Usury Regulations
Copyrighted © 2009
Page 2

With the current state of the real estate and mortgage markets, it has become very difficult to secure financing to purchase property. So, many people are looking for alternative ways of financing a real estate purchase. One alternative method of financing is private lending.

Private lending refers to the process of borrowing money from private individuals to finance real estate purchases. One benefit of private lending is that the loan can fund much more quickly than a loan from an institutional lender. Typically, the loan is secured by an interest in the real estate being purchased by the borrower. In most instances, these properties are in need of repair; therefore, the lender's risk is higher than it might otherwise be. As a result of this additional risk, the interest rates on private loans tend to be higher than those charged by institutional lenders.

The beauty of private lending is that it enables the parties to negotiate and agree upon the interest rate and loan terms. This allows for a lot more flexibility than a traditional loan from a bank or other lending institution where rates are set according to the type of loan and dictated by current market conditions. Notwithstanding the flexibility afforded by a private lending scenario, it's important to understand that a private lender must still operate within the bounds of the usury laws for his state or those of the state in which the property securing the loan is located.

Usury is generally defined as the charging of illegal interest rates. Each state has laws regulating interest rates and those laws are commonly referred to as usury laws. Many states impose both civil and criminal penalties for violations of applicable usury laws. With this in mind, I decided to write a brief synopsis of each state's usury laws. This is not meant to be an exhaustive examination of the various usury laws of each state, but rather an overview to help you get a feel for how usury laws operate and how they come into play in a transaction where private lending is involved. Moreover, this pamphlet is not legal advice and should not be construed as such. Furthermore, the laws of each state are subject to change after the publication of this book. Therefore, before becoming involved in a private lending transaction, you should seek the advice of an experienced attorney so that you understand your rights and obligations and to ensure than you don't run afoul of the law.