SF Properties, LLC v. Smith CA2/2

BACKGROUND

The parties Plaintiff was the borrower in a loan transaction with Dove Street Capital Lenders, LLC (Dove Street), an entity that was in the business of making short term loans to borrowers who did not qualify for financing through traditional lenders. Defendants are the current and former members of Dove Street. The underlying loan transaction In March 2005, Dove Street loaned plaintiff $3.64 million (the loan). The loan was evidenced by a promissory note and secured by a deed of trust covering several parcels of real property in Glendale, California. The note specified an interest rate of 12 percent and a default rate of 25 percent. At the time the loan was made, Dove Street was not a licensed real estate broker or finance lender. It therefore required the loan to be arranged by a broker pursuant to Civil Code section 1916.1 in order to invoke the broker’s exemption from the interest rate limitation imposed by article XV, section 1 of the California Constitution.

Article XV, section 1 of the California Constitution prohibits a nonexempt lender from lending money at an interest rate greater than 10 percent per annum. Civil Code section 1916.1 provides an…