Posted by Lenny[VA] on March 25, 2005 at 13:32:58:
Do you have any sources for this information? The reason I ask is that this sounds a little far-fetched to me.
Even if your note purchase was recharacterized as a loan, would that not be a business loan instead of a consumer loan and therefore not be subject to usury laws?
purchase/option back - Posted by Bob
Posted by Bob on January 08, 2005 at 18:11:05:
The classic deal: buy a $10k/8%/360 note for $5k cash, and give the seller an option to repurchase for $5k any time in the next 1-3 years. I get a good yield during the option period, the repurchase option makes the seller happy, and if the option expires life is even more joyful. Assuming my yield is not usurious, what other problems should I be aware of?
Re: purchase/option back - Posted by Mike W
Posted by Mike W on January 10, 2005 at 14:39:21:
Yields are not usurious. The rate of the original note is what comes under this scrutiny.
You are NOT lending money. You are buying an existing obligation. You should however, check to see if the note you’re buying was created properly.
Go after it!
Re: purchase/option back - Posted by Bob
Posted by Bob on January 10, 2005 at 17:36:13:
>Yields are not usurious. The rate of the original note is what comes under this scrutiny.
I’m talking about usury to the note’s seller, not the payor. I’ve been told that liberal judges, ever eager to save people from themselves, “counseled” by an accomodating member of the plaintiff’s bar, often construe the option as a balloon payment (never mind that balloons are mandatory and options are, well, optional) and the payments you receive as note holder as interest. Thus if you give an option to repurchase your yield must not be usurious by your state’s law just in case the deal get recharacterized as a loan. This will likely not happen, of course, until after the option expires and being unable to repurchase his note, the seller decides he didn’t like your deal after all.
If the seller files bankruptcy, a bankruptcy trustee might try to get your deal recharacterized as a loan, because then they can drag your note back into the bankruptcy estate and do a cramdown on you.