For Plaintiff: Bruce A. Leach, Esq.; Fausto C. Anguilla, Esq.
For Defendant: Stephen A. Izzi, Esq.
Before the Court is FS Group RI, LLC (Group), and Johannes Erskine Flo's (collectively Plaintiffs) Motion for a Preliminary Injunction. Plaintiffs seek to enjoin Defendants HIF Lenders II, LLC, Westridge Lending Fund, LLC, and Rodeo Capital, Inc. from recording a deed of foreclosure in the Land Evidence Records of the Town of Lincoln, Rhode Island and from selling, leasing, mortgaging, or otherwise encumbering a single family residence located at 15 Red Brook Crossing in Lincoln, Rhode Island (the Property).
Facts and Travel
Johannes Erskine Flo (Flo) is the owner and principal member of a Rhode Island limited liability company, FS Group RI, LLC (collectively Borrower). HIF Lenders II, LLC (HIF) and Westridge Lending Fund, LLC (Westridge) are both California limited liability companies engaged in the business of making real estate loans. Rodeo Capital, Inc. (Rodeo) is a California corporation, which brokers and services real estate loans on behalf of HIF and Westridge (collectively Lenders). In March 2015, Borrower entered into a loan agreement with Lenders in order to acquire a single family residence located at 15 Red Brook Crossing in Lincoln, Rhode Island (the Property). On or about March 10, 2015, Borrower executed a Promissory Note (the Lincoln Loan) payable to Lenders in an original principal amount of $2, 275, 000. The Lincoln Loan was secured by a Mortgage and recorded in Book 1935 in the Land Evidence Records of the Town of Lincoln, Rhode Island. Borrower negotiated and obtained the Lincoln Loan through Rodeo, which is the servicing agent for the Lincoln Loan. In connection with the Lincoln Loan, Flo signed a Certification of Non-Owner Occupancy and Indemnity (Occupancy Certification) on March 13, 2015, which stated that the Property was not his principal residence and that he never intended to make the Property his principal residence.
On March 13, 2015, Lenders funded the entire amount of the Lincoln Loan. In accordance with the terms of the Lincoln Loan, interest on the unpaid principal accrued from the date the proceeds were distributed to Borrower at an annual rate of 10.99%. Interest only payments were due and payable in consecutive monthly installments of $20, 835.21 on the first day of each month until the debt was fully paid. Borrower made payments to Lenders in May and June of 2015, but failed to make payments in July and August of 2015. Accordingly, on August 3, 2015, Lenders sent Borrower a Notice of Default and Demand (Notice of Default), which stated that Borrower was in default for failing to pay $91, 446.85. The Notice of Default advised that Borrower had until close of business on September 3, 2015 to cure the default by paying the full $91, 446.85.
Subsequently, Borrower entered into discussions with Lenders and requested that Lenders forebear from accelerating the Lincoln Loan. Lenders establish that during the default period, Flo repeatedly expressed his desire to avoid the adverse publicity that would accompany a foreclosure proceeding. (Richard Katz Aff. ¶ 32, Feb. 22, 2016.) On October 3, 2015, Lenders and Borrower, through their respective counsel, negotiated a Forbearance and Loan Modification Agreement of the Lincoln Loan (the Lincoln Forbearance). The Lincoln Forbearance reduced the default interest rate on the Lincoln Loan from eighteen percent (18%) to twelve percent (12%) and contained a provision, which released Lenders from any liability it may have garnered under the terms of the original Lincoln Loan. (Ex. E, Brian Dies Aff., Feb. 10, 2016.) The Lincoln Forbearance also required that Borrower make a payment of $93, 260.15-consisting of accrued interest, late fees, attorney fees and expenses incurred by Lenders in connection with Borrower's default-on or before October 9, 2015. The original debt is not discharged but ratified by the Lincoln Forbearance, supra at 2.
Borrower made the October payment in accordance with the Lincoln Forbearance; however, Borrower failed to make its required payment in November. Accordingly, on November 17, 2015, Lenders sent Borrower a Notice of Foreclosure by certified mail with return receipt requested to Group's primary residence located at 10 Brown & Howard Wharf in Newport, Rhode Island. Lenders did not send a Notice of Foreclosure by certified mail to the Property. However, Lenders contend that it sent a "tenant notice" detailing the Notice of Foreclosure to the Property. The Notice of Foreclosure stated that a foreclosure sale of the Property under the Mortgage's power of sale would take place on January 15, 2016. The Notice of Foreclosure also contained a copy of the advertisement Lenders had published in The Providence Journal. Further, the Notice of Foreclosure stated that Borrower had the right to reinstate the Lincoln Loan by paying the amount owed prior to acceleration, plus attorneys' fees and other reasonable costs of proceedings, prior to the foreclosure sale (the Reinstatement Costs).
After receiving the Notice of Foreclosure, Flo sent two texts to Richard Katz, the President of Rodeo, in which Flo indicated that he would pay the Reinstatement Costs by the close of business on November 25, 2015. Borrower failed to make any payment to Lenders before the foreclosure sale, and on January 15, 2016, Lenders purchased the Property at the foreclosure auction for $1, 750, 000.
On January 21, 2016, Borrower filed the instant motion seeking to enjoin Lenders from recording the deed of foreclosure in the Land Evidence Records of the Town of Lincoln, Rhode Island. Borrower also seeks to enjoin Lenders from selling, leasing, mortgaging, or otherwise encumbering the Property. In support, Borrower essentially argues that 1) the original Lincoln Loan was usurious and therefore void; 2) the Lincoln Forbearance is void for lack of consideration; and 3) the foreclosure sale is void for lack of proper notice.
Standard of Review