Confidential
Settlement – $70,000Facts
According to the plaintiff: Sometime in late 1997 and early 1998, the plaintiff corporation, a licensed contractor
purchased a four unit apartment building that was dilapidated, abandoned and which required extensive
improvements in order to make it habitable. The plaintiff expended approximately $150,000 in improving the
property. In order to finance the improvements, the plaintiff which had extended its credit limit, required
financing in order to complete the required improvements.
A mortgage broker convinced the plaintiff that he would provide the necessary financing and utilize an
accommodator who will lend their credit in order to obtain a loan. The defendants, in consideration of the sum
of $5,000, agreed to become accommodators and further agreed that they would quitclaim the property back to
the plaintiff or its designee, which the defendants did.
The proceeds the plaintiff received from refinancing the property were inadequate to pay for the improvements
and the plaintiff was faced with a deficit cash flow to pay for the improvements and further due to a vacancy
factor the rent collected was not enough to service the debt causing the property to go into foreclosure.
The plaintiff made arrangements to refinance the property and take care of any default that had occurred. In
May, 2000, the defendants threatened the President of the plaintiff corporation and her nephew that he would
be harmed unless the subject property was reconveyed to the defendants. The property was reconveyed to the
defendants under duress.
Thereafter, one of the defendants filed for voluntary chapter 13 bankruptcy in order to stop the proposed
foreclosure.
Thereafter, the plaintiff retained counsel and filed the subject suit to impress a constructive trust, damages for
unjust enrichment and accounting.
FACTS: According to the defendant: In September, 1998, the plaintiffÆs president, through her mortgage broker,
approached the defendants with regard to real property located in Los Angeles. The plaintiff initially purchased
the property using a "straw man" to obtain financing. The plaintiffÆs agent convinced the defendants to lend
their credit to the plaintiff such that the defendants would obtain a new loan to refinance the property for the
benefit of the plaintiff.
Pursuant to the oral agreement, the plaintiff would collect the rents from the property and pay the monthly
mortgage. Furthermore, the plaintiff agreed to obtain alternative financing within one year. After the close of
escrow, the defendants transferred title to the plaintiff.
Shortly, thereafter, in March, 1999, the defendants became aware that although the plaintiff was collecting the
rents, that the plaintiff was not making the monthly mortgage payments. After confronting the plaintiff with the
lack of payments, the plaintiff assured the defendants that the plaintiff would either refinance or sell the
property immediately so that the defendants would no longer be responsible for the mortgage payments.
In May, 2000, the defendants became aware that the property was in foreclosure and was to be sold at the end
of May, 2000. The defendants demanded that the plaintiff return title to the defendants so that the defendants
could save the property. Title was conveyed to the defendants on the eve of the foreclosure and one of the
defendants filed a Voluntary Chapter 13 Bankruptcy Petition in order to stop the foreclosure sale.
One year later, the plaintiff filed an action for constructive trust seeking to regain title to
the property.
Settlement Discussions
Prior to the mediation, the plaintiff had made no demand on the defendant. After a dayÆs mediation, the plaintiff agreed to purchase the property from the defendants for $70,000 above the amount owing on the mortgage. This represented one-half of the equity in the property. According to the plaintiff: At the mediation, the parties agreed that the property would be reconveyed to the plaintiff or its designee and that the plaintiff would refinance the subject property in order to pay off the existing mortgage and pay the defendants $70,000 which was accomplished. In light of the appreciation in the value of the property, the parties felt that the settlement was fair, just and equitable to both sides, namely that the property would be reconveyed to the plaintiff and that the defendants would receive a cash settlement.
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