Michigan Laws 38.1140 – Investment in secured loans; real property not considered encumbered; investment in part of obligation or participation interest in loan or group of loans; investment in real estate loan; investment i
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(1) An investment fiduciary may invest in loans secured by any of the following:
(a) First liens upon improved or income bearing real property, including but not limited to improved agricultural land, and improved business, industrial, and residential properties.
Terms Used In Michigan Laws 38.1140
- Appraisal: A determination of property value.
- Contract: A legal written agreement that becomes binding when signed.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Deed: The legal instrument used to transfer title in real property from one person to another.
- Fiduciary: A trustee, executor, or administrator.
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Lease: A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent). Source: OCC
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
- shall not apply: means that the pertinent provision is not operative as to certain persons or things or in conjunction with a particular date or dates. See Michigan Laws 8.4c
- state: when applied to the different parts of the United States, shall be construed to extend to and include the District of Columbia and the several territories belonging to the United States; and the words "United States" shall be construed to include the district and territories. See Michigan Laws 8.3o
- United States: shall be construed to include the district and territories. See Michigan Laws 8.3o
- Usury: Charging an illegally high interest rate on a loan. Source: OCC
(b) First mortgages or deeds of trust on leasehold estates having an unexpired term equivalent to the term of the mortgage, inclusive of the term or terms that may be provided by enforceable options of renewal.
(c) First mortgages on unimproved real property, at least 60% of which real property is under contract of sale and that contract or contracts are pledged as additional collateral.
(2) Investments made in loans described in subsection (1) shall not exceed 80% of the appraised value of the real property at the time of the loan and shall not have a term longer than 35 years, except under the following conditions:
(a) A loan on improved land with permanent buildings used for agriculture shall be repayable by annual or more frequent installment payments sufficient to amortize 40% or more of the principal of the loan within a period of not more than 10 years.
(b) A loan on single family residential property shall be repayable by installment payments sufficient to amortize the entire principal of the loan within a period of not more than 30 years.
(3) Real property shall not be considered to be encumbered within the meaning of this section if the real property is subject to lease in whole or in part and under the terms of the lease rents or profits are reserved to the owner.
(4) An investment fiduciary may invest in a part of an obligation or a participation interest in a loan or a group of loans if the investment of each participant is not less than $50,000.00 at the time of investment, and if the entire indebtedness of which participation is a part would qualify under the provisions of this section.
(5) An investment fiduciary shall not invest in a real estate loan unless the investment fiduciary has reviewed a written appraisal of the real estate securing the loan.
(6) An investment fiduciary may invest in a loan or loans or certificates of participation secured by a loan or loans made on single family residential property in an amount not to exceed 95% of the appraised value, at the time of the loan, of the real estate offered as security, if the loan is secured by a mortgage, deed of trust, or other instrument under the terms of which the installment payments are sufficient to amortize the entire principal of the loan within a period of not more than 30 years, and the loan is insured by a private mortgage insurer licensed to do business in this state and approved by the federal home loan mortgage corporation and the federal national mortgage association.
(7) An investment fiduciary may invest in certificates representing an interest in a mortgage or group of mortgages if the certificates are insured or guaranteed by a private mortgage insurance company or the United States government or an agency or instrumentality of the United States government.
(8) The limitations and restrictions of subsections (1) to (7) shall not apply to loans that are made pursuant to the servicemen’s readjustment act of 1944, chapter 268, 58 Stat. 284, insured under the provisions of the national housing act, chapter 847, 48 Stat. 1246, by the federal housing administration, nor to real estate loans which are guaranteed as to principal by the United States government or an agency or an instrumentality of the United States government.
(9) Notwithstanding subsection (1), an investment fiduciary may invest in a second mortgage if all of the following requirements are met:
(a) The total of the balance owing on the first mortgage and the amount of the second mortgage do not exceed 80% of the appraised value of the real property at the time of the second mortgage.
(b) The second mortgage does not have a term longer than 30 years.
(c) The investment fiduciary has the absolute right to pay the underlying first mortgage in part or in full at any time.
(d) The investment fiduciary assumes no liability for payment of the underlying first mortgage.
(10) An investment fiduciary may invest in any investment otherwise permitted by this section in which the interest rate varies from time to time. A loan shall not be considered to be in violation of the usury statutes of this state by virtue of the fact that the loan is made on a variable interest rate basis.