While it is true that most lenders do not loan money at rates approaching usury levels (civil usury in New York, for example, is beyond 16% per annum), some do. Among this group are sub-prime lenders for certain loans and commercial lenders, often where the borrower is a corporation. As to a corporation, it has long been virtually common knowledge that civil usury rates do not apply to corporations. Therefore, money could be loaned to a corporate borrower at any rate, although not past 25%, which then becomes criminal usury.
LLC’s (limited liability companies) are newer creatures and so the question becomes, do civil usury prohibitions apply to LLC’s? The answer in New York is “no”.
Just as it is with a business corporation, neither a domestic nor a foreign limited liability company is empowered to interpose the defense of civil usury in any action. This is a matter of statute [Limited Liability Company Law §1104(a)], although there are exceptions to the rule, also according to statute.
Criminal usury (Penal Law §190.40) remains available as a defense to a limited liability company. The ban against an LLC employing a civil usury defense will not apply where the principal asset burdened by a mortgage is a one or two family dwelling owned by the LLC and where either the LLC was formed, or the controlling interest in the LLC was acquired within six months before execution by the LLC of a note or bond and a mortgage creating lien for the debt upon the noted one or two family dwelling. Moreover, public policy plays a role in this contemplation. Therefore, any contract or separate written instrument executed prior to, or simultaneously with, or within sixty days after conveyance of money to any borrower whereby the usury defense is waived, is declared by statute to be both violative of public policy and void [Limited Liability Company Law §1104(b)].
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.