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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Bibi v. Elfrink (9/22/2017) sp-7202

Bibi v. Elfrink (9/22/2017) sp-7202

Notice:   This opinion is subject to correction before                         publication in the P          ACIFIC   REPORTER.   Readers are   

requested to bring errors to the attention of the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska                               

99501, phone (907) 264-0608, fax (907) 264-0878, email  

                          THE SUPREME COURT OF THE STATE OF ALASKA                                               

MARIAM  BIBI,  f/k/a                                                    )  

MARIAM  RAJA,                                                           )  

                                                                        )           Supreme  Court  No.  S-15987  

                        Appellant,                                      )  

            v.                                                          )           Superior  Court  No.  3AN-14-05970  CI   


                                                                        )           O P I N I O N  


KEVIN ELFRINK, JAVED RAJA,                                              )  


and ANY OTHER OCCUPANTS,                                                )  


                                                                        )           No.  7202 -  September 22, 2017  



                        Appellees.                                      )  


                        Appeal from the Superior Court of the State of Alaska, Third  


                        Judicial District, Anchorage, Gregory Miller, Judge.  


                        Appearances:  Gail M. Ballou, Law Office of Gail M. Ballou,  


                        Fairbanks, for Appellant.  Theodora Accinelli, RCO Legal -  


                        Alaska,  Inc.,  Anchorage,  for  Appellee  Kevin  Elfrink.                                            No  


                        appearance by Appellee Javed Raja.  


                        Before:   Stowers, Chief Justice, Winfree, Maassen, Bolger,  


                        and Carney, Justices.  


                        STOWERS, Chief Justice.  


I.          INTRODUCTION  

                        MariamBibi and Javed Raja married and later bought a home in Anchorage  


with loans from IndyMac Bank, F.S.B. (IndyMac).  IndyMac's loans were secured by  


deeds of trust on their home.  The couple later received an additional loan of around  


$10,000 from Kevin Elfrink.   The loan from Elfrink charged 10% interest but also  


----------------------- Page 2-----------------------

included a funding fee of $4,000 rolled into the rest of the loan for payment over time                                                                                                 

rather than charged and paid at the outset. Over the course of six years, the couple made                                                                                                                                                                                                                                                      

irregular payments, increased the loan balance three times until it exceeded $25,000, and                                                                                                                                                                                                                                                              

eventuallydefaulted. Elfrinkinitiated                                                                                                                   foreclosureproceedings                                                                              and then bought thehouse   

at his own foreclosure sale by credit-bidding all money he asserted was due to him under                                                                                                                                                                                                                                                      

the modified promissory note, satisfying the couple's debt to him.                                                                                                                                                                                                                 

                                                       Following the foreclosure, Elfrink filed a complaint against Bibi and Raja                                                                                                                                                                                                                 

for forcible entry and detainer to remove them from the home.                                                                                                                                                                                                         Bibi moved out of her                                                            

home but filed a counterclaim for usury, quiet title and possession, and surplus proceeds                                                                                                                                                                                                                                        

from the foreclosure sale.                                                                                 Raja confessed judgment to his removal from the home.                                                                                                                                                                                       As  

the lawsuit proceeded, IndyMac initiated a foreclosure on its senior deed of trust and                                                                                                                                                                                                                                                               

Elfrink bought the house for a second time at IndyMac's foreclosure sale.                                                                                                                                                                                                                                     The superior   

court ultimately denied Bibi's usury claim, determining that Bibi had no standing, her                                                                                                                                                                                                            

claim was time barred, and in any event, the loan did not violate Alaska's usury statute                                                                                                                                                                                                                                                  

because the funding fee was not interest and the usury statute did not apply once the                                                                                                                                                                                                                                                                  

                                                                                                                                              1  The superior court also denied Bibi's claim for title,  

loan's principal rose over $25,000.                                                                                                                                                                                                                                                                                                                

ruling that the foreclosure statutes gave Elfrink clear title.  


                                                       Bibi appeals.  We hold that (1) Bibi has standing; (2) it was error for the  


 superior court to deny Bibi's usury claim because the funding fee was disguised interest  


and violated the usury statute, which applied to at least the initial period of the loan's  


life; and (3) the superior court correctly denied Bibi's claim for title and possession of  


her prior home because IndyMac's foreclosure extinguished her claim to the property.  


                            1                          AS 45.45.010(b) provides that "[a] contract or loan commitment in which  


the principal amount exceeds $25,000 is exempt from the [interest cap]."  


                                                                                                                                                                             -2-                                                                                                                                                                                   7202  

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                    Mariam Bibi married Javed Raja in Pakistan. The couple moved to Alaska  


and had two children.  They eventually bought a house in Anchorage in August 2006.  


They financed the purchase of their home with two promissory notes to IndyMac for  


$216,000 and $54,000. The notes were secured by first and second deeds of trust on the  


couple's home.   Approximately seven months after they purchased their home, the  


couple's pizza business, Pizza Omega and Luigi's Pizza, were struggling. They needed  


money, and Raja went to Kevin Elfrink for help.  Elfrink was a real estate broker who  


had met Raja briefly when Elfrink was selling property near the couple's pizza business.  


                    Elfrink started making loans in the 1990s and did a few per year, borrowing  


money against his credit cards to finance them. Elfrink met with Raja and Bibi and they  


executed a promissory note in the amount of $14,597, dated March 19, 2007, to be paid  


back with 10% interest by March 15, 2009.  But Raja and Bibi only received $10,597 at  


the time: $9,950 plus money to pay for the $647 in closing costs. The extra $4,000 Raja  


and Bibi were obligated to pay back was a "funding fee" Elfrink charged.   Elfrink  


testified  that the fee was to  compensate him for  educating  himself about the pizza  


businesses, inventorying their equipment, making calls, and generally ensuring that he  


was making a sound loan; he also testified that he only charges the fee when he decides  


to extend a loan, not when he declines.  The loan was secured by a security agreement  


on the pizza businesses, as well as a third deed of trust on Bibi and Raja's home.  The  

deed of trust contained language stating it was for the purpose of securing "[p]ayment  


of  the  indebtedness  evidenced  by  the  promissory  note  .  .  .  including  all  renewals,  


extensions or modifications thereto."  


                    The loan was escrowed at First National Bank Alaska (FNBA).  Over the  


next six years the couple made irregular payments and the account balance was increased  


three times through amendments to the escrow instructions, though Bibi claims these  

                                                               -3-                                                         7202

----------------------- Page 4-----------------------


increases occurred without her knowledge.  In September 2007 Raja and Elfrink signed  


an amendment to the escrow instructions increasing the account balance by $7,061. The  


amendment was not signed by Bibi.  In February 2008 Raja and Elfrink increased the  


account balance a second time by $4,532.90 through an amendment  to the escrow  


instructions. Again, Bibi did not sign the amendment. These two amendments together  


brought the account balance up to $23,467.51.  


                    Meanwhile in May 2007, Raja had hired Elfrink to sell Pizza Omega for  


$169,000 and signed a listing with a 10% commission.  The pizza parlor later sold for  


about $90,000, and for the commission Raja signed an escrow instruction form in March  


2008  making  a  third  and  final  increase  of  $12,153.49  to  the  loan  balance.                                    Bibi's  


signature is on this amendment form, but she testified that she did not sign the form, and  


Raja testified he did not sign for her.  Bibi testified that she knew nothing about these  


three balance increases until her attorney sent her documents obtained from Elfrink  


through discovery shortly before trial.  


                    With the loan increase in March 2008 the account balance rose to $35,621.  


The interest rate was increased at that time to 12%, the maturity date was extended by  


nine years, monthly payments were lowered to $500 per month, and Elfrink waived the  


existing delinquency.   Between May and December 2008 Bibi and Raja made eight  


monthly payments of $500. In 2009 they made another five monthly payments of $500.  


In 2010 they made three payments totaling $1,300.  Bibi and Raja's last two payments  


on the debt were each for $500, one in 2011 and one in 2012.  In addition, Bibi claimed  


a $500 payment was made in June 2013, and Raja testified to making a $2,500 payment  


outside of the FNBA escrow account sometime after mid-2013.  


                    In June 2013 Elfrink closed the escrow account.  FNBA calculated that  


interest  had  been  paid  only  through  July  2009  and  that  the  principal  balance  was  


$35,275.72. All in all, Raja and Bibi had paid Elfrink $13,419.32 or $13,919.32 through  

                                                               -4-                                                         7202

----------------------- Page 5-----------------------

the escrow account, depending on whether they are credited with the final June 2013                                                                                                                                      

payment of $500.                

