SENATE BILL No. 587

July 10, 2001, Introduced by Senator GARCIA and referred to the Committee on Economic Development, International Trade and Regulatory Affairs.

A bill to amend 1966 PA 326, entitled

"An act to regulate the rate of interest of money; to provide

exceptions; to prescribe the rights of parties; and to repeal

certain acts and parts of acts,"

by amending section 1c (MCL 438.31c), as amended by 1990 PA 94.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

1 Sec. 1c. (1) Interest charged by a broker or dealer regis-

2 tered under title I of the securities exchange act of 1934, chap-

3 ter 404, 48 Stat. 881, 15 U.S.C. 78a to 78l, 78m TO 78o, 78o-3 to

4 78dd-1, 78ee to 78hh, and 78ll 78kk TO 78mm, for carrying a

5 debit balance in an account for a customer is not subject to the

6 limitations of this act if the debit balance is payable on demand

7 and secured by stocks or bonds.

8 (2) The parties to a note, bond, or other evidence of

9 indebtedness, executed after August 11, 1969, the bona fide

10 primary security for which is a first lien against real property,

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1 or a land lease if the tenant owns a majority interest in the

2 improvements, or the parties to a land contract, may agree in

3 writing for the payment of any rate of interest, but the note,

4 mortgage, contract, or other evidence of indebtedness shall not

5 provide that the rate of interest initially effective may be

6 increased for any reason. In connection with the transaction,

7 except a loan, insured or guaranteed by the federal government or

8 any AN agency of the federal government, if the security is a

9 single family dwelling unit, the lender shall not do any of the

10 following:

11 (a) Directly or indirectly require as a condition of the

12 making of the loan, a deposit to be maintained by the borrower,

13 other than an escrow account or a deposit account which THAT is

14 established pursuant to subsection (13).

15 (b) Directly or indirectly impose or collect, as a condition

16 of the making of the loan, a payment from a seller or borrower in

17 the nature of a discount, point, or similar system, except that a

18 lender may impose and collect, as a condition of making a loan,

19 all fees, discounts, points, or other charges that lenders are

20 permitted or required to impose, collect, or pay in order to

21 qualify the loan for sale, in whole or in part, or in order to

22 obtain a purchase commitment, under any A program authorized by

23 federal statute or regulation.

24 (c) Charge a prepayment fee or penalty in excess of 1% of

25 the amount of any A prepayment made within 3 years of the date

26 of the loan, or any CHARGE A prepayment fee or penalty at all

27 thereafter AFTER THAT, or prohibit prepayment. at any time.

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1 (3) Subsection (2) shall not impair the validity of a

2 transaction or rate of interest lawful without regard to subsec-

3 tion (2).

4 (4) Subsection (2) shall not authorize or permit a rate of

5 interest in excess of the rate set forth in Act No. 259 of the

6 Public Acts of 1968, being sections 438.41 to 438.42 of the

7 Michigan Compiled Laws 1968 PA 259, MCL 438.41 TO 438.42.

8 (5) The provisions of subsection (2) shall apply only to

9 loans made by lenders approved as a mortgagee under the national

10 housing act, chapter 847, 48 Stat. 1246, or regulated by the

11 state or by a federal agency, who are authorized by state or fed-

12 eral law to make such THE loans.

13 (6) Notwithstanding subsection (5), lenders or vendors not

14 qualified to make loans under subsection (5) may make, or may

15 have made, mortgage loans and land contracts specified in subsec-

16 tion (2) on or after August 16, 1971, which mortgage loans and

17 land contracts provide for a rate of interest not to exceed 11%

18 per annum, which interest shall be inclusive of all amounts

19 defined as the "finance charge" in section 106 of the truth in

20 lending act, title I of THE CONSUMER CREDIT PROTECTION ACT,

21 Public Law 90-321, 15 U.S.C. 1605, and the regulations promul-

22 gated under that act, 12 C.F.R. part 226 (REGULATION Z).

