Facts

Plaintiff Isaac Martin was building a home on a hill in Placerita Canyon and obtained additional construction financing with a loan for $175,000 from defendants that was secured by a third deed of trust on the property.

The third loan was in the name of Itchak Brill as the lender, and was arranged by his brother-in-law Yair Harpaz who was operating a mortgage brokerage business called Private Investors Financing under the license of Annette McCullough.

With the house almost complete, and appraised at approximately $1 million, the defendants foreclosed on the house with plaintiff complaining to defendants that they had not fully funded the loan.

Plaintiff's lawsuit was filed after foreclosure alleging wrongful foreclosure, fraud, etc. The court ordered informal exchange of information to determine if or to what extent the loan was funded and how it was serviced.

The defendants responded with a Quicken register claiming they of the $175,000 loan amount, they had disbursed more than $83,000 in cash payments to fund the loan, with the remainder of the funds being paid with checks. The alleged cash payments were purportedly made in various increments of $5,000, $10,000, etc.

PLAINTIFF'S CONTENTIONS:
The plaintiff argued that it was contrary to custom and practice in the industry to make cash payments to fund a construction loan. The plaintiff contended that there was no record of the alleged cash payments being withdrawn or transferred from any bank of financial institution. The plaintiff also argued that the defendants were underfunding the loan as a way to obtain secret profits on the loan, and that these secret profits were designed to avoid taxes by taking profits secretly as return of capital.

The plaintiff further argued that an assignment by defendants of a portion of the loan to another investor, guaranteeing a higher rate of return than the stated interest rate to plaintiff, confirmed that the defendants were taking secret profits, because those additional profits would be needed to fund that higher rate of return that was guaranteed to the assignee.

The plaintiff also argued that there was no crossover between the plaintiff and the defendants with respect to their ethnic or cultural backgrounds, families, communities, friends, or otherwise, that might support informal cash transfers between them.

The plaintiff claimed that the defendants were also working in cahoots with the lenders on the first and second note who were in the same office as defendants, to take the property under a "loan to own" scheme because of its value. Plaintiff had several brokers try to obtain a payoff prior to foreclosure so he could refinance, but defendants would refuse to commit to any sum which prevented plaintiff from refinancing.

DEFENDANT'S CONTENTIONS:
The defendant countered by claiming that the plaintiff had grabbed the receipts for the cash payments when he was in their office. The defendants also claimed they had cash available because Itchak Brill had a vending route selling nuts and had those sums of money in cash at his house accumulated from the coins deposited into the vending machines.

The defendants also contended that there was no equity in the house being built by plaintiff so there could be no harm to plaintiff. Defendants claimed that plaintiff was a sophisticated borrower who used about nine loan brokers over the history of his ownership of the property. Defendants claimed he understood everything yet simply could not afford the deal.

Result

$9,458,000 ($958,000 economic; $150,000 non-economic; $8,350,000 punitive).

Other Information

According to plaintiff's counsel, the defendants' original attorney withdrew after the disclosure that the defendants were claiming to have made cash payments of more than $83,000. Defendants' attorneys dispute this. According plaintiff's counsel, a new attorney then appeared for the defendants, conducted discovery and obtained a summary judgment, that was reversed on appeal because it was a question of fact whether or not defendants had made the alleged cash payments. That second attorney for defendants then tried the first phase of the case which resulted in a finding of liability and an award of compensatory damages. According to plaintiff's counsel, after the finding of liability and award of compensatory damages, the defendants obtained new counsel and filed five bankruptcy petitions seriatim that were each denied or dismissed. According to defense counsel, the bankruptcies preceded this trial (the bankruptcy counsel is not any of the trial counsel) and some of the petitions are still pending. All trial counsel entered the case after the principal trial, and sought to correct many errors which the judge did not allow. The defense counsel plans to appeal if necessary. The bankruptcy court allowed this case to proceed to judgment but not to collection. According to plaintiff's counsel, the fraudulent conveyance action is based on a high-value house overlooking the Calabasas Country Club where one defendant lives, that was originally titled in the name of another defendant, and that was transferred during trial - first to a family trust and then to a niece's corporation as its sole asset. The fraudulent conveyance action is pending in the bankruptcy court. Defendants now claim in that action that plaintiff should be limited to the value of the house at the time of its fraudulent transfer rather than its current appreciated value. Defense counsel notes that the judge interjected personal comments in the beginning of the "findings of fact." Plaintiff counsel noted that this judge ruled against plaintiffs on the summary judgment that was reversed, and then struck plaintiff's jury demand at the time of trial, but once she heard the evidence, disbelieved defendants' story. Plaintiff's counsel further claims that the record has overwhelming evidence of repeated fraud and lies by defendant hard money lenders, and that plaintiffs' economic damages are supported by three different methods of assessing loss. Plaintiff denies there was any error in the two trials. The minute order from Aug. 2, 2007 announced a decision about punitive damages and directed the plaintiff to submit a proposed order. No judgment yet has been entered. Defendants plan to appeal. FILING DATE: Sept. 20, 1999.