                                    Elfrink commenced foreclosure proceedings in August 2013 and notice of                                                                                                                       

default was sent to Raja and Bibi.                                                           Alaska Trustee, LLC conducted a trustee's sale in                                                                                   

November 2013.                                 Based on audit figures from FNBA, the trustee calculated the amount                                                                                                 

due under the deed of trust to be $56,629.65.                                                                             This was the amount necessary to cover                                                

$35,275.72 in unpaid principal, $18,486.41 in interest accruing since July 2009 - the                                                                                                                                         

date Bibi and Raja had stopped paying on the interest - plus escrow fees, late fees, and                                                                                                                                     

fees charged by the trustee for conducting the foreclosure sale.                                                                                                           Elfrink purchased the                              

                                                                                                                                                                                                  2     He was not  

property at the foreclosure sale by offering this amount as an offset bid.                                                                                                                                                    

required to pay any cash because he was entitled to the amount he bid as the beneficiary  


                                                   3   Alaska Trustee issued a trustee's deed to Elfrink that was recorded  

of the deed of trust.                                                                                                                                                                                          


in Anchorage in February 2014.  


                                    While Elfrink was preparing to foreclose, Bibi filed for divorce.  By the  


time the superior court presiding over the divorce divided Bibi and Raja's marital assets,  


Elfrink had already conducted his foreclosure sale and recorded his trustee's deed.  In  


March 2014 the superior court decided not to award the couple's home to either party in  


the divorce because it had been lost through foreclosure.  


                                    That same month Elfrink served Bibi and Raja with a notice to surrender  


possession of the premises. In April he filed a complaint for forcible entry and detainer,4  


                  2                 AS  34.20.080(b).   

                  3                 AS  34.20.080(f)(1).    

                  4                 "A  suit  for  forcible  detainer  under  Alaska  statutes  substitutes  the  authority  

of   the   courts   for   private   force   to   compel   a   citizen   wrongfully   in   possession   of   real  


                                                                                                                -5-                                                                                                      7202

----------------------- Page 6-----------------------

seeking possession of the property.                                                                                                 A few days later, Bibi and her children removed                                                                                                        

most of their personal property.                                                                                    They left to visit Pakistan and Elfrink took possession.                                                                                                                                                   

That same month Bibi filed counterclaims for usury, quiet title and possession, and                                                                                                                                                                                                                          

surplus proceeds from the foreclosure sale; her attorney subsequently recorded a lis                                                                                                                                                                                                                              

pendens against the property. For his part, Raja confessed judgment to his removal from                                                                                                                                                                                                                   

the property.   

                                                 Whilethelawsuit proceeded,IndyMacinitiated foreclosureproceedings on                                                                                                                                                                                              

its first deed of trust.                                                      The foreclosure sale was held in March 2015.                                                                                                                                  Elfrink made the   

highest bid and bought the property a second time, paying $240,967.18. A trustee's deed                                                                                                                                                                                                                    

conveying title to the property was recorded in April.                                                                                                                       

                                                 The next month, a three-day non-jury trial was held before Superior Court                                                                                                                                                                             

Judge Gregory Miller, after which the court entered findings of facts on the record.                                                                                                                                                                                                                       The  

court found for Elfrink on his claim for title and possession and denied all of Bibi's                                                                                                                                                                                                              

counterclaims.     Final   judgment   for   quiet   title,  possession,   and   expungement   of   lis  

pendens was entered in August 2015.                                                                                                        Bibi appeals.   

III.                     STANDARD OF REVIEW                                                 

                                                 "Whether a party has standing to sue is a question of law that we review de                                                                                                                                                                                       

                         5       Whether a fee is to be treated as an interest charge in computing an effective  


interest rate for purposes of Alaska's usury statute depends on a set of factual questions.6  


                        4                        (...continued)  


property to surrender it to another with a superior claim." Modrok v. Marshall, 523 P.2d  


 172, 173-74 (Alaska 1974) (footnote omitted); see also AS 09.45.070; AS 34.20.090(b).  

                         5                      Keller v. French, 205 P.3d 299, 302 (Alaska 2009).  


                         6                       See Fikes v. First Fed. Sav. &Loan Ass'n of Anchorage, 533 P.2d 251, 265  


(Alaska 1975).  


                                                                                                                                                         -6-                                                                                                                                              7202

----------------------- Page 7-----------------------

 "A factual finding will be deemed clearly erroneous only if it leaves us 'with a definite                                                             


 and firm conviction on the entire record that a mistake has been made.' "                                                                               

                                                                                                                                          But we review  

                                                                                                                         8  as well as whether the  



 a superior court's application of the usury statute to these facts, 

                                                                                                           9  "We review the interpretation  

 superior court applied the correct legal standard, de novo.                                                                                 


 of a statute de novo, adopting the rule of law most persuasive in light of precedent,  


 reason, and policy."10  


                          The interpretation of contractual language is a question of law that we  


 review de novo, but determining the intent of the parties when entering a contract is a  


 question of fact and we therefore review it for clear error.11  


                          The application of Alaska foreclosure statutes is a question of law, and we  


 apply our independent judgment in reviewing such decisions.12  


 IV.          DISCUSSION  

              A.          It Was Error To Deny Bibi's Usury Counterclaim.  


                          Alaska's  general  usury  statute  applies  to  loans  of  $25,000  or  less.13  


              7           Smith v. Weekley                 , 73 P.3d 1219, 1222 (Alaska 2003) (quoting                                             Duffus v.   

 Duffus, 932 P.2d 777, 779 (Alaska 1997)).                                           

              8           See  Rockstad  v.  Erikson,  113  P.3d  1215,  1219  (Alaska  2005).                                                               This  


 particular standard of review is the subject of debate between the parties and is addressed  


 in section IV.A.2 of this opinion.  


              9           Rego v. Rego, 259 P.3d 447, 452 (Alaska 2011).  


              10          L.D.G., Inc. v. Brown, 211 P.3d 1110, 1118 (Alaska 2009) (citing Alaskans  


for Efficient Gov't, Inc. v. Knowles , 91 P.3d 273, 275 (Alaska 2004)).  


              11          Rockstad, 113 P.3d at 1219.  


              12          Baskurt v. Beal, 101 P.3d 1041, 1043-44 (Alaska 2004).  


              13          AS 45.45.010(b).  


                                                                                -7-                                                                         7202

----------------------- Page 8-----------------------

The statute allows a borrower who has paid usurious interest to recover double the                                                                    


amount of interest she pays in excess of the statute's cap,                                                                                         

                                                                                                               but the borrower's total  




payments have to exceed the loan principal plus legal interest before she can recover. 


                        Bibi argues she is entitled to recover under the usury statute.  First, she  


argues that Elfrink's original loan was usurious because (1) when one treats the funding  


fee as disguised interest its initial interest rate exceeded the usury statute's cap and (2)  


the third loan modification's interest rate of 12% violated the usury statute on its face.  


Second, she argues that the three modifications to the original loan were each separate  


loans, so every loan was under $25,000 and thus subject to the interest cap.  Third, she  


argues that adding the escrow payments and theproceeds fromElfrink'sforeclosuresale,  


she paid the principal amount plus interest - both usurious and legal - on each loan,  


and at least one of these payments - the foreclosure sale proceeds - was within the  


statute of limitations.   Accordingly, Bibi contends she satisfies the requirements for  


recovery under the usury statute and should prevail on her claim.  


                        While we do not agree with all of Bibi's arguments, we conclude that Bibi  


is entitled to recover under the usury statute based on the following: (1) it was error to  


conclude that Bibi had no standing to bring her usury claim; (2) it was error to conclude  


the funding fee was not disguised interest; (3) the superior court correctly determined  


that the usury statute's cap on interest did not apply to most of the loan period, but it did  


apply before the loan's balance exceeded $25,000; (4) a borrower must make payments  


that exceed a usurious loan's principal plus lawful interest before she can recover under  


the usury statute; (5) it was error to conclude foreclosure sale proceeds do not constitute  

            14          AS 45.45.030.   



                        McGalliard v. Liberty Leasing Co. of Alaska, 534 P.2d 528, 533 (Alaska  


 1975), overruled on other grounds by W. Enters., Inc. v. Arctic Office Machs., Inc., 667  


P.2d 1232 (Alaska 1983).  

                                                                           -8-                                                                     7202

----------------------- Page 9-----------------------

a payment for purposes of the usury statute; and (6) in light of the foreclosure sale it was                                                                                                                                                                                                                                                                                                                    

 error to conclude that Bibi's usury claim was time barred.                                                                                                                                                                                                                                                      We hold that Bibi may                                                                            

recover under the usury statute, and we provide instructions to guide the superior court                                                                                                                                                                                                                                                                                                                       

in calculating her award on remand.                                                                                                     

                                                                  1.	                              It was error to conclude that Bibi lacked standing to bring her                                                                                                                                                                                                                                                     

                                                                                                   usury claim.   

                                                                                                   a.	                             Bibi has standing.                           

                                                                  The superior court ruled that Bibi had no standing to bring her action.  It                                                                                                                                                                                

reasoned that because the loan from Elfrink was taken out to support Bibi and Raja's                                                                                                                                                                                                                                                                                                                     

pizza business, and the pizza business was awarded to Raja in the couple's divorce case,                                                                                                                                                                                                                                                                                                                         

Bibi had no standing to bring claims that derived from the loan.                                                                                                                                                                                                                                                               Elfrink endorses this                                                                   

reasoning.   He argues that Bibi lacks the adversity of interest required for standing and                                                                                                                                                                                                                                                                                                                             

that any usury claim that may have existed belonged to Raja, who confessed judgment.                                                                                                                                                                                                                                                                                                   

                                                                  Bibi responds in her reply brief that she has standing because she was an                                                                                                                                                                                              

obligor   on   Elfrink's   original   loan,   the   superior   court   found   that   she   ratified   three  

additional debts to Elfrink, and she and her ex-husband had record title to the house on                                                                                                                                                                                                                                                                                                                                    

which Elfrink foreclosed, among other reasons. She therefore argues she has "sufficient                                                                                                                                                                                                                                                                                              

 stake in the house and related debts to make her a proper party to litigate issues relating                                                                                                                                                                                                                                                                                                       

to them."   

