Virtual Underwriter

© 2020 Stewart Title Company

Underwriting Manual: TX

20.24

Usury Coverage

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State Supplements

View state supplements to the national underwriting manual.

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in loan policies of title insurance.
Underwriting Manual Subtopic
20.24.1

In General

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Usury is generally defined as the charging, taking, or receiving of interest at a rate greater than that permitted by law.

The three essential elements of usury are:

·  A loan or forbearance of money.

·  An agreement for a return of the money in all events.

·  An agreement to pay more than the legal rate of interest for its use.

Most states including Texas have laws, either constitutional or statutory, that determine the maximum rate of interest that may be charged. These laws provide for different methods of determining whether a loan is usurious, contain different rates of interest which cause a loan to be usurious, and provide for different penalties.

Also, the Uniform Consumer Credit Code, as adopted in many states, provides for determining the rate of interest which may be charged for a real estate loan.

Underwriting Manual Subtopic
20.24.2

Effect of Usury

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Inasmuch as usury is purely a creature of statute, it is necessary to examine the constitutional or statutory provisions in each jurisdiction for the purpose of determining the effect of usury on a particular transaction.

The penalties that may be imposed on a lender for charging usurious interest vary widely.

The most common penalties may be:

·  The usurious transaction is declared void and the lender faces the loss of principal as well as interest.

·  The forfeiture of all the interest paid by the borrower.

·  The forfeiture of all the interest paid by the borrower in excess of the legal note.

·  The possible criminal prosecution of the lender.

Underwriting Manual Subtopic
20.24.3

Usury as an Exception From Title Coverage

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The Mortgagee Policy contains in Exclusions From Coverage No. 5 the following:

“5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law.”