Private Loans

A friend wants to borrow money for his new business venture.   Your sister needs funds badly and is considering a short-term, high-interest loan.  Your best friend wants to buy a house and asks his aunt to give him a mortgage secured by the property.  Think these situations just need a promissory note to be legal?  THINK AGAIN!  

The general legal document for a loan is a PROMISSORY NOTE.  When a loan is secured by Maryland real estate, there will be a DEED OF TRUST (commonly called a mortgage) that gets filed in the LAND RECORDS.  In other secured loans, the collateral is the subject of a FINANCING STATEMENT or UCC-1.  However, lending or borrowing from private parties is not as simple as having the right type of legal document!  

The law imposes a host of different legal requirements for lenders.  Often, a lender must be licensed.  Loans may be subject to a variety of different restrictions.  Some types of loans cannot be made by unlicensed lenders.  Some types of loans require a recission period, or time when the borrower can back out of the deal.  The legality of some types of loans depends on the relationship between the parties or purpose or amount. 

To make things more confusing, the allowable interest rate varies with type and amount of loan. The general legal rate of interest in Maryland is Six Percent (6%).  However, there are many exceptions to this general rate and the legal rate of interest might be Twelve Percent (12%), Twenty-Four Percent (24%) or higher, depending on the circumstances. 

Penalties for illegal loans can be very steep.  Before entering into any loan arrangement it is wise to consult with legal counsel.  



© ArdenLawFirm 2014-2018  Managing Attorney Cedulie Laumann, Esq.