                                                                  Standingisa"ruleofjudicialself-restraint                                                                                                                                                                  based on theprinciplethat                                                                                                     courts  

                                                                                                                                                                                                                                                                                                                                   16            "The fundamental  

 should not resolve abstract questions or issue advisory opinions."                                                                                                                                                                                                                                                                                                        

question raised by an objection to standing is whether the litigant is a proper party to  


                                 16                              Rucklev. AnchorageSch. Dist., 85P.3d 1030, 1034 (Alaska2004) (quoting  


 Trs. for Alaska v. State, 736 P.2d 324, 327 (Alaska 1987)).  


                                                                                                                                                                                                              -9-	                                                                                                                                                                                                7202  

----------------------- Page 10-----------------------


seek adjudication of a particular issue."                                  "[A] basic requirement of standing is adversity                      


of interests."                                                                                                                                                 

                            One way to satisfy the adversity of interests requirement is to "have a  


 'sufficient personal stake' in the outcome of a controversy and an 'interest which is  




adversely affected by the complained-of-conduct.' " 

                         Bibi has standing to sue for usury.  Elfrink foreclosed on Bibi's house to  


satisfy debts arising from allegedly usurious loans pursuant to agreements Bibi signed  


or later ratified.  Bibi also made payments, along with her ex-husband, toward those  


allegedly usurious loans.  She stands to either permanently lose or regain payments she  


made on allegedly usurious interest.  She therefore has a "sufficient personal stake" in  


the outcome of this controversy,20  and her interests have been adversely affected by  


Elfrink's allegedly unlawful and "complained-of-conduct."21                                                        The fact that the original  


loan was intended to support and was secured in part by a pizza business that Bibi no  


longer owns is irrelevant considering both that she paid on the debt and her home was  


sold to satisfy the debt.  


                                     b.           Bibi did not waive her standing argument.  


                         Elfrink additionallyarguesthatbecauseBibi failedtochallengethesuperior  


court's standing decision in her opening brief or list it in her statement of points on  


             17          Law Project for Psychiatric Rights, Inc. v. State                                            , 239 P.3d 1252, 1255            

(Alaska 2010) (citing                    Trs. for Alaska             , 736 P.2d at 327).         

             18          Id. (citing Trs. for Alaska, 736 P.2d at 327).  


             19          (quoting Ruckle, 85 P.3d at 1040; then quoting Alaskans for a Common  


Language, Inc. v. Kritz, 3 P.3d 906, 915 (Alaska 2000)). Keller v. French, 205 P.3d 299,  


304 (Alaska 2009) (footnote omitted).  


             20          Id. (quoting Ruckle, 85 P.3d at 1040).  


             21          Id. (quoting Alaskans for a Common Language, Inc. , 3 P.3d at 915).  


                                                                             -10-                                                                      7202

----------------------- Page 11-----------------------

appeal, she waived the argument.                       Normally, her failure to list standing in her points on                           


appeal would constitute abandonment,                                                                                                 

                                                                her failureto arguestanding in her opening brief  

                                      23  and her discussion of standing in her reply brief would not  



would result in waiver, 

                                 24   But we have occasionally chosen to review issues sua sponte that  

resuscitate the issue.                                                                                                                 


were not raised on appeal,25  and we have at times made an exception to the general rule  


that an issue omitted from an appellant's statement of points on appeal will not be  


considered. For example, in Mullen v. Christiansen we excused the omission of an issue  


from the party's points on appeal because the issue was raised at the trial level, was  


adequately briefed,  and opposing counsel was apprised of it.26                                            As with the issue in  


Mullen, standing was raised at trial, was adequately briefed in Bibi's reply, and Elfrink,  


as the party arguing that Bibi lacks standing on appeal, is well apprised of the issue.27  


Further, Bibi listed the usury statute on appeal and made arguments about the usury  


           22         Oels  v.  Anchorage  Police  Dep't  Emps. Ass'n, 279 P.3d 589, 599  (Alaska  


           23         Hymes  v.  DeRamus,  222  P.3d  874,  887  (Alaska  2010).  

           24         Oels,  279  P.3d  at  599.  

           25        Keturi v. Keturi, 84 P.3d 408, 415 n.16 (Alaska 2004) (explaining that the  


court had raised issue sua sponte at oral argument and allowed counsel to provide written  


references to the record to support finding despite recognizing that party failed to raise  


the "issue either in his objections [at trial] or in his appeal," and stating that this court  


does not usually "review issues not previously raised"). See McCarthy v. McCarthy, 753  


P.2d 137, 140 (Alaska 1988) (Compton, J., dissenting) ("I note first that the correctness  


of this jury instruction is not an issue in this appeal.  The court sua sponte has decided  


to review this instruction.").  


           26         642      P.2d       1345,       1350   (Alaska              1982)   (citing   Hootch                 v.   Alaska  


State-Operated Sch. Sys., 536 P.2d 793, 808 n.58 (Alaska 1975)).  


           27         See id.  


                                                                   -11-                                                             7202

----------------------- Page 12-----------------------

statute in her opening brief; standing must necessarily be addressed before the court                                                                                                         

addresses substantive issues.  In this context, we choose to review the superior court's                                                                              

conclusion and hold that it was error.                                     

                               2.	             It   was   error   to   conclude   that   Elfrink's   funding   fee   was   not  


                               In   March   2007,   at   the   time   of   Elfrink's   initial   loan   to   Bibi   and   Raja,  

AS   45.45.010(b)   established   the   maximum   allowable   interest   rate   for   loans   under  


$25,000 at 11.25 %.                                                                                                                                                                

                                                     Under AS 45.45.020, "[a] person may not, directly or indirectly,  


receive in money, goods, or things in action, or in any other manner, a greater sum or  


value for the loan or use of money . . . than is prescribed in AS 45.45.010."  


                               The superior court found that Elfrink's original loan to Bibi and Raja was  


not usurious because the additional $4,000 fee Bibi was obligated to pay over the life of  


the loan was a "service fee or funding fee" rather than disguised interest.  It based its  


decision on the fact that Elfrink told the couple that the fee was to pay for the work  


necessary to make sure the loan was sound and that both parties testified they had a  


conversation to this effect.  The court also relied on an escrow instructions addendum  


signed by Bibi stating that "the funding fee contained on the closing statement is to be  


considered a service fee and is not to be considered interest."  

                28             During the relevant period in this dispute, former AS 45.45.010(b) (2010)                                                                                   

provided   that   for   loans   under   $25,000,   interest   may  not  "be   charged   by   express  

agreement   of   the   parties   in   a   contract   or   loan   commitment   that   is   more   than   five  

percentage points above the annual rate charged member banks for advances by the 12th                                                                                                            

Federal Reserve District on the day on which the contract or loan commitment is made."                                                                                                                       

The federal reserve rate was 6.25% when Elfrink made the loan to Bibi and Raja, putting                                                                                                    

the maximum allowable interest rate at 11.25%.                                                                          FEDERAL   RESERVE   BANK   OF   SAN  

F        R       A        N       C        I     S       C        O       ,                D        I      S       C       O        U        N       T                 R        A        T       E        ,,                                                                                                                  


                                                                                                 -12-	                                                                                         7202

----------------------- Page 13-----------------------

                                      Bibi argues Elfrink's funding fee is simply interest in disguise.                                                                                                                 While she   

concedes that the interest rate on the face of the deed of trust promissory note was 10%,                                                                                                                                              

she argues that when one looks at the underlying                                                                                                      transaction, the interest rate was                                                  

actually much higher. Her math is based on a principal of $10,597, the amount of money                                                                                                                                             

Bibi and Raja actually received from Elfrink, rather than $14,597, the amount received                                                                                                                                        

plus the $4,000 funding fee. Bibi argues that because she and Raja received $10,597 and                                                                                                                                                     

were obligated to pay back $14,597 plus 10% interest through 24 monthly payments of                                                                                                                                                             

$673.58, she paid over $16,000 ($673.58 x 24) for a $10,597 loan, which she argues                                                                                                                                                 

yields an effective interest rate far exceeding 11.25%, the maximum allowable interest                                                                                                                                           

rate at the time.                           29  

                                      Bibi contends that the escrow instructions addendum stating "the funding  


fee on the closing statement is to be considered a service fee and is not to be considered  


interest" merely signals that Elfrink knew he had a usury problem, noting that we have  


previously explained that "[i]n usurious transactions the parties are usually trying to  


                                                                                      30  and that "[a] court must look squarely at the real nature  

disguise what they have done"                                                                                                                                                                                                       


of the transaction."31   Bibi argues that regardless of the fee's name, Elfrink's loan to Bibi  


and Raja violated the usury statute because Elfrink received almost 45% interest, an  


amount above the allowable maximum, "for the loan or use of money."32                                                                                                                                                       Bibi also  


argues that we should review the funding fee issue in this case de novo because she is  


challenging the superior court's application of law - AS 45.45.020 - to facts as the  


superior court found them.  


