Drakeford v. Capital Benefit, Inc.

Background

The plaintiffs moved for a temporary restraining order, or TRO, to prevent the defendants from conducting a nonjudicial foreclosure sale of the plaintiffs’ residence on July 2, 2020. The court considered the motion, the defendants’ opposition, declarations, and exhibits.

The central issue for the TRO was whether the loan secured by the residence was made primarily for “business purposes.” The court explained that credit extended for business or commercial purposes is exempt from the federal Truth in Lending Act (TILA). If the loan was not primarily for business purposes, the plaintiffs argued that it could be subject to rescission under TILA and could violate federal and California consumer-protection laws.

Parties’ evidence and arguments

The plaintiffs declared that the loan documents were presented with little explanation, that a notary said the lender prohibited copying most documents, and that they never told anyone the loan was for a business purpose. They said the loan’s primary purpose was paying off a prior second mortgage. They also signed documents stating that the proceeds would be used first for home improvements and major landscaping, and for rental improvements, and later described actual uses including home improvements, credit-card debt, and a new roof on a rental property.

The defendants argued that the loan was indisputably a business-purpose loan. They pointed to the plaintiffs’ loan application, which described the refinance purpose as “business capital,” and to the signed Certificate of Business Purpose Loan. They also argued that Rhonda Drakeford, identified in the opinion as a licensed real estate broker, should have understood the significance of that certificate.

Court’s analysis

For a TRO, the plaintiffs had to show a likelihood of success on the merits, likely irreparable harm without an injunction, a favorable balance of equities, and that an injunction would serve the public interest. The court found a likelihood of success on at least the TILA claim based on significant evidence that the loan’s disclosed primary purpose, both when sought and when originated, was nonbusiness use.

The court noted that the plaintiffs’ evidence could later be undermined at the preliminary-injunction stage or on summary judgment by evidence concerning who completed the loan application and by arguments about the effect of Rhonda Drakeford’s signing the business-purpose certificate. The court therefore did not finally resolve whether the loan was covered by TILA.

The court also concluded that losing a residence through foreclosure could cause irreparable harm. It found that the balance of equities favored the plaintiffs because the residence appeared to contain sufficient equity to protect the defendants’ secured interest. The court did not require the plaintiffs to post a bond at that time.

Disposition and next steps

The court granted the plaintiffs’ request for a TRO enjoining the July 2, 2020 foreclosure sale. Unless the parties agreed to a different schedule, the plaintiffs had to file a motion for a preliminary injunction by July 13, 2020; the defendants’ opposition was due July 27, 2020; the plaintiffs’ reply was due August 3, 2020; and the hearing was set for August 12, 2020. Judge Jeffrey S. White signed the order as duty judge for William Orrick.