims the interest agreed to is not collectible since the rate on modification was due to a usurious forbearance from foreclosure and is not collectible as the modification was not arranged by a broker.

Counterclaim: The mortgage lender claims the extension was not a forbearance and is exempt from usury restrictions since the mortgage was initially arranged by a broker.

Holding: A United States Bankruptcy Appellate court holds the mortgage lender is barred from recovery of any interest from the date of modification of the interest rate to the due date on the call, but is entitled to receive the principal amount and interest accrued after the due date on the call, since the modified interest rate exceeded usury limits of 10% in total annual earnings. [In re Moon (2023) 648 BR 73]

Editor’s note –The legal editor of this publication was the attorney of record for the borrower in a case cited in this decision, Winnett v. Roberts (1986) 179 CA3d 909. 

In re Moon

Related Articles:
Usury limit exemptions in carryback sales, Pt I

Usury limits and exemptions in carryback sales, Pt II

Changing the terms of a mortgage

Related Reading:
Real Estate Principles: Chapter 58: Usury and the private lender

Mortgage Loan Brokering and Lending: Chapter 41: Activity guidelines for a mortgage broker

Related Recent Case Decision:
Is a non-exempt private mortgage lender entitled to collect interest on unpaid principal accruing from the principal balance due date when the agreed rate of interest earnings on the loan is usurious? — Soleimany v. Narimanzadeh

Related Video:
Word-of-the-Week: Usury