2019 CO 58
Colo.2019Background
- Blooming Terrace obtained an $11 million commercial loan (11% interest, 21% default rate) and paid a $220,000 origination fee; monthly interest payments of 8% did not reduce principal.
- Borrower defaulted on a monthly payment; lender issued default notices and parties executed a forbearance agreement (April 22–May 1, 2014) under which Blooming Terrace paid $110,000; forbearance preserved accrual of default interest and late fees.
- The forbearance was amended on May 13, 2014 to extend to May 16, 2014 and increase the cumulative forbearance fee to $220,000 for 24.5 days of forbearance.
- Blooming Terrace repaid principal and outstanding charges on May 15, 2014, then sued two years later alleging post-default forbearance charges were usurious under Colo. Rev. Stat. § 5-12-103.
- District court and a split court of appeals division held the effective interest rate (calculated by averaging charges over the entire loan life) was below the 45% statutory cap and dismissed; dissent and Blooming Terrace argued for annualizing charges only over the forbearance period.
- Colorado Supreme Court granted certiorari to resolve how to compute the effective interest rate for nonconsumer loans when post-default charges (e.g., forbearance fees) accrue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| How to compute the effective per annum interest rate for nonconsumer loans when post-default forbearance fees are charged | Forbearance fees should be annualized using only the forbearance period, then combined with other charges accruing during that period; multiple short forbearance periods should be treated separately | Annualize total charges over the entire life of the loan (or treat the forbearance as a separate extension so its fee need not be combined with loan default interest) | The effective rate equals the total per annum rate a borrower is subjected to during a given extension of credit: annualize post-default charges using only the forbearance period, add any other charges accruing during that period, then compare to the 45% cap. The forbearance here produced a 50.4% effective rate and was usurious. |
Key Cases Cited
- Dikeou v. Dikeou, 928 P.2d 1286 (Colo. 1996) (late/default charges may be retrospectively annualized and added to ongoing interest to assess usury)
- UMB Bank, N.A. v. Landmark Towers Ass’n, 408 P.3d 836 (Colo. 2017) (statutory interpretation reviewed de novo; courts apply plain statutory text)
- Vallagio at Inverness Res. Condo. Ass’n, Inc. v. Metro. Homes, Inc., 395 P.3d 788 (Colo. 2017) (apply statutory language according to plain and ordinary meaning when unambiguous)