Brandt v. Nat. One Mortgage
Filed 6/4/13 Brandt v. Nat. One Mortgage CA4/2
NOT TO BE
PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION TWO
ANITA
BRANDT,
Plaintiff and Appellant,
v.
NATIONAL
ONE MORTGAGE
CORP.
et al.,
Defendants and Respondents.
E054388
(Super.Ct.No. RIC479262)
OPINION
APPEAL from the Superior
Court
of
Riverside
County. Thomas A. Peterson, Judge. (Retired judge of the L.A. Super. Ct. assigned by the Chief Justice pursuant
to art. VI, § 6 of the Cal. Const.) Reversed.
Beberman Stoffel & Beberman and James
Jay Stoffel for Plaintiff and Appellant.
Law Office of Mark B. Dobkin and Mark B.
Dobkin for Defendants and Respondents National One Mortgage Corporation and
Jeffrey Maas.
No appearance for Defendants and
Respondents Mary Epley and Terry Epley.
I
BACKGROUND
Plaintiff and appellant Anita Brandt
(Brandt), a real estate lender, brought this action for
fraud, and unfair business practices against real estate brokers and salespersons
involved in a loan transaction. She also
sued the borrowers for nonpayment.
Following a court trial, the trial
court ruled that one person, Shannon Grant (Grant),
was the broker for the loan within the meaning of Business and Professions Code
section 10232.4.
name="_ftnref3" title="">[3] The trial court further ruled that defendant
and respondent Jeffrey Maas (Maas)
and Earl William Dexter (Dexter)
were not brokers for the transaction within the meaning of the section. It also ruled that Maas
and defendant and respondent National One Mortgage (National One) had “no
broker/princip[al] relationship†with Brandt.
Brandt appeals, arguing that the
trial court erred in its application of the law to the facts. Maas
and National One (collectively, respondents) respond by arguing that section
10323.4
title="">[5]
does not apply because they only represented the borrowers and did not solicit
the lender, Brandt.
name="_ftnref6" title="">[6] Defendants and respondents Mary and Terry
Epley did not file a brief.
II
FACTS
Although the trial court did not
make specific factual findings, the historical facts are relatively
undisputed. The primary issue in the
case is the nature and scope of the fiduciary duties of real estate brokers and
salespersons to a lender of money when the real estate licensees contend they
only represented the borrowers in the loan transaction.
Essentially, Brandt loaned Terry and
Mary Epley $62,000, secured by a second deed of trust on their home. National One and its owner, Maas,
brokered the loan. Grant held a real
estate broker license and Dexter held a real estate salesperson license; both
were employees of National One.
Mrs. Epley held a real estate salesperson license and worked for
National One. Mr. and Mrs. Epley
defaulted on the loan almost immediately after the loan closed and also stopped
making payments on the first deed of trust.
Washington Mutual Bank, the holder of the first deed of trust,
foreclosed on the property, and Brandt lost her $62,000.
Viewing the evidence in the light
most favorable to respondents, we will review the testimony at trial and the
documentary evidence in more detail.
A.
Brandt testified that she was age 66
at the time of the loan transaction and worked in advertising sales for a
newspaper. In early December 2005,
Brandt had several conversations with Grant.
conversation, “I wasn’t thinking about doing what you are calling a hard money
loan. [Grant] thought that it might be a
way for me to earn more money, a little bit more money so I can make—retire a
little bit earlier.†In a second
conversation, Grant “called and asked if [Brandt] might be interested in
helping someone out. It was someone who
worked for their company. She had been
approached by someone in her company.
That the lady was a top producer in the Riverside
office. Her husband had a heart
attack. They were just getting back on
their feet. It would be a short term
thing so I could retire in two years.â€
Brandt did not question the terms of
the loan or the ability of the borrowers to repay it, but instead decided to
invest on the terms Grant described to her.
Subsequently, Grant told Brandt that she had checked comparable sales,
and there was sufficient equity in the property. Brandt, a novice investor, trusted Grant and
took this to mean that the loan was “safe.â€
Brandt did nothing to verify the statements made to her by Grant. Brandt did not receive any written
information regarding the loan investment prior to funding.
B.