                   29                 Former AS 45.45.010(b) (2010).                                                                 



                                      Metcalf v. Bartrand, 491 P.2d 747, 750 (Alaska 1971).  



                                      Id. (quoting Wilcox v. Moore, 93 N.W.2d 288, 291 (Mich. 1958)).  



                                      AS 45.45.020.  

                                                                                                                     -13-                                                                                                               7202

----------------------- Page 14-----------------------

                             Elfrink, on the other hand, characterizes the funding fee issue as a question                                                            

of fact and argues that we should give deference to the superior court's factual finding                                                                                  

that the fee was not interest, but rather an earned service fee. In support of this argument                                                                         

he, like Bibi, cites our previous statement that "[a] court must look squarely at the real                                                                               

                                                        33  as well as a Texas case holding that the question whether a  

nature of the transaction,"                                                                                                                                                            

charge is merely a device to conceal usury is a question of fact.34                                                                               From this starting  


point, Elfrink enumerates the various components of the record that provide support for  


thesuperior court'sconclusion. They includeElfrink's testimony about thevarious tasks  


he performed to ensure the loan was sound before making it, the court's finding that  


Elfrink's testimony was credible on this point, and the loan documents stating that the  


fee was not interest.  Elfrink also suggests that the court's view of  Raja's and Bibi's  


credibility supports the court's finding that the fee was not interest.  


                             Our precedent demonstrates that determining whether a fee is considered  


interest under Alaska's usury laws involves an application of law to fact that we review  


                   35                                                                                                                   36    We have previously  

                       though factual questions underlie the determination.                                                                            

de novo,                                                                                         

identified the set of factual questions germane to this determination.  In  Fikes v. First  


Federal Savings &Loan Association of Anchorage we considered whether a loan fee of  


one-and-a-half  percent  was  actually  interest  for  purposes  of  a  previous  version  of  


AS45.45.010(b) that, liketheversion applicablehere, prohibitedinterestratesexceeding  


              33            Metcalf,  491  P.2d  at  750  (quoting   Wilcox,  93  N.W.2d  at  291).  

              34             Gonzales  Cty.  Sav.  &  Loan  Ass'n  v.  Freeman,  534  S.W.2d  903,  906  (Tex.  


              35             See  Rockstad  v.  Erikson,   113  P.3d   1215,   1219  (Alaska  2005).  



                             See Fikes v. First Fed. Sav. &Loan Ass'n of Anchorage , 533 P.2d 251, 265  


(Alaska 1975).  

                                                                                        -14-                                                                                  7202

----------------------- Page 15-----------------------


the federal lending rate plus a fixed percentage.                                                 The superior court had found that the                                

one-and-a-half percent service charge did not constitute interest within the meaning of                                                                                  

                                                      38    We concluded "that the usury issue [was] incapable of  

any relevant usury statute.                                                                                                                                             

                                                                                                  39  and remanded, stating:  

resolution without a more adequate factual basis"                                                                                     


                           Among the factual questions which we think are germane are  


                           the following:  what charges, if any, the loan fee is designed  


                           to  defray;  whether  the  loan  fee  is  a  one-time  charge  or  


                           assessed throughout the life of the loan; whether the amount  


                           of the loan fee is dependent on the amount of the loan or the  


                          risk of the enterprise being financed; whether the loan fee and  


                           interest rate are charged on the entire committed amount no  


                           matter what the size and period of the balances outstanding;  


                           and what difference, if any, there is between [the bank's]  


                           internal  accounting  treatment  of  the  loan  fee  and  that  of  


                           interest.  The superior court should consider these matters in  


                           determining,  in  the first instance,  whether  there  has  been  




We also explained that "[i]f the loan fee is either substantially similar to interest in all  


material respects or unreasonably large, the loan fee, or a portion thereof, could well be  


treated as an interest charge in computing the effective interest rate for purposes of  


AS 45.45.010(b)."41  


                           Later in Metcalf v. Bartrand we reviewed a superior  court's finding that  


             37            533 P.2d at 263; former AS 45.45.010 (1970).                                  

             38           Fikes, 533 P.2d at 264.                          

             39           Id.   

             40           Id.  at 265 (footnote omitted).                              

             41           Id.  (footnotes omitted).                         

                                                                                  -15-                                                                            7202

----------------------- Page 16-----------------------


a set of real estate transactions constituted a loan with usurious interest.                                                                         We concluded   

that in "[l]ooking not to the form but to the substance of the transactions, there [could]                                                                           

be little doubt but that they [came] within the broad terms of the Alaska usury law."                                                                                         43  


                            These decisions establish two principles.  First, while a loan transaction  


may  facially  comply with  the  cap  on  interest rates found  in  AS 45.45.010,  it may  


nevertheless be charging an effective interest rate in violation of that cap because of  

                                      44    Second, whether this is the case requires a court to determine if,  


disguised interest. 

given the facts regarding the substance of a given transaction, the transaction "come[s]  


within the broad terms of the Alaska usury law"45  or, stated alternatively, whether the  


service fee is "treated as an interest charge in computing the effective interest rate for  


purposes of AS 45.45.010(b)."46                                       This determination is an application of law to fact.  


                            Here the superior court failed to consider some of the "factual questions . . .  


                                                                                                                           47     We find two questions  

germane" to the funding fee issue we identified in Fikes.  


particularly relevant to the issue before us.  First, the court did not consider whether the  


              42            491  P.2d  747,  750  (Alaska   1971).   

              43           Id.  at  751.  

              44            See  also Crissey v. Alaska   USA  Fed. Credit   Union, 811 P.2d 1057, 1061  

(Alaska  1991)  ("[I]n  Fikes  we  held  that  certain  charges  assessed  against  a  borrower,  such  

as  'service  fees,'  might  qualify  as  interest  for  purposes  of  a  usury  analysis."  (citing  Fikes,  

533  P.3d  at  265  &  n.27)).    

              45           Metcalf, 491 P.2d at 751.  


              46           Fikes, 533 P.2d at 265.  


              47           Id.  


                                                                                     -16-                                                                                7202

----------------------- Page 17-----------------------


funding fee was "a one-time charge or assessed throughout the life of the loan."                                                                                                            The  

fee was rolled into the rest of the loan for payment over time rather than charged and                                                                                                        

paid at the outset. Thus it was assessed throughout the life of the loan, which favors                                                                    

                                                                     49   Second, the court did not consider whether the funding  

concluding that it was interest.                                                                                                                                                    

fee was unreasonably large.50   Elfrink claims his work investigating the pizza business  


assets, meeting with Bibi and Raja, and making calls was worth $4,000, all to ensure that  


a loan for around $10,000 was sound.  But the funding fee was over 37% of the value of  


the loan Bibi and Raja received. In comparison, the loan fee in Fikes was only one-and- 


a-half percent, and we still required further inquiry into whether it was a vehicle for  


disguised interest.51  This establishes that the funding feewas unreasonablylarge. Lastly,  


given the language of AS 45.45.020, which defines interest as value "for the loan or use  


of money," Elfrink's own testimony that his funding fee is charged only if the loan is  


made, rather than regardless of whether it is made, places the funding fee squarely  


                                                                                                               52 because it is charged "for the loan or  

"within the broad terms of the Alaska usury law"                                                                                                                                                  


               48             Id.   

               49             Id.  at 265 n.27 ("[I]f the loan fee is assessed throughout the life of the loan,                                                                            

the fee would more closely resemble interest.").                                                                

               50             Id.  at 265; see also Altherr v. Wilshire Mortg. Corp., 448 P.2d 859, 863  


(Ariz. 1968), cited in Fikes, 533 P.2d at 265 ("[I]f such a charge is unreasonable, and the  


borrower is forced to accept the lender's services at an unreasonable rate in order to get  


the loan, then it may be said, fairly, that the excess of the fees over what would be  


reasonable, is a charge for the loan, and hence is interest.").  


               51             Fikes, 533 P.2d at 264.  


               52             Metcalf v. Bartrand, 491 P.2d 747, 751 (Alaska 1971).  


                                                                                              -17-                                                                                        7202

----------------------- Page 18-----------------------

use of money," not for services.                     53  


                      WhileElfrink argues that weshouldgivethesuperior court'sdetermination  


deference because it is consistent with how the loan documents characterized the fee and  


the court was in the best position to evaluate the credibility of the parties on this point,  


these arguments only go so far.  Under Fikes and Metcalf, how a fee is characterized in  


a loan document is but one factor in determining whether a fee constitutes usurious  


interest, especially considering that parties to a usurious loan often attempt to disguise  

   54    And while the superior court gave considerable weight to Elfrink's testimony  


regarding the work he did to justify the funding fee, the court failed to consider the two  


relevant Fikes factors discussed above that are largely divorced from the credibility of  


the parties, factors that we believe would have led the court to apply the usury statute  


                55   In light of this analysis, we hold that Elfrink's funding fee was disguised  


interest for purposes of the usury statute and it was error to conclude otherwise.  


