Court Finds Contract to Be Sale of Property Not Loan of Money, Usury Claim Rejected

A buyer purchased an apartment from a seller. The contract for deed required the buyer to make a down payment and 180 equal monthly payments of amortized principal and interest.  Following the last payment, title to the apartment would pass from seller to buyer.

The seller later sold the apartment to a bank by a special warranty deed that conveyed the property and all rights of the seller under the contract for deed. When the buyer later defaulted on the contract for deed, the bank’s servicer foreclosed on the property. In response, the buyer filed suit alleging that the contract for deed was usurious. The trial court agreed. The servicer appealed.

After reviewing the record, the appellate court reversed the trial court’s decision. It explained that to establish usury, the buyer was required to prove: (1) a loan of money; (2) an absolute obligation to repay the principal; and (3) the exaction of a greater
compensation than is allowed by law for the use of the money by the borrower. The court noted that the Texas finance code defines a loan as “an advance of money that is made to or on behalf of an obligor, the principal amount of which the obligor has an obligation to pay the creditor.”

Based on this definition, the court found that the contract for deed was not a loan because the buyer had not received a loan of money. Further, there was no absolute obligation on behalf of the buyer to repay principal. And lastly, the court held that the sale of the contract for deed by the seller to the bank was a sale of a note at a discount and not a loan. Therefore, the buyer’s usury claim failed as a matter for law.

If the facts of this case sound somewhat familiar that’s because they are.

Bayview Loan Servicing, LLC v. Martinez, 2016 Tex. App. LEXIS 2326 (Tex. App. Dallas Mar. 3, 2016)

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
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