Grant testified she first obtained a
real estate salesperson license in 1975 and subsequently obtained a broker’s
license in 1980. She became an employee
of National One in September 2002 and became the office manager of the Temecula
office in 2003. In December 2005, she
was paid $3,500 a month plus a percentage of commissions generated by the
office.
In December 2005, Dexter, another
employee of National One, told her that he had been trying to find a lender for
a “hard money loan†for “one of the top producers in the Riverside office.â€
they were getting back on their feet.â€
Grant then called Brandt and asked her if she was willing to make a loan
to them. The terms, as stated by Dexter,
were that it was a two-year loan at 15 percent, with 15 points. Grant discussed these terms with Brandt, and
Brandt agreed to make the loan.
Grant then called Maas and asked for his help in
processing the loan. Maas told her that
Dexter would help her. Maas also advised
Grant to use one of the company’s loan processors and to use Maas’s escrow
company, Escrow One. She did so.
Mr. and Mrs. Epley submitted a loan application
to Grant, and Brandt deposited the funds into escrow. No written loan disclosures were given to
Brandt before escrow closed on December 20, 2005. At closing, National One received a five
percent origination fee, instead of the requested 15 percent, amounting to
$3,100. Grant received a commission of
approximately $2,800 as the loan officer on the transaction.
Brandt received “four months worthâ€
of payments, and then Mr. and Mrs. Epley stopped making payments on the
note. Also, they stopped paying the
first deed of trust in March 2006. The
property was foreclosed on by Washington Mutual Bank, and Brandt lost her
investment of $62,000.
Subsequently, Grant discussed the
situation with Maas, and he told her that he had no responsibility to Brandt
because she was not his client.
C.
Maas testified that he became a real
estate broker in 1990. At that time, he
became the sole owner and responsible broker for National One. Dexter was Maas’s loan expert “as far as
handling questions about loans for agents with questions on loans.†Dexter gave the company’s real estate agents
classes on loan transactions and was a trusted employee. Dexter was considered the company’s expert on
loan transactions, and Grant’s job description required her to consult with
Dexter on loan questions.
In the subject transaction, Maas testified that
National One represented only the borrowers, Mr. and Mrs. Epley. He acknowledged, however, that the company
had disclosure obligations to the lender as well as to the borrowers. Maas denied that the company arranged loans
for a lender, but he admitted that the broker had a fiduciary duty to the lender. His stated policy was to give basic
information to the lender and, thereafter, the lender would decide what
additional information it needed to approve the loan. However, Maas had never seen a
lender/purchaser disclosure statement (Cal. Dept. of Real Estate form No.
RE851A) and had never dealt with the form in his career. His only direct involvement in this loan
transaction was to call Grant and tell her that “a new agent†wanted a hard
money loan. Grant told Maas that she
would ask Brandt if she was interested in loaning the money.
Maas also testified that, in the
active 2005 real estate market, institutional hard money lenders were not
interested in the borrower’s credit report because, almost by definition, a
person seeking a hard money loan usually had bad credit. A lender would usually focus on the appraisal
of the property to determine what a home was worth.
actually an appraisal of the subject property.
Maas testified that the office
occasionally pursued private money loans for borrowers who did not qualify for
conventional loans. Maas also indicated
that occasionally he made loans from his personal assets, through National
One. Maas did not want to make the loan
from his personal assets, but he did seek a private hard money lender for Mr.
and Mrs. Epley. If Brandt was not
interested, he was going to ask another person, Dale Beaver, if he wanted to
make the loan.
D.
Dexter testified that he was
employed by National One as an office manager, training coach, as well as corporate
secretary. The company made mortgage
loans and occasionally made hard money loans.
After reviewing Mr. and Mrs. Epley’s credit report, he told Mrs. Epley
that her credit was so bad that she could only try to get a hard money
loan. He said he would ask Maas if he or
his associates were interested in making the loan.
Dexter further testified that he had
never used a lender/purchaser disclosure statement (form No. RE851A), and he
did not teach its usage in his classes for new employees of National One. In his classes, he taught that the only
obligation to lenders was to give the lender any documentation they
required. He was still unaware of
California’s “minimum disclosure requirements†at the time of trial. He holds a real estate salesperson license
and is not a broker.
III
DISCUSSION
A.