                      When this disguised interest is taken into account, it is clear that Elfrink's  


initial loan to Bibi was well above the maximum allowable interest rate of 11.25% at the  


time; the disguised interest alone was over 37% of the loan's principal.56                                               We conclude  


that Elfrink's initial loan to Bibi was usurious.  


                      3.	        The superior court did not err in finding that the loan balance  


                                 increases were modifications to a single loan that rendered the  


                                 usury  statute  inapplicable  once  the  loan  principal  rose  over  



                      The superior court found that the final interest rate of 12% established by  


           53         AS 45.45.020.   



                      See Metcalf, 491 P.2d at 750.  



                      See Fikes, 533 P.2d at 265.  



                      Former AS 45.45.010(b) (2010).  

                                                                    -18-	                                                             7202

----------------------- Page 19-----------------------

the March 2008 modification, while above the statutory maximum for                                                                   loans under   

$25,000  pursuant   to   AS   45.45.010,   was   not   usurious   because   modifications   to   the  

original loan had brought the loan principal over $25,000 and the usury statute no longer                                                       


                        Bibi  argues  that  each  modification  constituted  a  separate  loan  under  


$25,000  subject  to  the  usury  statute's  cap.                                     According  to  Bibi,  the  four  separate  


transactions included the original loan in March 2007, a second loan in September 2007,  


a third loan in February 2008, and the commission claimed in March 2008.  Bibi also  


argues that each transaction was a separate loan not only because each was separate in  


time, but also because each was documented separately - the original loan with a  


promissory note and other documents; the second and third loans with separate FNBA  


forms for each; and the fourth (commission) transaction with a real estate listing.  


                        Bibi  argues  that  each  loan  was  usurious  when  viewed  separately.  


Specifically, she argues that the original March 2007 loan was usurious because the  


funding fee raised its effective interest rate to near 45% - and was at least usurious by  


March 2008 when Elfrink increased the stated interest rate from 10% to 12% because  


AS 45.45.010 set the maximum rate at 7.5% at that time. She argues that the second and  


third  loans  were  not  usurious  when  made  but  also  became  usurious  when  Elfrink  


increased the interest rate to 12% in March 2008.  Lastly, she asserts that the real estate  


sales commission Elfrink charged in March 2008 bore interest at a usurious 12% from  


the beginning.  


                        Bibi argues that our decision in Rockstad v. Erikson supports her view that  




                        See former AS 45.45.010 (2010).  

                                                                          -19-                                                                         7202  

----------------------- Page 20-----------------------


each   balance   increase   was   in   fact   a   separate   loan.                                            In   Rockstad   we   applied  

AS 45.45.010 and held that one note with two simultaneous disbursements each below                                                                   

                                                                                       59   While this tends to undermine Bibi's  

$25,000 was just one loan in excess of $25,000.                                                                                                      

position, she insists that in Rockstad we also suggested that when evidence demonstrates  


that there are really two different loans, "such a reading would necessarily imply that the  


note constitutes an unlawfully usurious contract."60  But while Rockstad did contemplate  


a  scenario  in  which  sufficient  evidence  can  demonstrate  the  existence  of  multiple  


usurious loans rather than a single larger loan with a legal interest rate, we found no such  


evidence in that case.61   In Rockstad we relied in part on the language of the note, which  


spoke of a singular loan for $26,000, to conclude that there was only one non-usurious  




                         Elfrink argues that the superior court's finding of one loan modified three  


times is a factual finding that is supported by the record and thus not clearly erroneous.  


We agree. "Although the interpretation of contractual language is a question of law and  


reviewed de novo, '[t]he intent of the parties when entering a contract is a question of  


fact and is thus reviewed under the clearly erroneous standard.' "63   "[A]nd we give 'due  


            58           113  P.3d   1215  (Alaska  2005).  

            59          Id.  at   1221-22.   

            60          Id.  at   1222.   

            61          Id.   

            62          Id.  

            63          Id.  at  1219  (alteration  in  original)  (quoting  K  &  K  Recycling,  Inc.  v.  Alaska  

Gold  Co.,  80  P.3d  702,  712  (Alaska  2003)).  

                                                                            -20-                                                                      7202

----------------------- Page 21-----------------------


regard   to   the   trial  court's   opportunity   to   evaluate   the   credibility   of   witnesses.'   "                                      


Relying in part on its view of the credibility of the parties, the superior court found that  




Bibi signed or ratified all of the escrow amendments - a finding Bibi does not appeal. 


Based on this finding and the testimony of the parties, the superior court found that the  


amendments to the escrow instructions evidenced the intent of the parties to modify the  


principal amount of the original loan - a factual determination that we will not overturn  



unless clearly erroneous. 

                      While  the  escrow  amendments  did  not  reference  the  collateral  or  the  


original loan, each one updated the loan balance by stating that "the principal is" an  


amount reflecting the previous principal plus the present increase.  In addition, FNBA  


sent letters to Raja and Bibi to confirm these increases, and the superior court did not  


find Raja's assertions that he did not receive them credible.                                              As Elfrink notes, the  


borrowers received only one substitute 1098 tax form from the bank for 2007-2009 and  


only  one year-end  statement for  2010-2012,  suggesting the balance increases were  


modifications to one loan.  Unlike the actual and hypothetical scenarios we discussed in  


Rockstad,  the  evidence  here  supports  the  superior  court's  finding  that  the  various  


increases to the original loan amount were intended as modifications to the original  


           64         Allen v. Vaughn            , 161 P.3d 1209, 1212 (Alaska 2007) (quoting                                 Horton v.   

Hansen, 722 P.2d 211, 215 (Alaska 1986)).                    

           65         The superior court found that Bibi's signature on the third amendment was  


her signature, that her assertion that she did not sign the document was not credible, and  


that through her signature of the third modification, Bibi "thereby ratif[ed] . . . the first  


two [escrow] modifications." While Bibi criticizes these factual findings in passing, she  


states in her briefs that she does not challenge them on appeal, and we express no  


opinion with regard to them here.  


           66         Rockstad, 113 P.3d at 1219.  


                                                                    -21-                                                              7202

----------------------- Page 22-----------------------


principal rather than new loans.                      Therefore, the superior court's finding was not clearly                     



                     Consequently, when the March 2008 modification brought thesingleloan's  



principal over $25,000, the interest rate cap no longer applied. 


                      4.	       Bibi's payments must exceed the loan's principal amount plus  


                                lawful interest before she can recover under AS 45.45.030.  


                      The parties next dispute whether Alaska law requires that a borrower's  


payments exceed a loan's principal amount plus lawful interest before she can recover  


under the usury statute. We reaffirm that it does. Alaska Statute 45.45.030 provides that  


"[i]f interest greater than that prescribed in AS 45.45.010 and 45.45.020 is received or  


collected,  the  person  paying  it  may,  by  action  brought  within  two  years  after  the  


payment, recover from the person receiving the payment double the amount of the  


interest received or collected."  


                      Elfrink argues that for Bibi to succeed on her usury claim, she had the  


burden of proving that he "received or collected" a payment in excess of the principal  


amount plus lawful interest.  In support, he cites  Werner v. Lorentzen, a 1907 federal  


Alaska case interpreting the predecessor to AS 45.45.030 as requiring that "before an  


action may be maintained under this provision of the Alaska Code, the debtor must have  

           67	       Id.  at 1222.        



                      Bibi also argues that there is no paperwork documenting that the three loan  


modifications were secured by the collateral that Bibi and Raja gave Elfrink for the  


original loan, namely her house and the pizza business.  But the deed of trust offered as  


collateral to the original loan states that it is for the purpose of securing "the principal  


sum of  $14,597,  .  .  .  including  all  renewals,  extensions  or  modifications  thereto."  


Because the escrow amendments reflect an intent to modify the principal of the original  


loan,  and  the  deed  of  trust's  plain  language  secures  the  principal  amount  and  all  


modifications thereto, it follows that Bibi's former home secured the original loan and  


all subsequent modifications.  

           69         See former AS 45.45.010(b) (2010).  


                                                                   -22-	                                                            7202

----------------------- Page 23-----------------------


actually paid an amount in excess of the principal and legal interest."                                                                                         Bibi argues that             

we rejected this holding in 1975 with our decision in                                                                        McGalliard v. Liberty Leasing                         

                                              71     She misunderstands McGalliard .  

 Company of Alaska                           .                                                                                    

                               There are two separate claims available under the usury statute.  The first,  


under AS 45.45.030, is an action to recover "double the amount of the interest" paid.  


