Before you finalize a deal with any hard money lender in New York, it is essential to make sure you know the terms of the transaction. You should also become informed about the legality of the transaction. Some laws that pertain to traditional lenders do not apply to hard money lenders, but thee are exceptions even to those that do not ordinarily apply to these types of lenders.
Usury Law Compliance
While hard money lenders are not required to follow banking laws, they are still bound by usury laws in the state in which they operate. What this means is there is a cap on the interest rate they are allowed to charge—hard money lenders in NY are not allowed to charge more than 16 percent interest under the laws governing the state of New York unless it is a commercial property.
While hard money lenders in NY do not have to abide by all the laws of traditional lenders, this does not mean they do not have to abide by banking laws. In addition, if they conduct business in fraudulent ways borrowers still may have recourse against the lender. For example some hard money lenders charge extremely high origination fees that do not always result in the finalization of the loan. At the same time they may attempt to retain the majority of that fee even though no work was completed. The borrower must then take the hard money lender into court in order to recover any money they lost during the transaction. A legal hard money lender will not charge up front fees unless there is a solid agreement and then only for services they actually perform while charging reasonable and customary fees.
Know the Laws before You Sign any Contracts
Laws can change—and do—quite frequently—so before you sign any contract with a hard money lender in New York you need to make sure everything is legal. If you find it is necessary ask a lawyer or your company’s legal department to look over it. Once you sign the contract your only recourse is to sue, and that can take a long time with no guarantees. You need to know which laws govern hard money lenders in NY especially if you are actually located in another state. The laws will be based upon the location of the property and not the laws in the state where you live