Relationship with the Borrower
On appeal, Brandt contends that the trial court
erred in finding that National One did not have a broker/principal relationship
with Brandt.
National One and Maas argue that Mr. and Mrs.
Epley, as borrowers, were the persons who were the principals in the
transaction with the broker, National One.
They, thus, argue that National One and Maas owed a fiduciary duty to
their principals, Mr. and Mrs. Epley, not to Brandt.
National One and Maas cite Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773 (
“A mortgage loan broker is customarily retained by a borrower to act as
the borrower’s agent in negotiating an acceptable loan. All persons engaged in this business in
California are required to obtain real estate licenses. [Citations.]
Thus, general principles of agency [citations]
combine with statutory duties created by the Real Estate Law [citations] to
impose upon mortgage loan brokers an obligation to make a full and accurate
disclosure of the terms of a loan to borrowers and to act always in the utmost
good faith toward their principals. ‘The
law imposes on a real estate agent “the same obligation of undivided service
and loyalty that it imposes on a trustee in favor of his beneficiary.†[Citations.]
This relationship not only imposes upon him the duty of acting in the
highest good faith toward his principal but precludes the agent from obtaining
any advantage over the principal in any transaction had by virtue of his
agency. [Citation.]’ [Citation.]
A real estate licensee is ‘charged with the duty of fullest disclosure
of all material facts concerning the transaction that might affect the
principal’s decision. [Citations.]’ [Citations.]â€
(Id. at 782.)
Unquestionably, the broker owes a
fiduciary duty to the borrower it represents.
Wyatt is undoubtedly an
accurate statement of that duty. The
trial court was clearly correct in finding that there was no principal/broker
relationship between Brandt and National One.
B.
Lenders
The trial court’s finding that there was no
principal/broker relationship with the lender does not end the matter. There are statutory duties owed to lenders,
even though the broker is not representing the lender.
The trial court began its statement
of decision by discussing these statutory duties. Section 10232.4, subdivision (a), provides,
in relevant part: “In making a
solicitation to a particular person and in negotiating with that person to make
a loan secured by real property, . . . a real estate broker shall deliver to
the person solicited the applicable completed statement described in Section
10232.5 as early as practicable before he or she becomes obligated to make the
loan or purchase . . . .â€
Section 10232.5 provides the contents of the
disclosure statement in detail.
Subdivision (a) states: “If the
real estate broker is performing acts described in subdivision (d) of Section
10131 in negotiating a loan to be secured by a lien on real property, . . . the
statement required to be given to the prospective lender shall include, but
shall not necessarily be limited to, the following information.†If required, disclosure is generally
accomplished by completing a lender/purchaser disclosure statement (form No.
RE851A).
Section 10131, subdivision (d),
defines a real estate broker to include a person who “[s]olicits borrowers or
lenders for or negotiates loans or collects payments or performs services for
borrowers or lenders or note owners in connection with loans secured directly
or collaterally by liens on real property. . . .â€
The trial court did not discuss section 10131
but, instead, focused on the portion of section 10232.4 quoted
It then discussed whether Maas, Dexter, or Grant fit the
definition. The trial court concluded
that Grant was the broker in this case.
It concluded: “Grant solicited
Brandt, negotiated the terms, and suggested that Brandt . . . do the
deal.†The trial court then granted
judgment in favor of National One and Maas “in that there was no
broker/princip[al] relationship between these defendants and Brandt.â€
or its reasoning further.
As discussed, ante, we agree that there was no broker/principal relationship
between Mortgage One and the lender, Brandt.
But there was a statutory duty:
“In addition to the general fiduciary duty imposed on mortgage loan
brokers, the Business and Professions Code imposes on the
broker the duty to provide a prospective lender with a statement including,
inter alia, the ‘[e]stimated fair market value of the securing property.’ [Citation.]â€
(Barry v. Raskov (1991) 232
Cal.App.3d 447, 456.)
The issue here is the statutory duty National
One and Maas owed to the lender who did not have a broker/principal
relationship with them.
Respondents seek to avoid application of the
statutes by pointing out that the statutes only apply to brokers who solicit
lenders and further arguing that they did not solicit Brandt. The argument fails to survive scrutiny of the
record here.