The second, under AS 45.45.040, is typically brought by a creditor to recover the balance  


on a contract that a court finds to be usurious.  The creditor recoups his principal but  


forfeits the entire interest on the debt.72                                                       In McGalliard  we explained  the different  


requirements for each:  


                              As early as 1907 the Alaska courts acknowledged that [AS  


                               45.45.030] permits a debtor to recover under this provision  


                               only when he has paid a sum greater [than] the principal plus  


                               lawful interest. Since the total sum paid to [plaintiff] does not  


                               exceed  the  principal  borrowed  plus  lawful  interest,  the  


                              requirements for recovery under AS 45.45.030 have not been  


                              met in this case.  AS 45.45.040 contains no such limitation.  


               70              3 Alaska 275, 279 (D. Alaska 1907).                                                   The   Werner  decision relied on the                                     

 Supreme Court's decision in                                        McBroom v. Scottish Mortg. & Land Inv. Co. of New                                                                     

Mexico  where it explained that "interest cannot be said to have been collected or received                                                                                       

in excess of what may be lawfully collected and received until the lender has, in fact,                                                                                                    

after giving credit for all payments, collected or received more than the sum                                                                                            loaned, with   

legal interest."                   153 U.S. 318, 328 (1894).                    

               71              534  P.2d  528,  533  (Alaska  1975),  overruled  on  other  grounds  by  W.  


Enters., Inc. v. Arctic Office Machs., Inc., 667 P.2d 1232 (Alaska 1983).  


               72             AS 45.45.040.  


                                                                                              -23-                                                                                        7202

----------------------- Page 24-----------------------

                           Under AS 45.45.040 the entire interest is forfeited and the                                                      

                           court shall give judgment for the plaintiff for the amount due,                                                

                           without interest, and in favor of the defendants for costs of                                                      

                           the action.         [73]  

Bibi focuses on the portion of this paragraph explaining AS 45.45.040, but that provision  


does not govern the issue before us today.  While AS 45.45.040 worked a forfeiture of  


the entire interest in McGalliard because the creditor-plaintiff brought suit against a  


borrower to recover the balance of payments due under a usurious lease agreement,74 the  


question Bibi presents on appeal is whether the superior court "err[ed] by failing to make  


a lender pay back twice the usurious interest that he received."  And in her prayer for  


relief, Bibi requests double the usurious interest paid. An "action for recovery of double  


amount of usurious interest paid" under AS 45.45.030 is thus the vehicle for recovering  


the payments Bibi seeks. As we made clear in McGalliard, a debtor may only recover  


under AS 45.45.030 after she has paid a sum greater than the principal plus lawful  


                75  As the next section will show, Bibi has satisfied this requirement and will  


therefore be able to recover what she has requested on appeal - double the amount of  


usurious interest paid.  


                           5.	          The value generated by Elfrink's foreclosure sale constituted a  


                                        payment under AS 45.45.030 through which Bibi paid the entire  


                                        loan principal plus lawful and usurious interest.  


                           The parties dispute the exact amounts Bibi paid on the loan and the amount  


of the principal.   But regardless of the numbers chosen, Bibi did not pay a sum that  


exceeded  the  principal,  let  alone  legal  interest,  unless  the  value  generated  by  the  


             73           McGalliard, 534 P.2d at 533 (footnote omitted).                                                     

             74           Id.  at 529, 533.      

             75           Id.   

                                                                                  -24-	                                                                           7202

----------------------- Page 25-----------------------


 foreclosure sale of her home is treated as a payment under the usury statute.                                                                                                                             On the   

 other hand, if the monetary value Elfrink received from his foreclosure sale of Bibi's                                                                                                                        

 home to satisfy the debt is considered a payment on the loan, then Bibi did pay an                                                                                                                                     

 amount above the principal amount plus legal interest and remains eligible for recovery                                                                                                                


 under the usury statute.                                          

                                   The superior court implicitly concluded that foreclosing on collateral to  


 enforce a secured debt does not count for usury purposes.  This finding was implicit in  


 the court's ruling that Bibi's usury claim was time barred because Bibi brought her claim  


just a few months after Elfrink's foreclosure.  Bibi argues that foreclosure on collateral  


 constitutes payment on the underlying secured debt for purposes of the usury statute.  


 After all, she argues, a lender requires collateral in order to have an alternate source of  


payment if the borrower defaults.  


                                   We agree.  Alaska Trustee sold Bibi's house to Elfrink, and according to  


 the Trustee's Deed "[p]roceeds from the sale [were] applied to sums due under the Deed  


 of Trust executed by Javed Raja & Mariam [Bibi], husband and wife, Trustor(s), and  


 Kevin J. Elfrink, Beneficiary."   These proceeds from sale are a payment on a debt  


 capable of triggering recovery under the usury statute.   This is especially clear here  


 where the beneficiary purchases the property and extinguishes the debt by making an  


 offset bid calculated to cover the loan principal, interest, and late fees.78  


                                   Elrink argues that an offset bid does not result in the creditor's receipt or  


                  76               Elfrink and Bibi agree that when all of the FNBA escrow payments are                                                                                                               

 added up, they equal less than $14,000.                                                               Bibi argues for "more than $16,000" if Raja's                                                          

 alleged $2,500 cash payment to Elfrink outside of escrow is counted.                                                                                                               The parties also   

 agree that the loan principal balance after modifications was over $34,000.                                                                                              

                  77               AS 45.45.030; McGalliard, 534 P.2d at 533.  


                  78               AS 34.20.080(b), (f)(1); AS 34.20.100.  


                                                                                                          -25-                                                                                                    7202

----------------------- Page 26-----------------------

 collection of any cash proceeds from the foreclosure sale and for this reason cannot                                                                                                                                                                                      

 constitute a payment for purposes of the usury statute. But even if we characterized what                                                                                                                                                                                        

Elfrink received through his foreclosure sale as a house rather than money, both of which                                                                                                                                                                                     

 are conceptually plausible, the broad language of AS 45.45.020 provides that a "person                                                                                                                                                                              

may not, directly                                         or indirectly                             , receive in . . .                         any  . . .  manner, a greater sum                                                                          or value                     for  

the loan or use of money . . . than is prescribed in AS 45.45.010 -                                                                                                                                               45.45.070." (Emphasis   

 added.)  This broad language clearly encompasses an offset bid, which is a manner of                                                                                                                                                                                                      

receiving value, however characterized.                                                                                               79  

                                             Elfrink further argues that payment of interest under AS 45.45.030 requires  


 a voluntary payment, not an offset bid by a secured creditor in an involuntary foreclosure  


 on collateral.  He cites but does not discuss Henning v. Mainstreet Bank for support.80  


Henning is an Eighth Circuit case interpreting the word "paid" in a contract; it is of little  


help in interpreting the statutory provision here.81   In addition, Elfrink's suggestion that  


 a payment has to be voluntary under AS 45.45.030 is unpersuasive.  The usury statute  


provides that usurious interest cannot be received in any manner in AS 45.45.020.  It  


would  make  little  sense  if  its  very  next  provision  limited  those  who  can  recover  


payments on usurious interest specifically to borrowers paying cash voluntarily.  We  


 conclude that value generated by a foreclosure sale constitutes a payment for purposes  


                       79                    Elfrink also argues that to demonstrate he received cash proceeds from the                                                                                                                                                                 

 foreclosure sale, Bibi needed to show that there was net equity in the property at the time                                                                                                                                                                                        

 of the sale and that Bibi was entitled to it.                                                                                                But Bibi brought a usury claim, not a claim                                                                                   

 for surplus proceeds.                                                  The issue in a usury claim is whether a creditor received usurious                                                                                                                            

interest payments on a debt.                                                                   AS 45.45.030.                                      Elfrink's offset bid was calculated to cover                                                                                  

the loan principal, interest, and late fees associated with his usurious loan to Bibi.                                                                                                                                                                                                   A  

 showing that the foreclosure sale also generated surplus proceeds is not necessary.                                                                                                                                                                                                    

                       80                    538 F.3d 975, 978 (8th Cir. 2008).  


                       81                    Id.  


                                                                                                                                           -26-                                                                                                                                   7202

----------------------- Page 27-----------------------

of AS 45.45.030, and it was error not to treat it as such.                                                                                          

                                       6.	                 It was error to conclude that Bibi's usury claim was barred by                                                                                                                              

                                                           the statute of limitations set forth in AS 45.45.030.                                                                         

                                       The superior court concluded that Bibi's usury claim was barred by the                                                                                                                                        

two-year statute of limitations under AS 45.45.030 because the only escrow payment                                                                                                                                                   

within the two-year limit, made in July 2012, was applied entirely to late fees, not to                                                                                                                                                                 

interest.  Because we hold that foreclosure proceeds are a payment for purposes of the                                                                                                                                                               

usury statute, and Bibi filed her usury claim only a few months after the foreclosure sale,                                                                                                                                                       

she filed well within the two-year time limit.                                                                                       Her claim therefore was not time barred.                                                                                    

Further, Bibi's cause of action for usury only arose at the point when her payments                                                                                                                                              


exceeded    the    loan    principal,    plus    legal    interest,    as    required    by   McGalliard .    


Consequently, Bibi could not have brought her usury claim prior to the foreclosure sale.  


