The United States District Court for the Central District of California recently granted summary judgment for a defendant in a case asserting violations of the Truth in Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA"), finding that the loan to a trust was for a business purpose. See Gilliam v. Levine, 2021 U.S. Dist. LEXIS 226814 (C.D. Cal. 2021). In the case, Plaintiff Maxine Gilliam ("Plaintiff") had approached a loan broker to procure a lender for a loan to be secured by property (the "Property") owned by the Lou Easter Ross Trust (the "Ross Trust") of which she was successor trustee. In June 2015, the broker e-mailed Defendant and invited Defendant to fund the loan. The broker and Defendant exchanged a series of e-mails in which the broker indicated that "[t]he subject property has a tenant in place paying $2,000 monthly" and that Plaintiff would be "using the funds to invest in a small rental." The broker attached an unsigned loan application which stated that: (1) the Property was an "investment" property and the purpose of the refinance loan was "business"; (2) Plaintiff was a "Real Estate Investor (retired teacher)"; and (3) Plaintiff owned three pieces of real property. In connection with the loan, Plaintiff signed, among other documents, an occupancy and financial status affidavit certifying that the Property was an "investment property." In April 2017, Defendant declined to grant an optional one-year loan extension. After Plaintiff failed to make the final loan payment, Defendant recorded a notice of default and an election to sell the Property under the deed of trust. On March 5, 2018, Plaintiff sent Defendant a notice of rescission of the loan. Defendant did not respond to the notice, and on March 30, 2018, Plaintiff filed an action against Defendant, alleging violations of TILA and RESPA. Defendant later filed this motion for summary judgment.
In determining whether to grant summary judgment, the Court noted that TILA only applies to "consumer credit transactions," which are loans issued (1) to a natural person and (2) primarily for personal, family, or household purposes, and that similarly, "RESPA does not apply to credit transactions involving extensions of credit primarily for business . . . purposes." The Court undertook a five-factor test to determine whether a loan was obtained primarily for business or personal purposes.
For factor 1 – "the relationship of the borrower's primary occupation to the acquisition" – the Court found that Defendant relied on the statement in the loan application, even though it was completed by the broker, that Plaintiff was a real estate investor, suggesting that the loan was for business purposes. For factor 2 – "the degree to which the borrower will personally manage the acquisition" – the Court found that there was evidence that Plaintiff was managing the loan on behalf of the Ross Trust and a lack of evidence as to how the loan proceeds were actually used, which leaned toward a business purpose. The Court found factor 3 – "the ratio of income from the acquisition to the total income of the borrower" – was neutral, but for factor 4 – "the size of the transaction" – the Court found that the relatively small dollar amount borrowed leaned toward a personal purpose. However, for factor 5 – "the borrower's statement of purpose for the loan" – the Court found that, based on the statements by Plaintiff and the broker that (i) the loan was needed "to make necessary repairs," (ii) the loan's purpose was "to invest in a small rental," (iii) the Property had a tenant making rent payments, and (iv) the Property was an investment property, the loan was being used for business purposes. As such, the Court determined that TILA and RESPA did not apply, and granted summary judgment for Defendant.
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