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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5908 May 19, 1981 INTEREST: Usurious rate of interest A loan made by a real estate sales corporation to a homeowner to be repaid upon sale of the home with interest at the rate of 13 1/2 percent upon such loan is usurious. The Honorable Ed Fredricks State Senate State Capitol Lansing, Michigan You have requested my opinion as to whether the following described transaction involves the charging of a usurious rate of interest: 'Specifically, the issue is whether a real estate corporation is charging a usurious rate of interest in a buy-sell agreement that provides for the real estate [sales] corporation to pay homeowners $9,000.00 in equity and assume the existing mortgage, and the parties further agree that upon resale of the property by the real estate corporation that the real estate corporation 'will receive $9,000.00, plus interest at 13 1/2 percent, plus any payments made on the mortgage or other incurred expenses.' Further, that should the resale price exceed the amount the real estate corporation is due, the excess would go to the homeowners.' By your description, I understand that the real estate sales corporation would, in effect, loan the homeowner $9,000.00 and agree to make the mortgage payments until the corporation can find a buyer and consummate a sale of the house. When the house is ultimately sold, the homeowner would repay that $9,000.00 loan, plus interest at the rate of 13 1/2 percent per annum, as well as reimburse the real estate sales corporation for all mortgage payments which it made in the interim period. Since, under the facts stated, a first mortgage would already exist on the property, it is apparent that the loan of $9,000.00 would not be secured by a first mortgage. Thus, it is not necessary to consider the interest rate ceilings applicable to first mortgages. Furthermore, based upon your description, the $9,000.00 loan would not be secured by a second mortgage. (1) Although the form of the transaction is somewhat unusual, in substance the transaction is a loan. Wilcox v Moore, 354 Mich 499; 93 NW2d 288 (1958); Abeloff v Ohio Finance Co, 313 Mich 568; 21 NW2d 856 (1946). The general civil interest rate ceiling as set forth in 1966 PA 326, as amended by 1980 PA 238; MCLA 438.31 et seq; MSA 19.15(1) et seq, Sec. 1, provides, in pertinent part: '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, . . .' Such a loan may not bear interest in excess of 5 percent, if the agreement is oral, or in excess of 7 percent, if the parties agree in writing for the payment of such a rate of interest. A review of the various exceptions to the general civil interest rate ceiling fails to disclose any exception which would fit the circumstances in the facts supplied. See OAG, 1979-1980, No 5765, supra, and OAG 1979-1980, No 5740, p 877 (July 17, 1980), for a review of many of the exceptions to the general interest rate ceiling. It is my opinion, therefore, that a loan made by a real estate sales corporation to a homeowner to be repaid upon sale of the home with interest at the rate of 13 1/2 percent upon such loan is usurious. Frank J. Kelley Attorney General (1)
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