                                       7.	                 Bibi is entitled to recover double the amount of usurious interest  




                                       Through her payments of at least $13,419.32 to the escrow account and her  


additional payment of $56,629.95 from Elfrink's foreclosure sale, Bibi paid her entire  


loan principal plus all interest, both legal and usurious, to Elfrink. She then filed a timely  


usury claim.   We hold that under AS 45.45.030, Bibi is entitled to double whatever  


portion  of  these  payments  constituted  usurious  interest,  that  is,  interest  above  the  



statutory maximum at the time.                                                                        We provide guidance consistent with this opinion's  


conclusions to aid the superior court in calculating Bibi's usury award on remand.  


                                       First, to determine how much Bibi and Raja paid on the loan the superior  


court must decide whether to include Bibi's disputed $500 payment made in June 2013  


and  Raja's  alleged  $2,500  payment  outside  of  escrow  after  mid-2013  to  the  loan  

                    82                  534  P.2d  at  533.  

                    83                 See  AS  45.45.030.  

                                                                                                                         -27-                                                                                                                              7202  

----------------------- Page 28-----------------------


payments of $13,419.32 from the escrow account.   The court must then include the  


additional payment from Elfrink's foreclosure sale.  


                    Second, the superior court must calculate what amount  of Bibi's total  


payments were applied toward usurious interest generated by the original loan and the  


two modifications that preceded the principal's rise over $25,000 in March 2008, the  


point at which the usury statute ceased to apply.  


                    Third, while the loan's post-March 2008 interest rate was lawful, the rate  


was applied to a principal that would not have been as large if Elfrink had charged a legal  


interest rate from the beginning. Thus, some of the interest generated even post-March  


2008 can be attributed to the original usurious nature of the loan.  Therefore, the post- 


March 2008 principal and interest should be adjusted to reflect what they would have  


been had a legal interest rate been charged pre-March 2008 to remove any effect the  


original usurious interest rate had on post-March 2008 payments.   This  may mean  


assuming that the maximum legal interest rate allowed before March 2008 was charged  


rather  than  the  usurious  one  actually  used,  applying  payments  to  this  hypothetical  


interest, applying the rest to principal, and then adjusting the post-March 2008 principal  

and accrued interest accordingly.  This will allow the superior court to award Bibi not  


only double whatever amount she paid on pre-March 2008 usurious interest, but also  


double whatever amount she paid on interest in excess of the adjusted post-March 2008  


amount. Lastly, applying a legal hypothetical interest rate from the beginning may push  


the date at which the loan's principal would have exceeded $25,000 past March 2008,  


thereby extending the period to which the usury statute applied to the loan.  If so, the  


new date should be taken into account when calculating Bibi's recovery.  The superior  


court may in its discretion take additional evidence to assist in its calculation of Bibi's  


usury recovery.  


                    Fourth, the superior court must decide whether to treat late fee payments  

                                                              -28-                                                         7202

----------------------- Page 29-----------------------

as interest payments for purposes of Bibi's recovery. The superior court decided that late                                                                                                                                   

fee payments do not count as interest payments for purposes of the statute of limitations.                                                                                                               

This question is no longer relevant. But                                                                the question whether payments made toward late  

fees   count  as  interest   payments   does   affect   whether   Bibi   can   recover   them   under  

AS 45.45.030.                             Bibi argues that late fee payments are included as interest payments                                                                                              

because AS 45.45.020 does not differentiate between late fees and interest, but rather                                                                                                                                 


applies to all compensation "for the loan and use of money" without regard to labels.                                                                                                                                                    

Elfrink argues that most jurisdictions treat late charges as noninterest because they are  


not payments to secure extension of credit, "but rather are penalty payments accruing  


only because of action solely within the borrower's control," though he recognizes that  


we have not decided this issue.85  Because the parties' discussion of this issue was limited  


and done solely in the context of the statute of limitations issue, we leave it to the  


superior court to decide in the first instance whether late fees count as interest payments  


when calculating Bibi's recovery on remand.86  


                                    Lastly, Bibi suggested at trial and on appeal that she is due surplus proceeds  


from the foreclosure sale.  But Bibi fails to discuss how a claim for surplus proceeds  


interacts with her claim under the usury statute and its various provisions.   Alaska  


Statute 34.20.080(f) requires that money left over from a foreclosure sale after paying  


off the beneficiary of the deed of trust being foreclosed and any subordinate interests be  


                  84               AS 45.45.020   

                  85               See Crissey v. Alaska USA Fed. Credit Union                                                                                 , 811 P.2d 1057, 1062 n.8                      

(Alaska 1991).   

                  86                The same determination must be made on remand with respect to escrow  


and foreclosure sale trustee fees.  


                                                                                                              -29-                                                                                                       7202

----------------------- Page 30-----------------------


distributed to the previous homeowner.                                                                                                    The superior court, having determined that                                                                                           

Bibi legally owed everything she paid via the foreclosure sale, found she failed to prove                                                                                                                                                                                 

that any surplus proceeds were generated by the sale or that Bibi was entitled to them if                                                                                                                                                                                              

they did exist. But we have concluded that usurious interest was charged and, therefore,                                                                                                                                                                     

that Bibi did not legally owe the entire debt paid via the foreclosure sale.                                                                                                                                                                                    We are   

remanding to the superior court to determine a usury award based on this conclusion.                                                                                                                                                                                                           

The superior court shall also determine on remand what surplus proceeds, if any, Bibi                                                                                                                                                                         

is due from that sale.                                                 

                      B.	                   The Superior Court Did Not Err By Denying Bibi's Counterclaim For                                                                                                                                                                   

                                            Clear Title And Possession And Granting Elfrink Clear Title And                                                                                                                                                                 


                                            Bibi   argues   that   Elfrink's   foreclosure   should   be   set   aside   and   title  

transferred   from   Elfrink  back   to   Bibi.     She   argues   that   even   though   IndyMac's  

foreclosure sale would typically cut off the junior interest on which her claim is based,                                                                                                                                                                                              88  


we should make an exception because the purchaser at Indymac's foreclosure sale was  


Elfrink.  The parties also debate whether Bibi's claim for title is barred by collateral  


estoppel and laches and whether IndyMac is an indispensable party.  We conclude that  


the superior court correctly denied Bibi's claim for title and possession because the court  


correctly determined that IndyMac's foreclosure extinguished Bibi's claim and gave  


clear title to Elfrink.  


                                            The superior court concluded that under AS 34.20.080 and AS 34.20.090,  


Bibi's interest in her former home had been extinguished and Elfrink was entitled to title  


and  possession.                                              Bibi  concedes  that  ordinarily  a  properly  conducted  non-judicial  

                      87                    See  AS 34.20.080(f).                                                   



                                            AS 34.20.090; Adams v. FedAlaska Fed. Credit Union , 757 P.2d 1040,  


 1042 (Alaska 1988).  

                                                                                                                                        -30-	                                                                                                                               7202

----------------------- Page 31-----------------------

 foreclosure sale extinguishes junior claims, so IndyMac's foreclosure sale based on its                                                                                                                                                                                                              

 senior deed of trust would have normally cut off both Elfrink's and Bibi's junior interests                                                                                                                                                                                      

in the property.                                        But she argues that we should deviate from this principle here because                                                                                                                                                     

the buyer at IndyMac's foreclosure sale was not a regular third party buyer, but rather                                                                                       

Elfrink himself. Bibi argues that Elfrink "engineered" the foreclosure sale by collecting                                                                                                                                                                                   

rent money                                   from tenants after he took over the property instead of using it to pay                                                                                                                                                                             

IndyMac,   which   she   refers  to  as  "equity-skimming."     She   asserts   that   this   caused  

IndyMac to foreclose and allowed Elfrink to bid on and buy the property a second time.                                                                                                                                                                                                                           

Bibi argues that Elfrink took these actions "presumably so that he could                                                                                                                                                                                                      make the   

 argument that he's making here," namely that IndyMac's foreclosure extinguished any                                                                                                                                                                                                              

 claim Bibi might have had to her prior home.                                                                                                                          While Bibi acknowledges there is no                                                                                           

dispositive case law on this issue in Alaska, she suggests that precedent "saying that we                                                                                                                                                                                                           

don't allow a wrongdoer to profit from his misdeeds" supports the exception she asks us                                                                                                                                                                                                                

to make.                       89  

                                               Elfrink responds that Bibi's claim for title and possession is moot because  


IndyMac's foreclosure sale on its senior deed of trust intervened to extinguish any  


interest in the property held by Bibi after the Elfrink foreclosure.90   He reasons that there  


                        89                     See,   e.g.,   In  re   Estate   of   Blodgett,   147   P.3d   702,   705   (Alaska   2006)  

 (recognizing the common law no-profit principle);                                                                                                                                   State Farm Mut. Auto. Ins. Co. v.                                                                                  

Raymer, 977 P.2d 706, 712 (1999) (recognizing the no-profit principle and discussing     

 constructive trust as a remedy).                                          

                        90                     For this proposition, Elfrink cites AS 34.20.090(a):  


                                               The sale and conveyance transfers all title and interest that  


                                               the party executing the deed of trust had in the property sold  


                                               at the time of its execution, together with all title and interest  


                                               that party may have acquired before the sale, and the party  



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----------------------- Page 32-----------------------

is therefore "no longer a present, live controversy, and the party bringing the action                                                            


would not be entitled to relief, even if [she] prevails."                                                                                          

                                                                                                        He further argues that "[t]he  


purchaser at the IndyMac foreclosure sale, whether it was Kevin Elfrink or some other  


third party, acquired all title and interest in the property, regardless of whether or not the  



earlier 2013 foreclosure sale on the Elfrink third deed of trust was void or voidable." 

