[caption id="attachment_51945" align="alignright" width="349" caption="Diane Fortier inherited a nine-unit apartment building on South E Street in Santa Rosa in 2003."][/caption]

SANTA ROSA – A 61-year-old Santa Rosa woman has won a suit against a Florida-based mortgage lender after being hit with what a Sonoma County judge called a “gigantic” 47.5 percent fee for prepaying a commercial property loan. The Santa Rosa law firm Beyers Costin that represented the woman called the ruling a victory for borrowers over questionable lending practices.

Held over five days in Sonoma County Superior Court before Judge Mark Tansil, the trial for the case of L. Diane Fortier, et al. v. M&T Bank Corporation, et al., resulted in the return of $188,821.37 to plaintiff Ms. Fortier.

M&T Bank Corporation was the entity servicing the loan and demanding payment. The loan’s originator, Florida-based Bayview Financial Small Business Funding LLC, was also a defendant in the case.  Bayview Financial, which also maintains a mortgage-backed securities division and whose website indicates a minority ownership by M&T Bank, declined to comment for this story.

Ms. Fortier said the judge's ruling was a victory for borrowers.

“They need to know that they can fight back,” said Ms. Fortier. “It was part of our retirement and it was our home.”

Ms. Fortier inherited a nine-unit rental property near Santa Rosa City Hall in 2003, acquiring a $350,000 loan against the property three years later to help service debts related to the trust of the inheritance, according to Ms. Fortier and court documents. Living at the property and with seven tenants generating rental income, Ms. Fortier sought to refinance her loan in 2007.

The loan instrument in question, described as a "rarity" in the judge's decision, was a 30-year loan with a declining interest rate. Finding no such loans in California, the residential broker working with Ms. Fortier, Debbie Cerri, examined national offerings and found one such loan available from Bayview Financial, according to court document.

It was approximately 18 months later that Ms. Fortier sold the property for over $1 million, paying off the remaining $444,104.15 on the loan along with penalties totaling $211,026.58. Those penalties included a 5 percent penalty for prepayment in the first 10 years and payment for interest that would have accrued, according to the court.

The suit also included Ms. Cerri and her former firm, Fountain Grove Mortgage, which settled with the plaintiff for $44,000. Ms. Cerri wrote in an email to the Business Journal that the large so-called lockout penalty was disclosed at the time of the loan signing, and that she would have advised against the loan if she knew of the future sale.

“This whole situation was very unfortunate.  At the time of loan origination, this was a great loan for Ms. Fortier, as she had no plans on moving and she wanted the security of a 30-year fixed rate,” wrote Ms. Cerri.

Ms. Fortier said that she chose to sell the property after her partner developed pancreatic cancer, making duties related to the building’s upkeep increasingly difficult.

In his written decision in the case issued last month, Judge Tansil said that the only legal limitation to the lockout penalties “appears to be a judicial concept of reasonableness,” unlike the current statutory limits to penalties on residential loans. He wrote that the impending sale of the property was predictable to the lender despite the fact that it was not forced, and that the lender ultimately knew that the borrower would suffer penalties.

Christopher Costin, a partner with Beyers Costin who worked represented Ms. Fortier, said that the case represented the sort of questionable lending that was prevalent between 2004-2008 when the inflated mortgage-backed securities market was at its peak.

 “The really unconscionable aspect of it was that their own underwriting documents showed that her income was not enough for the debt service,” he said. “It was absolutely inevitable that she would have to sell the property.”

On its website, parent company Bayview Financial Holdings L.P., as the Bayview Lending Group LLC, notes that it has generated “$28.2 billion in asset-backed securities in both the residential and commercial sector” since 1998.