Hard Money and Private Lender Loans in New York: Usury Limits, Licensing and Title Insurance

A private or hard money lender in New York has three questions a bank mostly doesn’t: is the interest rate legal, does the lender need a license, and what does title insurance actually protect? The answers depend on the loan amount, whether the borrower is a person or a company such as an LLC, and whether the property is a one- or two-family house. A $400,000 fix and flip loan to a new LLC that owns a two-family house can be treated very differently from the same loan on a mixed-use building.

These rules apply statewide. NYC and Westchester differ mainly in where documents are recorded and in mortgage recording tax rates, covered in the guides linked below.

How much interest a lender can charge

New York’s limits on interest are called usury laws. The civil cap is 16% a year, set by New York’s interest rate law and the Banking Law. Charging more than 25% a year is criminal usury, a felony. It becomes a more serious felony when the lender also has a prior conviction or runs a usurious lending business.

Rule	Penalty	When it applies
Civil usury	Loan is void	Rate over 16% a year
Criminal usury	Felony; loan is void	Rate over 25% a year
Criminal usury, first degree	More serious felony	Over 25%, plus a prior conviction or a usurious lending business

What counts as interest

Interest includes everything paid to or for the lender for making the loan, so origination points and lender fees count toward the rate. Interest charged only after a default or after the loan comes due does not count, according to a 2015 appeals court decision. So a default rate is judged separately.

What happens to a usurious loan

If a loan breaks the 16% cap, the law makes the note and mortgage void. The rate is not just lowered. A “savings clause” saying the rate drops to the legal maximum did not save the loan in another 2015 appeals court case.

Large loans are exempt

The interest rate law exempts large loans:

$250,000 or more: the 16% cap does not apply, but the 25% criminal cap still does. This exemption does not apply to a loan secured mainly by a one- or two-family house. Those loans stay under the 16% cap at any size below $2.5 million.
$2.5 million or more: no usury limit applies, civil or criminal, houses included.

Companies usually can’t rely on the 16% cap

A corporation cannot use the 16% cap as a defense, and neither can an LLC, whether formed in New York or elsewhere (LLC law). Both can still use the 25% criminal cap. The 2015 savings clause case applied the same rule to a person who personally guaranteed a company’s loan.

One exception matters for fix and flip lending. The 16% cap still protects a corporation or LLC whose main asset is a one- or two-family house. It applies if the company was formed, or someone took control of it, within six months before it signed the note and mortgage on that house. A waiver of the usury defense signed before, at, or within 60 days after the loan is funded is void. So requiring the borrower to form an LLC shortly before closing on a one- or two-family house does not take the loan outside the 16% cap.

Loans over 25% are void, even for companies

In a 2021 decision, New York’s highest court held that a criminally usurious loan is void from the start, including when a company borrower raises criminal usury as a defense. Neither principal nor interest can be collected. The case involved convertible notes, and the court also held that the value of a discounted option to convert the debt into stock counts as interest.

For a real estate lender, that means exit fees, equity kickers (a share of profit or ownership) and similar features count toward the 25% test. A loan over that line is not just reduced; the lender can lose the debt.

Hypothetical examples

Loan	Property	Borrower	25% cap?	16% cap applies?
$300,000	Two-family	Individual	Yes	Yes
$300,000	Two-family	LLC formed last month	Yes	Yes (six-month exception)
$1.2 million	Mixed-use	LLC owning it for years	Yes	No
$3 million	Any	Any	No	No

Does the lender need a license?

New York requires a mortgage banker license for anyone in the business of making “mortgage loans.” The law defines that term narrowly: a loan to an individual, made mainly for personal, family or household use, secured by a one-to-four family home used or lived in as a residence (or by co-op shares).

Read on its face, that definition leaves a business-purpose loan to an LLC outside the license requirement. The state banking regulator has also said it does not regulate loans secured by commercial properties (2005 letter). Two points need care:

Loans to individuals. A loan to a person can still be a consumer “mortgage loan” if it is mainly for personal or household use, such as a loan on the borrower’s own home. Lenders usually get a signed business-purpose statement, but how the property and money are actually used decides it.
Small lenders. No license is needed for a lender that makes no more than three such loans in a calendar year and no more than five in two years. This applies only if no mortgage broker, mortgage banker or exempt organization solicited, processed, placed or negotiated any of them.

Separate rules can apply to brokers and loan originators, and the Department of Financial Services (DFS) has addressed specific setups in individual letters. A private lender doing repeat consumer-purpose loans needs to check DFS licensing before closing, not after.

What lender title insurance covers

A loan policy insures that the mortgage is valid and has the priority it claims, against covered title risks. It is written for the loan amount at the loan rate in New York’s filed rate manual, with a discount when an owner’s policy is issued at the same closing. Pricing is in Title insurance cost in NYC and Westchester.

