LLC v. KH Blake Street, LLC

          Rehearing Denied July 29, 2019

          Certiorari to the Colorado Court of Appeals, Court of Appeals Case No. 16CA1096

         Attorneys for Petitioner: Reilly Pozner LLP, John M. McHugh, Denver, Colorado

         Attorneys for Respondents: Moye White LLP, David A. Laird, Denver, Colorado

         Attorneys for Amici Curiae The Hispanic Chamber of Commerce of Metro Denver and The Colorado LGBTQ Chamber of Commerce: Childs McCune, LLC, Kyle W. Brenton, Denver, Colorado

         OPINION

         HART, JUSTICE.

Page 750

         [¶1] We granted certiorari to clarify the proper method for determining the effective rate of interest charged on a nonconsumer loan to ascertain whether that rate is usurious under Colorado law.^[1] We hold that the effective interest rate should be calculated by determining the total per annum rate of interest that a borrower is subjected to during a given extension of credit. Here, where a forbearance agreement was entered into after an event of default, all charges that accrued during the period of forbearance must be totaled and then annualized using only that timeframe as the annualization period. Such includable interest must then be combined with any interest that continued to accrue pursuant to the original loan terms to determine the effective rate of interest subject to the 45% ceiling set by Colorado’s usury statute, section 5-12-103, C.R.S. (2018).

          I. Facts and Procedural History

         [¶2] On April 25, 2013, Blooming Terrace No. 1 ("Blooming Terrace") obtained an $ 11 million loan from KH Blake Street, LLC ("KH Blake Street"), a special purpose entity organized by Kresher Holdings, LLC. The loan was secured by a deed of trust and memorialized by promissory note. Blooming Terrace paid a $ 220,000 origination fee upon execution of that note. The note specified that interest would accrue on the outstanding principal at a rate of 11% per annum. In the event of default, the note provided for a higher default interest rate of 21% per annum. The note required monthly interest payments in the amount of 8% per annum throughout the term of the loan, though these periodic payments did not apply to reduce the principal balance of the loan. In the event of any late monthly payment, a 5% late fee was applicable to the overdue amount. The note was to mature on May 1, 2014. However, KH Blake Street reserved the right to accelerate Blooming Terrace’s full loan repayment obligation upon an event of default.

         [¶3] Prior to paying down any portion of the principal, Blooming Terrace defaulted on its monthly payment obligation. KH Blake Street consequently issued notices of default on April 2, 2014, and April 17, 2014. The parties entered into a forbearance agreement on April 22, 2014. At that time, the parties stipulated that the accrued charges due and owing to KH Blake Street under the original loan agreement were $ 778,583.33. In exchange for KH Blake Street’s agreement not to pursue collection of that sum, or any other remedies, until May 1, 2014, Blooming Terrace agreed to pay a $ 110,000 fee. Payment of this new fee did not substitute for any other charges that continued to accrue during the forbearance period, including, but not necessarily limited to, default interest and late fees. Instead, a condition of the forbearance was Blooming Terrace’s compliance with all of the original loan terms.

         [¶4] On May 13, 2014, the parties executed a document titled "First Amendment to Forbearance Agreement." This amendment extended the original 9-day forbearance period by an additional 15.5 days. The amended forbearance agreement specified that all loan-related sums were due on or before 1 p.m. on May 16, 2014. As consideration for 15.5 more days of forbearance, 12 of which had already passed, Blooming Terrace agreed to pay KH Blake Street an additional $ 110,000. Cumulatively, 24.5 days of forbearance

Page 751

cost Blooming Terrace a total fee of $ ...