Dear houston5627,
You are correct to be concerned about charging an interest rate above
the maximum rate permitted by law. Private individuals may challenge
excessive rates by using the legal defense of "usury". In Michigan, if
successful, the defense of usury will cause all interest payments made
over the entire life of the loan to be credited to the balance -
effectively transforming the loan into a "zero interest" loan.
You can charge any amount of interest to a corporation, but an
agreement to exceed the maximum legal rate must be in writing.
For unlawful loans exceeding a 25% interest rate, there are also
potential criminal penalties.
I. Interest to Individual Borrowers
In Michigan, the maximum interest rate an individual can charge to
another individual are governed by statute, Michigan Compiled Laws
(MCL) 438.31. For loans to private individuals not involving real
property, the maximum rate is 5% without a written agreement, or 7% if
there is a written agreement. For a loan by an individual to another
individual, the maximum rate for a mortgage or land contract 11%.
(The exception: Loans for amounts in excess of $100,000.00, secured
against real estate other than a single family residence, in which
case the parties can agree in writing to any amount of interest. Note,
however, that criminal usury statutes may nonetheless apply.)
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438.31. Legal interest rate
The interest of money shall be at the rate of $5.00 upon $100.00 for a
year, and at the same rate for a greater or less sum, and for a longer
or shorter time, except that in all cases it shall be lawful for the
parties to stipulate in writing for the payment of any rate of
interest, not exceeding 7% per annum. This act shall not apply to the
rate of interest on any note, bond or other evidence of indebtedness
issued by any corporation, association or person, the issue and rate
of interest of which have been expressly authorized by the public
service commission or the securities bureau of the department of
commerce, or is regulated by any other law of this state, or of the
United States, nor shall it apply to any time price differential which
may be charged upon sales of goods or services on credit. . . .
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-31
MCL 438.31c
(6) Notwithstanding subsection (5), lenders or vendors not qualified
to make loans under subsection (5) may make, or may have made,
mortgage loans and land contracts specified in subsection (2) on or
after August 16, 1971, which mortgage loans and land contracts provide
for a rate of interest not to exceed 11% per annum, which interest
shall be inclusive of all amounts defined as the "finance charge" in
section 106 of the truth in lending act, title I of Public Law 90-321,
15 U.S.C. 1605, and the regulations promulgated under that act, 12
C.F.R. part 226.
(7) The parties to a purchase money mortgage or a second mortgage may
agree in writing for the payment of a rate of interest not to exceed
11% per annum.
* * *
(11) The parties to a note, bond, or other indebtedness of $100,000.00
or more, the bona fide primary security for which is a lien against
real property other than a single family residence, or the parties to
a land contract of such amount and nature, may agree in writing for
the payment of any rate of interest.
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-31c
MCL 438.32
Any seller or lender or his assigns who enters into any contract or
agreement which does not comply with the provisions of this act or
charges interest in excess of that allowed by this act is barred from
the recovery of any interest, any official fees, delinquency or
collection charge, attorney fees or court costs and the borrower or
buyer shall be entitled to recover his attorney fees and court costs
from the seller, lender or assigns.
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-32
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MCL 438.41
A person is guilty of criminal usury when, not being authorized or
permitted by law to do so, he knowingly charges, takes or receives any
money or other property as interest on the loan or forbearance of any
money or other property, at a rate exceeding 25% at simple interest
per annum or the equivalent rate for a longer or shorter period. Any
person guilty of criminal usury may be imprisoned for a term not to
exceed 5 years or fined not more than $10,000.00, or both.
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-41
MCL 438.42.
A person is guilty of possession of usurious loan records when, with
knowledge of the contents thereof, he possesses any writing, paper,
instrument or article used to record criminally usurious transactions
prohibited by this act. Any person guilty of possession of usurious
loan records may be imprisoned for a term not to exceed 1 year or
fined not more than $1,000.00, or both.
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-42
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II. Interest to Corporate Borrowers
Michigan law, MCL 450.1275 and MCL 438.61, expresses that corporations
can borrow money at a rate of interest higher than the maximum legal
rate, and cannot use the defense of usury.
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MCL 450.1275
A domestic or foreign corporation, whether or not formed at the
request of a lender or in furtherance of a business enterprise, may by
agreement in writing, and not otherwise, agree to pay a rate of
interest in excess of the legal rate and the defense of usury shall be
prohibited.
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-450-1275
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MCL 438.61(3)
(3) Notwithstanding Act No. 326 of the Public Acts of 1966 [being
sections 438.31 to 438.33 of the Michigan Compiled Laws], it is lawful
in connection with an extension of credit to a business entity by any
person other than a state or nationally chartered bank, a state or
federal chartered savings bank, a state or federal chartered savings
and loan association, a state or federal chartered credit union,
insurance carrier, finance subsidiary of a manufacturing corporation,
or a related entity for the parties to agree in writing to any rate of
interest not exceeding the rate allowed under Act No. 259 of the
Public Acts of 1968 [being sections 438.41 to 438.42 of the Michigan
Compiled Laws].
http://www.michiganlegislature.org/mileg.asp?page=getObject&objName=mcl-438-61
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III. Securing the Debt
It is a good idea to secure the debt through a mortgage. If the loan
is to a private individual, the mortgage will allow for a higher rate
of interest. Also, the mortgage will be a secured debt, insulating you
from the possibility of bankruptcy. Further, if the borrower defaults,
you will have the option of foreclosure. (As you probably know,
lenders will typically get an appraisal and a title search, to make
sure that there is enough equity in the real estate to secure the
value of the loan. The title search lets them know if there are other
liens or mortgages that might have precedence in the event of
foreclosure, or if the amount to be borrowed will exceed the equity in
the home.)
Please note that there are some cumbersome rules about font size and
margin width, pertaining to documents to be filed with the Register of
Deeds. If you are not in the business of preparing mortgages, you will
probably be able to obtain a form mortgage at an office supply shop
which will be in the proper form once you "fill in the blanks" with
the pertinent information.
The recording requirements for a deed are described on the Washtenaw
County Register of Deeds website:
http://www.ewashtenaw.org/government/clerk_register/cr_index.html/cr_clkdeeds.html/cr_clkrecorrequir.html
Washtenaw County Register of Deeds:
http://www.ewashtenaw.org/government/clerk_register/cr_index.html/cr_clkdeeds.html
Wayne County Register of Deeds:
http://www.waynecountylandrecords.com/
Research Strategy:
Searches for Usury in the statute and case law databases of Westlaw, a
fee-based legal research service:
http://www.westlaw.com/
Google Searches:
Washtenaw County Register of Deeds
Wayne County Register of Deeds
I hope you find this helpful,
- expertlaw |
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