Default interest before maturity, and a borrower trying to unwind his releases
A $1.9M hard-money loan, arrears that don't add up, stacked late charges, and a clever rescission theory that runs into one problem: how do you give back time?
This week’s case: a $1.9 million hard-money loan on seventeen rental units, nearly two and a half years of payments, and a borrower who signed three releases on his way out the door. Now he wants them unwound.
Brown v. Abra Lending, Inc., et al.
Court: LASC, Central District
Filed: May 13, 2026
Causes of Action: Rescission of releases and declaratory relief, breach of written contract, breach of the implied covenant of good faith and fair dealing, unfair business practices, negligence, conversion and money had and received, and intentional infliction of emotional distress.
The borrower sued his lender, the loan broker and initial servicer, two affiliated investment entities alleged to be alter egos, and the foreclosure trustee.
The loan was $1,900,000, interest-only at 10%, $15,833.33 a month beginning March 2022, with a balloon due February 1, 2025. The collateral consisted of two Compton properties with 17 rental units.
The borrower alleges he made every monthly payment from March 2022 through August 2024 except one, in November 2023 while he was traveling overseas, and that he resumed in December and kept paying. He alleges the lender’s own loan statement showed a single missed installment of $15,833.33, though he does not attach that statement to the complaint.
The trustee recorded a Notice of Default on March 19, 2024 claiming $64,200.27 in arrears, allegedly eight days after the borrower’s March payment posted. A Notice of Trustee’s Sale followed in August 2024, setting a September 4 sale.
Facing that sale, the borrower alleges that he was forced to sign a First Forbearance Agreement, then a Second Forbearance Agreement, then two note modifications. Three of those documents, the second forbearance and both modifications, contained broad general releases of the lender, waiving all claims, known and unknown. The lender voluntarily rescinded the Notice of Default in December 2024 after the borrower completed the required repairs, paid property taxes, and provided proof of insurance. The borrower refinanced and paid the loan off on September 9, 2025.
He now seeks rescission of each release, the allegedly improper default interest, late charges and fees, the cost of the new loan, and attorney’s fees.
So how does a single missed payment of $15,833.33 turn into a $64,200.27 default? The math is the whole case, and once you see what else the lender piled on, part of it looks an awful lot like an unenforceable penalty.
Below: where the rest of that number came from, why the borrower’s clever way out may not open the door he thinks it does, and the four moves that would have kept this lender out of court.
🔒 Paid below: the takeaway and the lessons for lenders.
The Takeaway
Start with the arrears, because they don’t add up. The borrower alleges the lender’s own loan statement showed one missed payment of $15,833.33, though he does not attach that statement to the complaint. The recorded Notice of Default claimed $64,200.27. If the borrower’s allegation about the statement is accurate, that is roughly $48,000 between what he says the records support and what the foreclosure was built on, and he says he flagged it and got nowhere. A foreclosure resting on a number the lender’s own records contradict is a wrongful-foreclosure claim waiting to happen.
Separately, the complaint points to two other charges, and if the borrower’s numbers are accurate, both are a problem.
First, default interest. The borrower alleges the second forbearance’s own exhibit computed $71,250 in default interest, the 5% default premium applied to the full $1,900,000 principal for nine months of 2024. The loan did not mature until February 1, 2025. A lender cannot charge a default rate against the entire loan balance, before the loan has come due, because of a missed payment or a non-monetary default. That is a penalty, not compensation for a loss. The default rate has its place, but not run against the whole loan before it matures.
Second, the late charges. The note set a late charge of 10% of the overdue payment, $1,583.33, then the lender, in the forbearance agreement’s outstanding balance statement, layered a separate compounding formula on top. That is two late-charge mechanisms aimed at the same default. The borrower attached an exhibit to the complaint showing that the lender computed the late charges to be $36,416.59. A late charge compensates for one late payment, once. Charging a fresh late charge every month and compounding it on top is a double charge, and that is not allowed.
Then there is the rescission theory, which is the clever part. The borrower offers to give back everything he received under the releases. The trouble is what he received was time. Three forbearances and modifications bought him months of delay before the sale. How do you give back time? Rescission generally requires putting the other side back where it started. The borrower’s way around it is the allegation of duress and unconscionability: releases signed with a trustee’s sale days away, drafted by the lender, on a take-it-or-leave-it basis.
If the numbers hold up the way the complaint lays them out, the lender is in a tough spot and it would be much easier for a judge to rescind the releases.
Lessons for Lenders
Do not run default interest against the whole loan before maturity. A default rate charged against the entire principal because a borrower missed a payment or committed a non-monetary default, on a loan that has not come due, is a penalty. Tie the charge to what is actually past due.
Do not stack late charges. One late payment gets one late charge. Charging 10% every month on the same delinquency and compounding it on top turns a late fee into a double charge, and into the borrower’s best exhibit.
Do not accept payments while you foreclose. The complaint alleges the lender accepted payments from January through July 2024 with the Notice of Default and Notice of Trustee’s Sale on record. Accepting payments while pursuing a sale undercuts the default and feeds the wrongful-foreclosure theory.
Get releases signed before the sale notice, not after. A release obtained while the borrower is staring at an imminent trustee’s sale is built for a duress attack. Paper the workout while the borrower still has options, not when he has none.