Lastly, Elfrink takes issue with Bibi's claim that to collect rent instead of sending it to  


IndyMac  means  that  Elfrink  was  "equity-skimming"  and  "engineered"  the  second  


foreclosure sale. Elfrink asserts that he was entitled to collect rent after he acquired title  


untilhereceived noticefromIndyMacdemandingpayment of the rentalincomepursuant  


to its deed of trust, citing Bevins v. Peoples Bank & Trust Co. for this proposition.93  


                        "Under Alaska  foreclosure statutes, the trustee of a deed of trust may  


foreclose and sell the property which has been pledged as security for an indebtedness  


without first securing a decree of foreclosure from the court.  Upon selling the property  


the interests created subsequent to the deed, including those of junior lienholders, are cut  


        94   In Adams v. FedAlaska Federal Credit Union we held that a bank lost its junior  


            90	         (...continued)


                        executing the deed of trust or the heirs or assigns of that party


                        have no right or privilege to redeem the property, unless the


                        deed of trust so declares.

            91          Fairbanks Fire Fighters Ass'n, Local 1324 v. City of Fairbanks, 48 P.3d  


 1165, 1167 (Alaska 2002) (citing Gerstein v. Axtell, 960 P.2d 599, 601 (Alaska 1998)).  


            92          See Waldock & Padgett Invs. v. C.B.S. Realty, 668 P.2d 819, 822 (Alaska  



            93          671 P.2d 875, 879 (Alaska 1983).  


            94          Adams v. FedAlaska Fed. Credit Union , 757 P.2d 1040, 1041-42 (Alaska  


 1988)  (citation  omitted)  (first  citing  AS  34.20.070;  then  citing  AS  34.20.090  and  



                                                                           -32-	                                                                   7202

----------------------- Page 33-----------------------

security interest in property as a result of a foreclosure sale by another bank with a senior                                       


interest   even   though   the   junior   bank   was   the   purchaser   at   that   sale.                                            

                                                                                                                               We  read  


AS 34.20.090 strictly, concluding that its language demonstrated "that upon sale by the  


senior lienholder, . . . the junior lienholder[] los[es] its security interest in the property"  


and that "[t]he statutes contain no exception to this rule when the purchaser at a sale is  

                                  96   While our strict reading was based in part on policy reasons  


a junior lienholder." 

regarding Alaska's anti-deficiency statute not applicable here, it was also based on the  


text of the statute, and we adopt the same interpretation in this case.97  Any interest  


Elfrink acquired from his foreclosure sale on the junior deed of trust was cut off by  


IndyMac's foreclosure sale on its senior deed of trust, despite the fact that the purchaser  


at that sale was Elfrink, the junior interest holder.98  This means that Elfrink no longer  


had any interest acquired under the junior deed of trust, and Bibi therefore had no claim  


to a non-existent interest.  This conclusion is consistent with our holding in Adams and  


with the foreclosure statutes' purpose "to protect the foreclosure sale purchaser."99  


                      Bibi's argument that Elfrink engineered the sale is unpersuasive. Our prior  


decision in Bevins v. Peoples Bank & Trust Co. suggests that rental income did not have  


to  be  distributed  to  IndyMac  unless  demanded,  even  if  there  was  a  rental  income  


           94         (...continued)

Waldock  &  Padgett  Invs.,  668  P.2d  at  822-23).

           95         Id.  at   1041-44.  

           96         Id.  at   1042.  

           97         Id.  at   1042-44.  

           98         Id .  at   1044.  

           99         Bauman  v.  Day,  892  P.2d  817,  823  n.8  (Alaska   1995).  

                                                                    -33-                                                              7202

----------------------- Page 34-----------------------


provision in its deed of trust.                                    Bibi has not directed us to a rental income provision, a                                                        

demand from                  IndyMac, or relevant case law on this issue, nor has she argued that Elfrink                                                              

was responsible for the mortgage payments to IndyMac.                                                                    In addition, while wrongful              

                                                                                                                  101 there is little evidence of such  

behavior would be relevant under a no-profit principle,                                                                                                                     

behavior here, apart from Bibi's passing allegation of equity skimming.102  Furthermore,  


even if Elfrink's intent was to extinguish his junior interest by purchasing Bibi's prior  


home at IndyMac's foreclosure sale and thereby eliminate Bibi's claim for title, he also  


intended to resell the property and chose to risk over $240,000 to do so. This makes him  


similar to many purchasers of senior interests that the foreclosure statutes are meant to  


protect.103            We conclude the superior court did not err by determining that Bibi's claim  


to title and possession was extinguished under AS 34.20.090, and we decline to create  


an exception in this context.  Because we conclude the superior court correctly denied  


              100           See  671 P.2d 875, 879 (Alaska 1983) (holding that deed of trust rent clause                                                                 

allowing   beneficiary   to   collect   rents   upon   default   to   satisfy  secured   debt   does   not  

automatically assign rents to beneficiary because beneficiary must take some action to                                           

acquire possession of property or rents before rent clause becomes operative).                                                               

              101           See In re Estate of Blodgett, 147 P.3d 702, 705 (Alaska 2006) (recognizing  


the common law no-profit principle).  


              102           Equity skimming is a narrowly defined federal crime requiring that a deed  


of trust be insured or held by a federal agency, among other elements not met here.  See  


 12 U.S.C.  1709-2 (2012). More generally, the term can include a number of practices.  


The common theme is that "the skimmer makes promises to help the owner or investor  


but does not perform . . . , leaving the owner or investor with an unpaid mortgage . . . and  


facing foreclosure, while the skimmer keeps any money acquired for his own personal  


use."  Brad R. Jacobsen & Michael Barnhill, Drawing the Short Straw - Mortgage  


Fraud and Straw Buyers, 21 Utah B.J. 9, 10 (2008).  Here, Elfrink and Bibi never had  


an agreement regarding mortgage payments to IndyMac after Elfrink's foreclosure sale.  


              103           See Bauman, 892 P.2d at 824 n.8 (noting one of the main purposes of  


AS 34.20.090 is "to protect the foreclosure sale purchaser").  


                                                                                      -34-                                                                                 7202

----------------------- Page 35-----------------------

Bibi's claim to title and possession, we do not address Elfrink's collateral estoppel,                                                                                                                                                                                                                                                                                                                                    

laches or indispensable party arguments.                                                                                                                    

                                    C.	                                The Superior Court Shall Determine The Award Of Attorney's Fees                                                                                                                                                                                                                                                                                                           

                                                                       And Costs On Remand.                                                              

                                                                       Bibi makes a request at the final page of her brief, without argument, that                                                                                                                                                                                                                                                                                                     

we direct the superior court to award her full costs and attorney's fees, including for this                                                                                                                                                                                                                                                                                                                                                            

 appeal, under AS 45.45.040.                                                                                                                                      As discussed earlier, Bibi has brought a claim under                                                                                                                                                                                                                     

AS 45.45.030 seeking double the amount of usurious interest paid.                                                                                                                                                                                                                                                                                                    Because she is not                                                                   

 a creditor suing a borrower to enforce a usurious contract, the scenario contemplated by                                                                                                                                                                                                                                                                                                                                                                     

AS 45.45.040, any attorney's fees provision in that statute does not apply here.                                                                                                                                                                                                                                                                                                                                                                 The  

 superior court awarded attorney's fees and costs to Elfrink "pursuant to the terms of the                                                                                                                                                                                                                                                                                                                                                                 

deed of trust and promissory note, and/or Alaska Civil Rule 82" after granting him                                                                                                                                                                                                                                                                                                                

 forcible entry and detainer and denying Bibi's counterclaims for usury, quiet title, and                                                                                                                                                               

 surplus proceeds. Because we reverse the court's denial of Bibi's usury counterclaim on                                                                                                                                                                                                                                                                                                                                                                      

 appeal,   we   remand   for   a   determination   of   prevailing   party   status   and   an   award   of  

 attorney's fees and costs under Rule 82.                                                                                                                                                                               

V.	                                 CONCLUSION  

                                                                       We REVERSEthe superior court's denial of Bibi'scounterclaimfor usury,  


AFFIRM the superior court's denial of Bibi's counterclaim for title and possession,  its  


grant of forceful entry and detainer, and its expungement of the lis pendens on Elfrink's                                                                                                                                                                                                                                                                                                                                   

property, and REMAND for calculation of Bibi's usury award, surplus proceeds, if any,                                                                                                                                                                                                                                                                                                                                                               

 and attorney's fees and costs in a manner consistent with this opinion.                                                                                                                                                                                                                                                                                                               

                                                                                                                                                                                                                            -35-	                                                                                                                                                                                                                 7202

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