I do not know of a way to find out the limits in every state other then contacting each state (through the web or otherwise).
There might be a list out there. How accurate it is would be a question.
One assistant district attorney put it to me this way.
Back when interest rates were high (PRIME was double digit, home loans got up to 15% for some conventional products, credit cards were very high) states raised the usury limits so that people could still have credit.
As he noted for his state, the limits were not brought back down.
So, some states will have limits much higher then want most investors will pay.
Be careful about how the limit is calculated. In many cases if you receive any points plus the interest you will end up much higher then you otherwise would expect. If the points are paid to a independent party (broker vs. the actual lender) then the points are not included in the calculation based on one state I read about.
Bottom line is some laws are very much state level and this is one area.
Posted by Scott(CA) on August 23, 2005 at 20:01:09:
I’m interested in becoming a Hard Money Lender and I was wondering how a private party is able to fund deals without violating usury laws. If I only lend on NOO and the borrower is a rehab corporation, is usury still an issue? Also, are there any limits as to the number of deals a private party can do per year? If it matters, I’m in California and so far I have only funded deals in California and Texas. Thank you for any information and insight.
Re: Private Lending & Usury - Posted by Beverly Clem
Posted by Beverly Clem on August 28, 2005 at 11:00:19:
I am considering selling 1/2 interest in a property I own in California. I would like to charge a 10% prepayment penalty for the first 10 years. I am selling to another private party. Is this any violation of the usury law in California ??
Than you.
Find David Butler’s list - Posted by John Merchant
Posted by John Merchant on August 26, 2005 at 16:34:19:
A few years back David Butler, one of the Moderators on the Cash Flow site, here, did compile such a list and it’s very informative.
So email DB and ask him where to find it online.
By the way, usury is rarely an issue in real commercial loan deals as the courts seem to think, with some reason, that any deals a knowing business person or corporation enters into to borrow money should be and are none of any gov’s business.
Basically only personal, consumer or residential loans have interest rate caps and are subject to usury laws.
Re: Private Lending & Usury - Posted by Kristine-CA
Posted by Kristine-CA on August 24, 2005 at 10:10:49:
A must read is George Coats’ California Trust Deed Lending. It’s out of
print but you can find it at the library. There are limits on the interest
you can charge in CA if you are not a licensed broker. I think the last
time I looked into it was at about 10%. When you are the seller, a
carryback trust deed does not have the same limitations.
All the serious hard money people I know are licensed. Happy reading,
Kristine
Usury is a state issue. The limit that applies will be where the property is located as that is where the loan is taken out.
Some states have no limits when you are not lending to a consumer for their own residence. Again, you need to check on a state by state basis.
Usury relates to the loan terms and not the number of loans you might do in a year.
Your other question touches on licensing requirements. Each state is again different. Lending commercially may be exempt. CA tends to have strict rules in this area so check there if you are lending in CA. TX I do not know.
Scott,
I will suggest that you get a Calif
real estate handbook covers real estate
and loan laws.
You will find there what are
usurious acts. Around $20 price. Board
of realtors might have them if you want
them fast.
Posted by Scott(CA) on August 24, 2005 at 21:49:02:
Hello Krisine and thanks for the information. I thought the Coats book was some sort of snipe hunt, but I recently bought a copy off of Amazon for ONLY $100. All the libraries I found that listed it, showed it as “missing” for several years. As soon as I finish Think & Grow Rich, I will start Smart Trust Deeds. I think I have done more reading since finding this site, than I did in 4 years of college, LOL.
You mentioned that all the serious HML you know are licensed. Are you refering to a brokers license? If one has a brokers license, are they only allowed to originate loans in their state?
Posted by Scott(CA) on August 24, 2005 at 21:42:55:
Thanks for the info John. Can you suggest any resources for finding which states are not limited by usury? Thanks for the heads up about CA tending to be strict.
Re: Private Lending & Usury - Posted by Kristine-CA
Posted by Kristine-CA on August 24, 2005 at 22:07:54:
Yes, I mean licensed mortgage brokers. I don’t know about being
licensed in every state where one lends. The hmls I know where I am
don’t lend out of state, so I couldn’t say.
The Coats book is definitely not a snipe hunt. Understanding trust
deeds is very important in CA. Not just for lending but if you want to
play the paper game in any way. But to be honest, I understood very
little of the book until I bought a non-performing note and foreclosed.
That’s where I really began to understand the process from the
perspective of a lender. And how many mistakes one could make when
lending (and buying a note!). I was lucky in that I paid just a little for
the note and the pay off was great. But there are all kinds of details I
didn’t know about to check before I bought that I didn’t learn until
later. Like statute of limitations on collection of a note (there is one!).
Like getting record keeping from the trustor. Like hiring a foreclosure
service trustee that likes customer service. Like forced-placed fire
insurance. So much to learn…