California Real Estate SalespersonFinancingHard
A licensed real estate broker arranges a $50,000 loan secured by a deed of trust on real property, negotiating an interest rate of 14%, which would exceed the general constitutional usury ceiling for a private party loan. Is this loan usurious under California law?
- ANo, but only if the loan is insured by the FHA
- BNo, because loans arranged by a licensed real estate broker and secured by real property are exempt from the usury limit
- CYes, unless the borrower is a licensed corporation
- DYes, because 14% exceeds the constitutional maximum rate for any private loan
Show answer & explanationAnswer & explanation
Correct answer: B. No, because loans arranged by a licensed real estate broker and secured by real property are exempt from the usury limit
California's usury law exempts loans made or arranged by licensed real estate brokers when the loan is secured by liens on real property, regardless of the interest rate charged, because such transactions are regulated instead under real estate licensing law rather than general usury restrictions.
Why the other options are wrong
- A. FHA insurance status is unrelated to the state usury exemption for broker-arranged loans.
- C. The exemption is based on the broker's license and real property security, not the borrower's entity type.
- D. The constitutional usury cap does not apply because of the broker-arranged real estate loan exemption.
Usury Exemption for Broker Loans
California usury law does not limit interest rates on loans arranged by a licensed real estate broker when secured by real property, exempting such loans from the general constitutional usury ceiling.
- Applies to loans arranged or negotiated by a licensed real estate broker
- Loan must be secured by real property (deed of trust or mortgage)
- Institutional lenders like banks are also generally usury-exempt
Memory trick: Broker plus real property equals no usury story.