Even though New Jersey hard money lenders do not fall under the same regulations as traditional lenders, there are still some laws they must follow in the process of conducting business. Those borrowers living in other states must make sure they know the laws in the state of New Jersey because hard money lenders are required to follow the regulations in the state where the property is located and not the state where the borrower lives or conducts business.
Usury Limits
New Jersey has the highest usury interest rate limit in the United States: 30 percent for individuals and 50 percent for corporations. This high cap makes it quite easy for New Jersey hard money lenders to make a lucrative business. Of course, this also means the property must be in New Jersey which does put some limitations on out of state investors who may be looking for a hard money lender to finance a property in their own state. This is not usual practice for any hard money lender; they prefer to work with properties close to where they operate their business.
Other Regulations Non-Existent
Other than the very liberal usury limits, New Jersey hard money lenders face very few regulations—at least in the commercial lending sector. Laws protecting consumers tend to be more stringent as we can see in the difference in the interest rate that is allowed for corporations vs. individual investors. This makes it essential for those seeking help from New Jersey hard money lenders to be aware of the laws that protect them and investigate fully any hard money lender they plan to use.
S.A.F.E. Act
The S.A.F.E. Act is a federal regulation that defines the licensing of hard money lenders throughout the United State. In short New Jersey hard money lenders who make loans on 1-4 family properties must be licensed. This does not pertain to commercial non-owner occupied property which is one reason many hard money lenders tend to avoid residential properties. In the commercial sector they usually work with real estate agents and have no need for licensing. The same is not true in the residential sector when they frequently work with individual investors.
Protect Yourself
It’s important to make sure you protect yourself by knowing the laws in your state and how they pertain to your individual situation. Do not rely on any hard money lender in New Jersey to tell you whether they are following the law to the letter: anyone who thinks you are unaware of your rights will attempt to take advantage of you; this is just the business world in general. Choose your hard money lender carefully in order to avoid having to fight to protect your rights; you should know before you enter into any transaction what to expect. The easiest way to avoid this kind of situation is to allow yourself plenty of time to conduct research before you need to close on the deal. Remember, hard money lenders only need about 10 days to close a loan compared to the 30-90 days a traditional lender needs.