Rules Governing Private Mortgage Lending in Florida

Although conventional mortgage loans are an excellent option for borrowers to secure mortgage financing, there must be rules to regulate the lending practice. Rules governing private lending in Florida include usury laws, promissory note requirements, loan originator statutes, and the eligibility requirements for conventional mortgage loans.

Florida’s usury law defines a usurious transaction as an advance of money, line of credit, or loan whereby a lender charges interest rates above 18 percent for loans not exceeding $500,000 and more than 25 percent for those exceeding the amount.

If found guilty of illegal usury in a lawsuit, the lender — who exceeds the 18 percent limit as the law states — may be subject to civil punishment such as loss of interest. On the other hand, lenders charging more than 45 percent can attract a third-degree felony penalty. Consequently, both participants must have a deep understanding of the usury law to ensure that interests on loans are kept at a rate the state law permits.

To lend or borrow a conventional loan, the State of Florida requires all individuals to have a promissory note detailing the loan amount and the commitment to pay it off. While lending a modest sum of money to family and friends may not necessitate a promissory note, an individual may need it for more complex loan deals to safeguard their rights to repayment.

A promissory note records various lending arrangements, including personal, investment, real estate, and commercial dealings. It can either be secured (i.e., requiring some form of collateral) or unsecured with no collateral. In addition, lenders often establish stringent repayment terms in the promissory notes to ensure they receive full repayment when a borrower defaults.

The 2022 Florida statutes dictate that a loan originator, an organization or person that collaborates with an underwriter to execute a borrower’s home loan transaction, must be licensed as the S.A.F.E Mortgage Licensing Act of 2008 demands. In addition, loan originators must abide by specific rules on remuneration and adhere to guidelines to demonstrate a borrower’s ability to repay the debt.

However, the Florida statute on loan origination does not apply to those who engage in real estate brokerage operations and do not receive any payment from lenders or mortgage brokers.

Lenders and borrowers must also comply with the minimum state requirements for mortgage loan lending, including correct documentation, credit score qualification, minimum down payment, private mortgage insurance, and property type eligibility.

Private mortgage lenders follow the same federal laws as other states and must therefore be strict in their implementation. For example, federal regulations may limit lenders from providing mortgage loans to those who have experienced foreclosure or bankruptcy in the last seven years or those with a debt-to-income ratio above 43 percent. However, when lenders deny borrowers loans, they should provide reasons.

Generally, the law demands that lenders inform borrowers of their legal rights and duties under the law and give them a clear and detailed disclosure statement, allowing them a fair amount of time to review and understand the terms before they sign any loan agreement. Similarly, borrowers must conduct their research and understand all laws governing private mortgage lending to avoid severe financial consequences from violations.