Real Estate Financing and Investing/Lending Laws
Certain lending laws are applicable to all lenders providing real estate financing. Since the purpose of such laws is to provide protection for the borrower, the limitations and requirements imposed through these laws must be strictly adhered to. Among the pertinent lending laws are the following.
USURY A number of states have laws which limit the interest rate that can be charged to individuals borrowing money in that state. These laws affect all lenders in a state regardless of what federal or state agency issued their charter. It should be noted that, if there is a national economic emergency, the federal government may temporarily suspend state usury laws.
California's usury law limits the interest rate on nonexempt real estate loans to the discount rate charged by the Federal Reserve Bank of San Francisco plus 5%. The California Constitution states that the following kinds of loans are exempt from state usury laws: (1) loans made by banks, savings and loans, and credit unions; (2) loans made by personal finance companies and pawnbrokers; (3) loans made or arranged by real estate brokers.
As a practical matter, the state`s usury laws now apply only to private lenders.