Private Lending Question

[Jaki Ollango]

Hi. I have a private lender willing to loan us some money. I approached an attorney to draft some documents for us and provided the collateral details. However, she said she cannot because the interest rate being charged by the private lender is predatory. Yes, it is high, but it is a one time overall rate and we are okay with it. My goal was to draft an agreement and possibly a mortgage for the collateral and see if title company could record it for us. How do you get it done and also make the private lender comfortable that their interest is secured or what are other ways to go about this? Both the collateral and I are in DFW. Thanks. 

[Alex Breshears]

This is a great question and likely something you are running into with the attorney is that the loan terms are considered illegal in that state. Each state has a set of laws called usury laws that outlines the legal maximums for interest rates and fees. Most states break down the limits according to the type of loan. For example, if you are an LLC lending to another LLC for a business purpose loan, that is likely going to have much higher limits (or none at all!) versus someone obtaining a loan for their primary residence. If the attorney you reached out to is familiar with lending laws in your state, and they are saying the loan is above those usury limits, you are treading into water that could lead to the loan being forgiven without repayment or the lender repaying all the fees to the borrower because it is an illegal loan. This is not a great scenario for the borrower or the lender, especially if the lender/borrower relationship is friends or family. Everyone is happy and thinks positively at the beginning of a loan, but when things go wrong, people get real ugly real quick when money is involved. Either consult another attorney to double check the loan terms are legal, or proceed with caution knowing this loan could be deemed illegal if ever challenged in court.