There was ample substantial and undisputed
evidence that National One, Maas, and their employees were soliciting private
lenders for Mr. and Mrs. Epley. The
trial court expressly found that Grant did solicit Brandt. Dexter asked Maas if he was interested in a
personal loan, and Maas said he was not interested. However, Maas did call Grant. Maas testified that he would have called
another person if Brandt was not interested in making the loan.
Since National One solicited and negotiated the
loan with the lender, the disclosure statutes were applicable.
10232.5, the trial court erred in finding for National One and Maas.
C.
Section 10232.4 applies to real estate brokers
who solicit lenders and negotiate with lenders.
The brokers in this case were Grant and Maas, individually and as the
responsible broker for National One.
The trial court apparently believed it had to
find the one real estate broker or salesperson most responsible for the
transaction. However, more than one
broker can violate the law in a single transaction, and the trial court failed
to explain why National One itself, as the broker for the loan transaction, was
not held liable for the acts of its employees.
The trial court also failed to explain why Maas, the owner and
responsible broker of National One, was not responsible for breach of his
statutory duty.
All of the documentation of the loan was in the
name of National One, and it received an origination fee for the loan. This was clearly a corporate transaction, and
National One and its responsible broker, Maas, are liable for breach of the
statutory duties of the corporation.
Accordingly, the failure of National One, acting through Maas and its
employees, to furnish a disclosure statement required by sections 10232.4 and
10232.5 is a conspicuous breach of a statutory duty.
Also Responsible for Breaches by Its Employees
Section 10211 states: “If the licensee is a corporation, the
license issued to it entitles one officer thereof, on behalf of the
corporation, to engage in the business of real estate broker . . . .†(See also §§ 10006, 10130, 10131,
10158.) As a licensed broker, National
One acted through Maas, as its owner and responsible broker, and both National
One and Maas had the duties imposed on all licensed brokers. (See generally 3 Witkin, Summary of Cal. Law
(10th ed. 2005) Agency & Employment § 48, pp. 87-88.)
As to Maas, section 10159.2, subdivision (a)
states: “The officer designated by a
corporate broker licensee pursuant to Section 10211 shall be responsible for
the supervision and control of the activities conducted on behalf of the
corporation by its officers and employees as necessary to secure full
compliance with the provisions of this division, including the supervision of
salespersons licensed to the corporation in the performance of acts for which a
real estate license is required.†(See
generally 2 Miller & Starr, Cal. Real Estate (3d ed. 2011) §
4:31, pp. 4-87-4-88.)
Dexter and Grant were employees of National One.
respondents’ contention that Grant acted on her own behalf.
E.
There was
conduct toward Brandt by National One employees. “The real estate law proscribes, in broad
terms, all conduct that is fraudulent, dishonest, or in violation of the
broker’s fiduciary duties.
[Citations.]†(3 Witkin,
Summary of Cal. Law (10th ed. 2005) Agency & Employment § 58, pp. 99-101;
see also § 10176 [grounds for revocation of real estate license.])
Respondents cite Ward v. Taggart (1959) 51 Cal.2d 736, 741, for a definition of
those duties: “Even though Taggart was
not plaintiff’s agent, the public policy of this state does not permit one to
‘take advantage of his own wrong’ (Civ. Code § 3517), and the law provides a
quasi-contractual remedy to prevent one from being unjustly enriched at the
expense of another. Section 2224 of the Civil Code provides that
one ‘who gains a thing by fraud . . . or other wrongful act, is, unless he has
some other and better right thereto, an involuntary trustee of the thing
gained, for the benefit of the person who would otherwise have had it.’ As a
real estate broker, Taggart had the duty to be honest and truthful in his
dealings. [Citations.] The evidence is clearly sufficient to support
a finding that Taggart violated this duty.
Through fraudulent misrepresentations he received money that plaintiffs
would otherwise have had. Thus, Taggart
is an involuntary trustee for the benefit of plaintiffs on the secret profit of
$1,000 per acre that he made from his dealings with them.†(Id.
at pp. 741-742, fn. omitted.) Thus, a
real estate broker has a general duty to be honest and truthful in his
dealings.
Brandt cites Barry
v. Raskov, supra, 232 Cal.App.3d
447. In that case, the court held that a
mortgage loan broker is liable to the lender for fraud or negligence of an
appraiser it employs to appraise the property.
