Using private money to flip and usury law limitations.

[Ethan Demir]

I have an SFR property under contract and it is a short sale. My private money person and I agreed on the terms; 12% interest, 1.5 points. Due to the usury law, the escrow won't proceed since the interest rate is above 10% and I've told that I should have a broker involved once I exceed the 10% limit. Questions;
- Does it have to be a RE broker with NMLS license?
- Is there a legal way around this? (not using a broker and using the escrow just to accommodate our transaction)
- What are the paper work / documents needed in this type of transaction?

If someone could tell me how this process works, it'd be greatly appreciated. I am in Long Beach, CA and open to work with a broker who is willing to offer his/her services.

Thank you!

Ethan

[Jeff S.]

You used the word flip in the title, Ethan Demir, so assuming this is a property you intend to buy, repair, and sell (and NOT occupy), this would be a business purpose loan and not subject to NMLS. Any licensed California real estate broker could originate this loan to obtain the usury exemption. Short of lowering your interest and points below 10% APR, there is no way around this.

Even though there is only one type of broker license in California, some brokers sell homes and others broker loans. I imagine some do both but you’d be well advised to work with one who brokers loans. He or she will be able to provide you (really your lender) with the necessary paperwork and work with title and escrow for the two of you.

Though it would help strengthen the business purpose argument, neither you nor your lender has to do this under an LLC.

Jeff