23 (7) The parties to a purchase money mortgage or a second

24 mortgage may agree in writing for the payment of a rate of inter-

25 est not to exceed 11% per annum. A second mortgage made pursuant

26 to this subsection shall be made in compliance with Act No. 125

27 of the Public Acts of 1981, being sections 493.51 to 493.81 of

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1 the Michigan Compiled Laws THE SECONDARY MORTGAGE LOAN ACT, 1981

2 PA 125, MCL 493.51 TO 493.81, except for section 2 of that act.

3 As used in this subsection:

4 (a) "Purchase money mortgage" means a mortgage secured by a

5 first lien or junior lien taken or retained by the seller of real

6 property to secure all or part of the purchase price of the

7 property.

8 (b) "Second mortgage" means a mortgage from which the pro-

9 ceeds of a loan or other extension of credit made by a third

10 person are secured by a mortgage on the real property for which

11 the mortgagor has used the proceeds of the loan or other exten-

12 sion of credit to pay all or part of the purchase price of the

13 property.

14 (c) "Third person" means:

15 (i) A salesperson acting as an agent for a residential

16 builder, or a residential builder, licensed under article 24 of

17 the occupational code, Act No. 299 of the Public Acts of 1980,

18 as amended, being sections 339.2401 to 339.2412 of the Michigan

19 Compiled Laws 1980 PA 299, MCL 339.2401 TO 339.2412, when made

20 or negotiated in connection with the sale of a residential struc-

21 ture constructed by that builder.

22 (ii) A real estate broker or real estate salesperson

23 licensed under article 25 of the occupational code, Act No. 299

24 of the Public Acts of 1980, as amended, being sections 339.2501

25 to 339.2515 of the Michigan Compiled Laws 1980 PA 299, MCL

26 339.2501 TO 339.2518, and engaged in the sale of real estate as a

27 principal vocation, when made or negotiated in connection with a

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1 real estate sale where the real estate broker or salesperson

2 affiliated with the broker represents either the buyer or

3 seller.

4 (8) Subject to the title transfer provisions of sections 30c

5 and 30d of the mobile home MANUFACTURED HOUSING commission act,

6 Act No. 96 of the Public Acts of 1987, being sections 125.2330c

7 and 125.2330d of the Michigan Compiled Laws 1987 PA 96, MCL

8 125.2330C AND 125.2330D, the parties to an extension of credit

9 which THAT is secured by a lien on a mobile MANUFACTURED home

10 taken or retained by the seller of a mobile MANUFACTURED home

11 to secure all or part of the purchase price of the mobile

12 MANUFACTURED home and which THAT is not a retail installment

13 transaction may agree in writing to a rate of interest not to

14 exceed 11% per annum, which interest shall be inclusive of all

15 amounts defined as the "finance charge" in section 106 of the

16 truth in lending act, TITLE I OF THE CONSUMER CREDIT PROTECTION

17 ACT, PUBLIC LAW 90-321, 15 U.S.C. 1605, and the regulations

18 promulgated under that act, 12 C.F.R. part 226 (REGULATION Z).

19 This subsection shall DOES not prohibit an extension of credit

20 secured by a lien on a mobile MANUFACTURED home and made on

21 terms and at a rate of interest specifically authorized by

22 another law of this state or the United States. As used in this

23 subsection:

24 (a) "Mobile "MANUFACTURED home" means mobile home as

25 defined in section 2 of the mobile home MANUFACTURED HOUSING

26 commission act, Act No. 96 of the Public Acts of 1987, being

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1 section 125.2302 of the Michigan Compiled Laws 1987 PA 96, MCL

2 125.2302.

3 (b) "Retail installment transaction" means retail install-

4 ment transaction as defined in section 2 of the retail install-

5 ment sales act, Act No. 224 of the Public Acts of 1966, being

6 section 445.852 of the Michigan Compiled Laws 1966 PA 224, MCL

7 445.852.

