Homami v. Iranzadi

Homami (plaintiff) loaned his brother-in-law Iranzadi (defendant) $250,000 via two written, interest-free promissory notes, but Homami testified the parties had a separate oral agreement for Iranzadi to actually pay 12% interest, structured as disguised $2,500 monthly payments specifically so Homami could avoid reporting the interest income for state and federal tax purposes. After about $40,000 had been paid this way and the parties later signed modification agreements adding real interest terms going forward, Iranzadi defaulted, and when Homami foreclosed and sued for the remaining $40,000 principal, Iranzadi argued he was entitled to credit for the funds already paid and that the underlying oral interest agreement was void for illegality; the trial court ruled for Homami.