I am loaning money to a family member secured by their home. I want to charge interest, something around 10%. I am loaning the

Asked over 1 year ago - Los Angeles, CA

money to my LLC, and then the LLC is going to lend the money to my family member the homeowner, owner occupied residence. It will be a Second position loan on their house. The law is confusing but my understanding is that usury law would not apply since it is a direct loan (no middleman) secured by the home. I would like to charge a fee up front also, 5% of the loan amount. Anything illegal here?

Attorney answers (2)

  1. Michael Raymond Daymude

    Contributor Level 20

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    Answered . Your assumption is incorrect. Loans between private parties are limited by CA usury laws. The maximum rate is 10% per annum. If you want more interest, you would need the loan to be brokered by a real estate broker.

    I urge you to: 1) open a loan escrow; 2) obtain a title policy insuring your interest; 3) conduct due diligence regarding the security of your investment and the ability of the family member to repay the loan.

    Loans secured by 2nd deeds of trust are VERY risky. Should the 1st foreclose, your security will be entirely wiped out. Unless you have sufficient financial resources to protect your investment in the event of default on the 1st, and are a sophisticated investor (which it appears you are not), I would not make the loan if you expect to be paid back. Good luck.

    I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for... more
  2. Adam Jay Jaffe

    Pro

    Contributor Level 15

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    Lawyer agrees

    Answered . Follow Mr. Daymude's advice. It is right on.

    Usury laws generally not apply to 'regular' financial institutions.

    Consult a lawyer before you do anything. Avvo advice is not enough!!!

    Adam Jaffe Law Office of Adam Jay Jaffe 124 Lomas Santa Fe Dr, #204 Solana Beach, CA 92075 (619) 810-7964... more

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An LLC (limited liability company) is a business entity that has elements of both a corporation and a partnership (or sole proprietorship).

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