ROES

The question presented here is whether a junior lienholder in real property, who assumes senior indebtedness to preserve his equity in that property, is entitled to assert the usury laws against the senior lenders. Applying the constitutional and statutory prohibitions against usury, which are for the benefit of the borrower or a personal representative of the borrower, we answer this question in the negative.

Factual and Procedural Background

Defendant Bradley Holcom was a licensed real estate agent who arranged the sale of trust deeds for clients looking to invest in loans for the development of real property. Plaintiff John Roes approached Holcom about investing in trust deeds and, from 1991 to 1993, purchased interests in a number of properties through Holcom.

In May 1992, Holcom arranged two $179,000 construction loans to Luz Maria Garcia for the development of two properties in Calexico, California. Defendants William and Doris Wong, William Wong and Associates, Inc., funded one of the loans, and defendants Eugene and Blanche Wilson, individually and as trustees of the Wilson Family Trusts (collectively with the Wongs, the holders of the senior note), funded the…

I agree with the majority opinion that John Roes (Roes) may not in this case assert a claim of usury against the holder of the senior trust deeds to which Roes paid usurious interest to protect his subordinate trust deeds. However, I do not agree with the blanket statement of the majority opinion that a junior trust deed holder may never assert a usury claim against a senior trust deed holder.

As stated in 4 Miller and Starr, California Real Estate (2d ed. 1989) section 10:4, page 656: “The public policy of the Usury Law is to protect the necessitous, impecunious borrower who is unable to acquire credit from the usual sources and is forced by his economic circumstances to resort to excessively costly funds to meet his financial needs. [Fn. omitted.]” In this case Roes, as an investment, purchased at a discount the subordinate notes secured by second trust deeds. At the time of the purchase, he knew, or should have known, that the trust deeds he purchased were subordinate to senior trust deeds securing usurious notes. Under these circumstances, the discounted purchase price must be deemed to reflect his appreciation of the usurious interest he may have to pay the holder of the…

McINTYRE, J.

The question presented here is whether a junior lienholder in real property, who assumes senior indebtedness to preserve his equity in that property, is entitled to assert the usury laws against the senior lenders. Applying the constitutional and statutory prohibitions against usury, which are for the benefit of the borrower or a personal representative of the borrower, we answer this question in the negative.

Defendant Bradley Holcom was a licensed real estate agent who arranged the sale of trust deeds for clients looking to invest in loans for the development of real property. Plaintiff John Roes approached Holcom about investing in trust deeds and, from 1991 to 1993, purchased interests in a number of properties through Holcom.

In May 1992, Holcom arranged two $179,000 construction loans to Luz Maria Garcia for the development of two properties in Calexico, California. Defendants William and Doris Wong, William Wong and Associates, Inc. (the Wongs) funded one of the loans, and defendants Eugene and Blanche Wilson, individually and as trustees of the Wilson family trust (collectively with the Wongs, the holders of the senior note), funded the other. Each loan was…