Court Of Appeal Holds Note Investors May Be Liable For Usury

Earlier this week, the California Court of Appeal issued an opinion in a case that should be interesting reading for anyone dealing with promissory notes. In Creative Ventures, LLC v. Jim Ward & Associates, the court reached the following conclusions:

•Loans arranged by a corporation not licensed as a real estate broker are not entitled to the usury exemption for real estate secured loans made or arranged by a California licensed real estate broker (Cal. Civ. Code § 1916.1) even if the individual acting on behalf of the corporation was a licensed real estate broker.

•Investors in promissory notes may be liable for usury when the notes have not been negotiated to those investors and thus the investors were not holders in due course (see Cal. Comm. Code § 3305).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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