Shark predatory lendingTypical of 2006 predatory lending practices, the mortgage payments exceeded owners’ monthly income by more than $1000.  This was found to be sufficient to plead substantive unconscionability as grounds to set aside nonjudicial foreclosure sale in Orcilla v. Big Sur, Inc. (2016) 244 CA4th 982.

These cases require great facts which are in this case.  The plaintiffs, the Orcillas, are Filipino and speak English as a second language obtained a $525,000 loan from Quick Loan to refinance their home. Mrs. Orcilla executed an adjustable rate note, in which she promised to pay an initial interest rate of 8.99 percent. The initial monthly loan payments under the note were $4220, which exceeded the Orcillas’ monthly income by more than $1000. Once they became delinquent, an received several notices of default from the trustee under the deed, the Orcillas applied for a loan modification, which was approved in 2008. The modified principal loan balance was $570,992.60, with monthly payments of $4627!!! In 2010, the property was sold in a nonjudicial foreclosure sale to defendant Big Sur.

The Orcillas sued Big Sur and the lenders to set aside the sale, alleging both the original loan and subsequent modification were unconscionable, among numerous other causes of action. The trial court sustained demurrers to each cause of action and the Orcillas appealed.

The Sixth District Court of Appeal reversed with respect to the unconscionability claim. Although the Orcillas had limited English fluency and the loan documents were on standard, pre-printed forms in English, the court found only a low degree of procedural unconscionability because none of the key terms was hidden in fine print or otherwise concealed.  However, the allegation that the monthly payments under the loan and modification exceeded the couple’s income by more than $1000 was sufficient to plead a high degree of substantive unconscionability. Accordingly, the court held that the Orcillas adequately alleged unconscionability as grounds to set aside the foreclosure sale.

The court of appeal also found the Orcillas adequately alleged an unlawful or unfair business practice by the lenders and had standing to file a claim under California’s unfair competition law.seal-white