This case involves a dispute between a borrower, a purported lender and the purported lender’s funder regarding a commercial loan, and the aftermath caused by the borrower’s default on the loan. The borrower brought claims against the purported lender and the lender’s funder, for unfair business practices and violation of the Massachusetts anti-usury statute. RF partner Jon Friedmann represented the purported lender in a jury-waived trial. There were also issues regarding whether the purported lender was so controlled by the funder of the loan that the funder be held liable.

Background
The borrower purchased a gas station and convenience store at a foreclosure auction. He established an LLC to take title to and operate the gas station. He also obtained a loan to fund the purchase and initial operation of the gas station. The lender’s funder funded the loan, which was secured by the personal guaranty of the borrower. The loan was further secured by the land and contents of the gas station property and the land and contents of a separate commercial property owned by the borrower in a separate Trust. The secured interest in the two properties was effectuated by the granting of mortgages and deeds-in-lieu of foreclosure.

When the borrower defaulted on his loan obligations, the lender, with the assistance of the funder, took title to the two properties by deeds-in-lieu of foreclosure. They sold the properties and seized various personal items located at the properties, such as trucks and other vehicles, some of which the borrower owned in his individual capacity – not as part of the LLC established to operate the gas station, but which were covered by other security instruments granted to the Lender.

The borrower filed suit seeking rescission of the alleged usurious loans and the deeds-in-lieu of foreclosure. He claimed the lender violated Chapter 93A by charging an interest rate that exceeded statutory limits and requiring deeds-in-lieu of foreclosure as collateral, engaging in certain conduct during the attempted collection of the loan, and by wrongfully foreclosing on the properties and the personal property.

After the conclusion of the three-week trial, the judge ruled in favor of the firm’s client, the purported lender, finding there was no wrongful foreclose, no 93A violation and no wrongful taking of personal property. While the judge ruled that the terms of the mortgage note violated the anti-usury statute, he found nothing in the facts that warranted rescission of the loan. He ruled the proper remedy was to reform the terms of the loan so that the effective annual rate of interest and expenses was 18 percent and ruled that after crediting for the sale proceeds from the two properties the borrower still owed the lender (the firm’s client) $489,254.95 plus interest of $244.63 per day. The court also agreed that our client’s legal fees and costs should be paid by the borrower.