Posted by Craig S - CA on December 04, 2004 at 20:00:08:
Thank you for the great advice. I will get in touch with one and see what they say. There must be some limit to the interest rate they can charge, won’t hurt to ask.
avoiding usury law in California - Posted by Craig S - CA
Posted by Craig S - CA on December 03, 2004 at 13:56:07:
If someone wanted to loan money to homeowners in default in California AND wanted to charge a huge interest rate, the usury law stops them.
However, consider the following ficticious scenerio:
Existing 1st mortgage balance: 200,000
Interest rate on 1st: 6%
Arrears: 20,000
Instead of loaning them 20,000 at the max allowed rate of (I think) 10% and getting a note and deed of trust for 20,000… could someone give them the 20,000 and record a wrap around mortgage around their first? The benefit would be that you could charge 10% interest rate on the $220,000 wraparound mortgage and make a huge cashflow because you are paying the underlying mortgage at a 6% rate. Also, you ensure that the 1st is receiving their payments, because you would be the one paying it.
Would this person be in violation of the usury law?
Re: avoiding usury law in California - Posted by Thomas K. Standen
Posted by Thomas K. Standen on December 04, 2004 at 10:51:43:
A licensed California Real Estate BROKER, has an exemption in law regarding usury.
Suggest you contact a broker and make a win win arrangement with them to do the deal.
Been done, and it’s still usury - Posted by William Bronchick
Posted by William Bronchick on December 03, 2004 at 20:38:27:
Back in the 1980’s, banks tried this workaround to avoid usury laws.
The borrowers fought in court and the banks lost. Basically, the entire
yield that is being made as profit would be the APR.