Hard money lenders in Massachusetts rarely encounter problems due to the limited risk associated with this practice. However, financial issues might arise from mismanagement, market downturns, or cost overruns of borrowers. Since hard money loans are secured by hard assets they traditionally have lower loan-to-value ratios than institutional loans. Borrowers who experience financial issues and are in default on their loans may try to seek leverage against hard money lenders in Massachusetts by filing lawsuits under one of the state’s many lending statutes. However, lenders usually prevail against these claims with experienced legal counsel.
Defending against borrower claims in Massachusetts
Massachusetts has many lending statutes, consumer protection statutes, and a criminal usury statute. The lending statutes have numerous regulations under them. By following the proper procedures hard money lenders in Massachusetts can defend against claims from borrowers and avoid potential liability. Borrowers that file lawsuits under the various lending and consumer protection statutes in Massachusetts are typically trying to prevent foreclosure and the loss of equity. They may file lawsuits alleging that the lenders have violated the state’s laws and regulations despite precautions that were taken during the underwriting and closing processes.
Private lenders should make certain to have experienced counsel to oversee the underwriting and closing processes to ensure that the lenders adhere to the laws and regulations. If a lawsuit is filed the lenders should retain litigation attorneys instead of real estate conveyancing lawyers. Litigators are better equipped to mount aggressive defenses when a lawsuit is filed. However, the best available defenses are based on the lender’s actions before the litigation.
To protect themselves against violations of the state’s usury statute hard money lenders must notify the state attorney general’s office if it intends to offer loans that might exceed the interest rates that are listed in M.G.L. ch.271 §49. The act of sending a notice to the Massachusetts Attorney General’s Office before providing a higher interest loan can make a difference about whether or not the usury statute has been violated.
Hard money lenders may also protect themselves and defend against claims under the state’s predatory home loan statutes and the Consumer Credit Cost Disclosure Act by not offering loans that are secured by the borrowers’ principal homes. Instead, all of the loans that are approved by the lenders should be for commercial or business purposes. It is important to note that simply calling a loan a commercial loan or noting that it is for business purposes only does not mean that it will be deemed as such by the courts. The courts will evaluate the whole transaction and the reasons for which the lender extended credit to the borrower.
Dalton & Finegold Can Assist
Taking preventative steps does not guarantee that a lender will not be sued or will prevail in litigation. However, hard money lenders must exercise caution in all aspects of lending while remaining constantly aware of the legal requirements for hard money loans in Massachusetts. Retaining experienced counsel during the underwriting of the loan, closing processes and when litigation arises is important.
For more information as to how to protect your organization from lawsuits in the hard money space, contact us for a consultation!