Legal Question in Real Estate Law in California
A 27 year old promissary note attached to a trust deed has terms that are not compatible. It claims to be a 12% loan but based on the terms of payment the actual interest rate would be 16+%. If the 12% is accurate then one or more of the other components of the note {principal, payment schedule, amount of payments, or term of note} must be wrong. Statute of limitations has run for a judicial sale. Does power of sale {non judicial foreclosure} attach to a note with this type of discrepency?
1 Answer from Attorneys
12% interest compounded monthly would produce a total interest charge approximating 16% simple interest after a short while. I did a calculation for you, and if I'm correct, 12% compound interest (with annual compounding) is equal to 16% simple interest after about six years. Anyway, that could be the source of your number problem.
Most real-estate loans are based on payment of a flat charge every month over the life of the loan but a loan with deferrals of interest as well as principal could result in the accumulation of a gob of interest-bearing interest.
The note and the deed of trust must be read together to determine if there is a power of sale. The terminology allowing a trustee sale upon default is found in the deed of trust. If there is no power of sale clause, it's probably somebody's home-made loan documentation. I have seen such documents, and often the borrower has given the lender a deed which the lender is supposed to record upon the borrower's default -- the law considers such deeds to be disguised mortgages (equitable mortgages) and requires them to be foreclosed judicially.
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