USURY: THE PITFALLS OF CHARGING TOO MUCH INTEREST

Luxury Homes and Estates of Florida, April 2007

In the recent heated real estate environment, buyers went to great lengths to purchase property with the intent to flip same and make incredible profits. Often, the speculators were over extended and needed additional funds from friends and family members. Loans were secured with promises of quick and exorbitant returns.

Many times promissory notes were prepared by the individual without the aid of an attorney due to time constraints or merely to save money. A recent spat of these homespun promissory notes is now hitting the court system and with disastrous results to the lender.

Private lenders must be aware of Florida Statutes governing usury. Pursuant to Florida Statute 687.03, it is unlawful for a person to collect or attempt to collect interest on any obligation at a higher rate of interest than the equivalent of 18% per annum simple interest.

Pursuant to Florida Statute 687.04, any person who charged and collected usurious interest shall forfeit double the amount of interest paid.

In other words, not only are you not to collect usurious interest pursuant to the statute, as a penalty you will be required to pay double the amount of interest that you have received.

In the event that the lender seeks to enforce a promissory note that is usurious a defense or counterclaim may be received based on usury. The only amount of money that may be recovered is the actual principal sum loaned. *Further, the court may require that the principal be reduced by all interest paid pursuant to the statute.

*If the interest that you have charged exceeds 25% of the loan value you may be subject to enhanced penalties under Florida law.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

THE NAKED PROMISE TO BUY A HOME IS ENFORCEABLE

Luxury Homes and Estates of Florida,

There appears to be a misconception that a deposit must be made by a buyer of real estate to seal the deal. The Standard Contract for Sale and Purchase often requires a deposit be paid, however, the failure of the buyer to deliver the deposit does not render the contract unenforceable.

On the contrary, in the case of Peterson Homes, Inc. v. Johnson, 691 So.2d 563 (Fla. 5th DCA 1997) the court ruled that the promise to purchase property creates a binding contract even though the purchaser has paid no earnest money deposit.

In Peterson Homes, the buyer signed a contract to purchase a home for $1.1 million. The buyer was required to pay a $600,000 deposit into escrow. Peterson Homes accepted the contract, however, the buyer neither paid the deposit nor attended the closing.

Peterson Homes filed suit and claimed breach of contract.

The trial court denied the claim on the grounds that the contract lacked consideration because the buyer failed to deliver the deposit.

Evidently the trial court reasoned that a buyer can sign a contract and elect not to deliver the deposit which effectively voids same.

The 5th DCA made short shrift of this argument. No part of the contract required that the earnest money deposited be paid at the time the agreement was signed. Therefore, the contract was not contingent upon the delivery of the deposit.

A signature on a contract is all that is required to have a legal and binding promise to purchase.

Visit our website for more information on this subject.

Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.