Court Acknowledges Benefit of Usurious Business Loan

Lauderdale v. Lauderdale, 2015 Minn. App. Unpub. LEXIS 485 (Minn. Ct. App. May 26, 2015)

A couple decided to divorce. The husband was an investor that owned a number of real estate businesses. In the course of valuing the marital property, the trial court deducted amounts due on mortgages and promissory notes related to the real estate properties. The court, however, refused to deduct the interest due on the promissory notes because the interest rates charged exceeded Minnesota’s usury rate. The husband appealed.

The appellate court found that the trial court had abused its discretion by refusing to deduct the interest due on the notes. The Court of Appeals first noted that two of the notes exceeded $100,000 and were, therefore, not subject to the usury restriction. Turning to the other notes, the court stated that even though the rates charged were usurious, it was still an abuse of discretion to not deduct the interest due.

The appellate court explained that the usury statute is “intended to protect the weak and necessitous from being taken advantage of by lenders who can unilaterally establish the terms of the loan transaction.” Trapp v. Hancuh, 530 N.W.2d 879, 884 (Minn. App. 1995). The court stated that in the present case neither the husband or wife had been taken advantage of in negotiating the promissory notes. Rather, the court found that the couple had benefited by the success of the businesses, which was in part due to the capital obtained from the notes. As such, the interest due should have be deducted from the value of the real estate.

The court’s opinion highlights the dual nature of usury. In many instances, usurious transactions take a damaging toll on borrowers. Yet, in certain situations, especially those involving commercial transactions, the positive impact that additional capital can make may justify the increased cost of funds.

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at psiegfried@usurylawblog.com

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