Psarakis v. World Business Lenders Inc

Background

Nikolaos and Panagiota Psarakis sought a temporary restraining order, an emergency order preserving the status quo, against the scheduled December 17, 2020 sale of their family home in California. The opinion states that a Fair Debt Collection Practices Act claim supplied supplemental jurisdiction, meaning an additional basis for federal jurisdiction over related claims.

According to a sworn declaration, the plaintiffs, whom the opinion describes as Greek immigrants with little English proficiency, sought a mortgage on their home. They dealt with Pete Boudouvas, who described himself as a mortgage broker. The plaintiffs alleged that Boudouvas told them to transfer title to their home to their butcher-shop business and arranged a supposedly short-term loan of $645,000 with a daily compounded interest rate of 0.1917%, which the opinion states equaled 69% annually. They paid nearly $240,000 from August 2018 through January 2019.

In April 2019, Boudouvas arranged a second $615,000 loan at 12% annual interest. The plaintiffs used $600,000 to pay the earlier loan, but the earlier loan’s principal had allegedly increased so much that several hundred thousand dollars remained due. After the plaintiffs learned about the remaining balance and the promised traditional mortgage did not materialize, the lender on the second loan began foreclosure proceedings and scheduled the home for sale.

Court’s analysis

The court explained that a temporary restraining order requires consideration of four factors: the plaintiffs’ likelihood of success on the merits, the likelihood of irreparable harm, the balance of the equities, and the public interest. The court stated that when the balance of the equities strongly favors the plaintiffs, they need show only a serious question on the merits.

The court found the potential loss of the family home to be irreparable harm because real property generally cannot be replaced with money, particularly a family home. It also found that the equities strongly favored the plaintiffs: the home could still be sold later if their claims failed, but recovering it after a sale would be very difficult even if they ultimately prevailed. The court likewise found that the public interest favored preventing the family from being displaced during the winter and the ongoing pandemic.

The court said the complaint and plaintiffs’ papers appeared to state initial cases for breach of fiduciary duty and fraud against Boudouvas, based on allegations that he misled them into a series of unwanted loans. But the court noted that the requested relief would operate more directly against the lender and trustee involved in the pending sale. The plaintiffs had offered only conclusory allegations connecting Boudouvas’s conduct to the second lender, and counsel for the trust represented that the trust had no relationship with Boudouvas and no knowledge of the alleged misconduct.

The court nevertheless found significant questions about whether the pending sale was proper under California Civil Code Section 2923.5. The loan documents included a statement that the statute did not apply because the loan was not secured by certain owner-occupied residential property. The court concluded that this statement conflicted with the facts presented, which indicated that the property was the plaintiffs’ family home and that the statute did apply. The court stated that the defendants’ documents appeared to acknowledge that the required borrower contact and evaluation of foreclosure-avoidance options had not occurred. It further stated that the remedy for noncompliance was postponement of the foreclosure sale.

Ruling and conditions

The court granted relief and enjoined the pending foreclosure sale. The order conditioned that relief on the plaintiffs posting a $25,000 bond with the court and making one usual payment to the lender by noon on December 22, 2020.

For defendants who had not appeared, the plaintiffs were required to ensure service of the summons, complaint, motion papers, and court orders in a manner consistent with Federal Rule of Civil Procedure 4. The plaintiffs’ motion for a preliminary injunction was due January 7, 2021; defendants’ oppositions were due January 21; and a hearing was set for January 28. Each side was allowed one fact deposition or one reasonably tailored document request, and continued relief was conditioned on the plaintiffs’ cooperation.