In the case Martin et al. v. Harpaz et al., homeowners Isaac and Lizzette Martin were building a new home and took out a series of construction loans to fund the project. The lender, Yair Harpaz of Private Investors Financing, claimed to have funded the third loan, but in fact only partially funded it.
Because the third loan was never fully funded and the lender refused to cooperate with the homeowners’ efforts to refinance the loans, the homeowners could not complete the construction and the lender foreclosed on the home despite the fact that the loan was not in default.
At trial, the court found that the lender had intentionally defrauded homeowners by failing to fully fund the loan, incorrectly calculating interest on the loan, and improperly foreclosing on the property. Additionally, the loan did not comply with legal mandates for disclosures, and the lender had altered the loan documents after homeowners signed them.
The trial court also found that the lender’s fraud directly caused the homeowners to lose their home, and ordered compensatory damages in the amount of the equity lost by homeowners, $958,000, and noneconomic damages for emotional distress in the amount of $150,000.
The trial court found that in the fact-finding part of the trial, the lender "submit(ted) false documents and alleg(ed) large unreported amounts of cash payments, (thus) no testimony by the defendants regarding their wealth is credible or worthy of belief."
Accordingly, the court ordered punitive damages as follows: the lender to pay $2.5 million; two related companies to pay $2.5 million each; the lender’s principal to pay $1.5 million; and the lender’s supervising broker to pay $150,000.
The Court of Appeals reversed all findings against the lender’s broker, as her contract limited her role to the supervision of institutional loans rather than private loans, and she had no actual knowledge of this matter.
The court then affirmed the compensatory damages but reversed the punitive damage award against the lender, related companies and the lender’s principal on grounds that the trial court had not considered any evidence of their worth or financial ability to pay punitive damages.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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