8 (9) A mortgage loan or land contract made under this act

9 shall not provide for a rate of interest added or deducted in

10 advance and interest on the mortgage loan or land contract shall

11 be computed from time to time only on the basis of unpaid

12 balances.

13 (10) A party to a transaction subject to this act shall be

14 IS entitled to have his or her rights under this act enforced or

15 protected by injunctive order of a court.

16 (11) The parties to a note, bond, or other indebtedness of

17 $100,000.00 or more, the bona fide primary security for which is

18 a lien against real property other than a single family resi-

19 dence, or the parties to a land contract of such THAT amount

20 and nature, may agree in writing for the payment of any rate of

21 interest.

22 (12) Interest charged by a trust created or organized in the

23 United States forming a part of a stock bonus, pension, or profit

24 sharing plan which THAT satisfies the requirements of section

25 401(a) of the internal revenue code OF 1986 on a loan to a par-

26 ticipating employee or beneficiary of the trust is not subject to

27 the limitations of this act.

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1 (13) In the case of a mortgage or land contract, an interest

2 bearing deposit account held in a depository financial institu-

3 tion may be established as a condition of the making of the mort-

4 gage or land contract, subject to the conditions specified in

5 this subsection. The deposit account shall be pledged to the

6 lender or seller as additional security for the mortgage or land

7 contract. The lender or seller shall withdraw from the deposit

8 account agreed upon specified amounts at agreed upon periodic

9 times and the withdrawals shall be applied against the periodic

10 payments otherwise due from the borrower or buyer pursuant to the

11 terms of the mortgage or land contract. All interest earned on

12 the pledged deposit account shall be credited to the deposit

13 account. This subsection shall only apply APPLIES to a loan

14 the primary security for which is a dwelling to be occupied by

15 the owner, or a land contract given as consideration for the sale

16 of a dwelling which THAT is to be occupied by the owner. The

17 mortgage or land contract shall specifically state the amounts by

18 which the payments are supplemented by withdrawals from the

19 pledged account, the amounts required from the borrower or buyer

20 to make up the difference, and the period of time during which

21 withdrawals from the pledge account shall be utilized.

22 (14) A lender or seller who offers 5 or more mortgages or

23 land contracts in any 1 calendar year may not require a deposit

24 account established pursuant to subsection (13) as a condition of

25 making a mortgage or land contract on more than 20% of the mort-

26 gages or land contracts made by the lender or seller in any 1

27 calendar year.

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1 (15) Notwithstanding subsections (2), (2)(a), (13), and

2 (14), in the case of a mortgage loan or land contract providing

3 for biweekly payments, a regulated depository financial institu-

4 tion or its service corporations, subsidiaries or affiliates may

5 require, or may have required, as a condition of the making of

6 the mortgage loan or land contract, that the borrower maintain an

7 interest bearing account with any depository institution for the

8 purpose of making the biweekly payments by automatic withdrawals

9 from the account, electronically or otherwise. If an institution

10 does not offer interest bearing transaction accounts, or if an

11 institution does not generally offer automatic withdrawals from

12 interest bearing accounts, a noninterest bearing checking account

13 may be maintained for the purpose of making the biweekly

14 payments. However, the borrower shall IS not be required to

15 maintain funds in the account in excess of an amount sufficient

16 to meet the required biweekly loan payments, including required

17 escrow payments for taxes and insurance, if any, as they become

18 due. As used in this subsection: , "regulated

19 (A) "REGULATED depository financial institution" means a

20 state or nationally chartered bank, or a state or federally

21 chartered savings and loan association or savings bank, or a

22 state or federally chartered credit union.

23 (B) "Affiliate" means a person other than a natural person

24 that directly or indirectly through 1 or more intermediaries is

25 controlled by or is under common control of a regulated deposi-

26 tory financial institution.

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1 Enacting section 1. This amendatory act does not take

2 effect unless Senate Bill No. _____ or House Bill No. _____

3 (request no. 00205'01) of the 91st Legislature is enacted into

4 law.

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