Three limits matter to private lenders:

Usury is not covered. The standard 2021 loan policy used in New York excludes losses when the mortgage is invalid or unenforceable because of usury or consumer credit protection laws (policy comparison). The current New York rate manual, in effect since October 1, 2024, added a usury endorsement (an add-on to the policy) for $250, issued only with the title insurer’s approval. Expect the insurer to review the rate and fees before agreeing to it.
No closing protection letter. Title insurers licensed in New York can’t issue closing protection letters. Protection for the loan money comes from the lender’s own attorney and its controls over how money is paid out. See Closing protection letters in New York.
Renovation money needs a filed building loan contract. A fix and flip loan that pays for renovations is usually a building loan. If its contract is not filed as the Lien Law requires, mechanic’s liens filed later can take priority over the renovation advances. A mechanic’s lien is a claim against the property by an unpaid contractor, worker or supplier. The title insurer will list that as an exception. See filing a building loan contract.

Lenders on investor loans commonly ask for endorsements covering adjustable rates, the survey, and private rights or restrictions, plus others the lender’s attorney picks for commercial loans. Which ones a lender requires depends on its own loan program, not the law. Each has its own charge in the rate manual.

Documents title asks for when the borrower is an LLC

The title company and the lender’s attorney need to confirm that the LLC exists, owns the property, and has approved the loan and the person signing. In practice, the title company asks for:

The articles of organization (the LLC’s formation filing) and a recent good standing record from the NY Department of State, or from the home state for an LLC formed elsewhere.
For an out-of-state LLC, its application for authority to do business in New York. Without it, the LLC’s contracts are still valid, but it can’t bring a lawsuit in New York until it registers (LLC law).
The operating agreement, to see who can sign for the LLC and whether borrowing or mortgaging needs the members’ consent.
A written consent or resolution approving the loan, the mortgage and the named signer.
Names of the members and managers, which the title company searches for judgments, liens and bankruptcies.

If the LLC took title recently, the title company also reviews the deed into it and any transfer tax filings. See Deeding a NYC rental into an LLC.

Mortgage recording tax on private loans

Private loans pay the same mortgage recording tax as bank loans, with one difference. On property with six or fewer dwelling units, the 0.25% “special additional” part of the tax does not apply when the lender is an individual (a natural person, not a company). So a loan made by an individual, rather than by the individual’s lending LLC, records at a lower total rate. Rates and the full rule are in Mortgage recording tax in NYC and Westchester.

When the loan is sold

Private loans are often sold to a fund or a note buyer. The assignment of mortgage (the document that transfers the mortgage) should be recorded where the mortgage was recorded: the City Register through ACRIS for Manhattan, Brooklyn, Queens and the Bronx, the Richmond County Clerk for Staten Island, and the County Clerk elsewhere, including Westchester (how to read ACRIS).

New York law requires a recorded assignment to include or attach a sworn statement covering two points. The new holder is not a nominee of the borrower, meaning it is not holding the mortgage as a stand-in for the borrower. And the mortgage still secures a genuine debt. Assignments within the secondary mortgage market instead carry a statement that this rule does not apply to them.

The loan policy generally follows the debt. The 2021 loan policy counts a later owner of the loan as insured. But the insurer keeps its defenses against that later owner, unless it bought the loan for value without knowing about the problem (policy comparison). A loan buyer typically collects the original policy, the recorded assignment and the full chain of assignments and allonges (signed transfers attached to the note). Gaps in that chain are a standard title objection when the loan is later enforced or paid off.

Details for attorneys and title professionals

Felony classes. Second-degree criminal usury (over 25%) is a class E felony. First-degree criminal usury is a class C felony.
Interest definition. The statute counts all amounts paid to or for the lender in consideration for making the loan, as defined by DFS.
2021 high court decision. The federal appeals court for the Second Circuit sent New York’s highest court two questions of state law, and the court answered both.
Entity borrowers. The bar on raising civil usury covers LLCs formed in New York and elsewhere. The six-month exception and the void-waiver rule appear in both the corporation law and the LLC law.
Policy forms. New York’s rate manual is filed by TIRSA, the state’s title insurance rate organization. The usury exclusion is Exclusion 5 of the 2021 ALTA Loan Policy, the national standard form New York uses under that manual. The usury endorsement is the ALTA 27-06, added in the current manual (in effect since October 1, 2024). Common investor-loan endorsements are the ALTA 6 series (variable rate, which replaced the older TIRSA forms in that revision), ALTA 25 (survey) and the ALTA 9 series (private rights or restrictions).

Official sources

Korvane Title is preparing to launch in New York. It is not licensed as a title insurance agent and does not accept title orders. Content on this site is general information, not legal advice.