(Id. at p. 453.) It said:
“[T]he employer of an independent contractor will generally be held
liable for the contractor’s torts . . . .â€
(Ibid.) Further, the court stated: “A mortgage loan broker owes a fiduciary duty
of the ‘highest good faith toward his principal’ and ‘is “charged with the duty
of fullest disclosure of all material facts concerning the transaction that
might affect the principal’s decision.â€â€™
[Citation.] The broker owes this duty to the lender-investor as well as to the
borrower.†(Id. at p. 455, italics added; see also Wyatt v. Union Mortgage Co., supra,
24 Cal.3d at pp. 782-783.)
As Maas conceded, the broker had general duties
to the lender: “We can’t falsify
documents and we have to be truthful. We
can’t misrepresent anything.†National
One breached these duties because the employees of National One were not honest
and truthful in their dealings with Brandt.
First, Grant gave Brandt false information about
the borrowers. She told Brandt that Mrs.
Epley was a “top producer†in the office.
This was a false statement, first made by Dexter to Grant, and was
itself a breach of duty when communicated to Brandt.
Second, Grant told Brandt that she had checked
comparable sales and that there was sufficient equity in the property. Brandt interpreted this to mean that the loan
was safe. Grant did not tell Brandt
that, in the event of a default on the first deed of trust, Brandt would have
to pay off the first deed to protect her position. The breach was especially egregious because
of the familial relationship between Grant and Brandt.
Again, Grant’s statements were not made on her
own, but as an employee and representative of National One.
Other relevant information known to the broker
was not communicated to Brandt: (1)
Brandt was not given a copy of the credit report, which showed that Mr. and
Mrs. Epley had missed two payments on the first mortgage; (2) Brandt was not told that property
taxes were delinquent; (3) Brandt was
not told that the proceeds of the loan would be used to pay off two car loans
instead of curing these delinquencies;
(4) Brandt was not told that Mr. Epley was actually self-employed because
the company he worked for was owned by his wife; and (5) Brandt was not told that Mrs. Epley
had only worked for National One for two weeks (instead of the two years stated
on the loan application) and was not a “top producer†in the Riverside office.
Brandt testified that she would not have made
the loan if she had known these facts.
She did not know that the broker was required to give her certain
information, and she did not realize that she could lose her money if there was
a foreclosure by the holder of the first deed of trust. Nor did Brandt know that she might be
required to make payments on the first deed in order to protect her second
deed.
F.
To summarize, section 10232.4 tracks the
language of section 10131 by imposing a disclosure obligation on real estate
brokers, including corporate brokers, who solicit and negotiate a loan secured
by real estate. Such brokers must make
the disclosures required by section 10232.5.
As discussed, ante, there was
ample evidence that National One, acting through its broker owner and
employees, had such a disclosure obligation.
No attempt was made to comply with section 10232.5, and Maas and Dexter
were unaware of their statutory responsibilities to disclose the required
information to Brandt.
National One’s employees misled and failed to
disclose material facts to Brandt. They
therefore violated the broker’s duty to be honest and truthful in their
dealings with the lender. National One
and Maas are responsible for the actions of their employees.
We agree with Brandt that the trial court erred
in applying the law to the nearly undisputed facts. Accordingly, the judgment absolving National
One and Maas of responsibility for the corporation’s breach of fiduciary duty
cannot stand.
While we find it unnecessary to discuss Brandt’s
further contentions that National One and Maas violated section 17200 et seq.,
the trial court should revisit the issue on remand. It should also reconsider Brandt’s request
for attorney fees under section 17082 and related statutes and her requests for
judgment and attorney fees against Mr. and Mrs. Epley on the unpaid note.
IV
DISPOSITION
The judgment is reversed and the
matter is remanded for further proceedings in accordance with the views
expressed in this opinion. Brandt shall
recover her costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL
REPORTS
RICHLI
Acting
P. J.
We concur:
KING
J.
CODRINGTON
J.
name="_ftn1" title=""> [1] Grant
was not sued. Although she testified at
the trial, she is not involved in this appeal.
further statutory references are to the Business and Professions Code unless
otherwise indicated.
