Minnesota Session Laws - 1983, Regular Session

  

                         Laws of Minnesota 1983 

                        CHAPTER 288--H.F.No. 558
           An act relating to commerce; altering certain interest 
          rate provisions on renegotiations of conventional and 
          cooperative apartment loans and contracts for deed; 
          changing the index for determining the maximum lawful 
          interest rate for conventional mortgages, cooperative 
          apartment loans, and contracts for deed; clarifying 
          the plain language requirement for mortgages; amending 
          Minnesota Statutes 1982, sections 47.20, subdivisions 
          2, 4a, and 6a; and 325G.30, subdivision 3. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1982, section 47.20, 
subdivision 2, is amended to read:  
    Subd. 2.  [DEFINITIONS.] For the purposes of this section 
the terms defined in this subdivision have the meanings given 
them: 
    (1) "Actual closing costs" mean reasonable charges for or 
sums paid for the following, whether or not retained by the 
mortgagee or lender: 
    (a) Any insurance premiums including but not limited to 
premiums for title insurance, fire and extended coverage 
insurance, flood insurance, and private mortgage insurance, but 
excluding any charges or sums retained by the mortgagee or 
lender as self-insured retention. 
    (b) Abstracting, title examination and search, and 
examination of public records. 
    (c) The preparation and recording of any or all documents 
required by law or custom for closing a conventional or 
cooperative apartment loan. 
    (d) Appraisal and survey of real property securing a 
conventional loan or real property owned by a cooperative 
apartment corporation of which a share or shares of stock or a 
membership certificate or certificates are to secure a 
cooperative apartment loan. 
     (e) A single service charge, which includes any 
consideration, not otherwise specified herein as an "actual 
closing cost" paid by the borrower and received and retained by 
the lender for or related to the acquisition, making, 
refinancing or modification of a conventional or cooperative 
apartment loan, and also includes any consideration received by 
the lender for making a borrower's interest rate commitment or 
for making a borrower's loan commitment, whether or not an 
actual loan follows the commitment.  The term service charge 
does not include forward commitment fees.  The service charge 
shall not exceed one percent of the original bona fide principal 
amount of the conventional or cooperative apartment loan, except 
that in the case of a construction loan, the service charge 
shall not exceed two percent of the original bona fide principal 
amount of the loan.  That portion of the service charge imposed 
because the loan is a construction loan shall be itemized and a 
copy of the itemization furnished the borrower.  A lender shall 
not collect from a borrower the additional one percent service 
charge permitted for a construction loan if it does not perform 
the service for which the charge is imposed or if third parties 
perform and charge the borrower for the service for which the 
lender has imposed the charge. 
     (f) Charges and fees necessary for or related to the 
transfer of real or personal property securing a conventional or 
cooperative apartment loan or the closing of a conventional or 
cooperative apartment loan paid by the borrower and received by 
any party other than the lender. 
     (2) "Contract for deed" means an executory contract for the 
conveyance of real estate, the original principal amount of 
which is less than $100,000.  A commitment for a contract for 
deed shall include an executed purchase agreement or earnest 
money contract wherein the seller agrees to finance any part or 
all of the purchase price by a contract for deed. 
     (3) "Conventional loan" means a loan or advance of credit, 
other than a loan or advance of credit made by a credit union or 
made pursuant to section 334.011, to a noncorporate borrower in 
an original principal amount of less than $100,000, secured by a 
mortgage upon real property containing one or more residential 
units or upon which at the time the loan is made it is intended 
that one or more residential units are to be constructed, and 
which is not insured or guaranteed by the secretary of housing 
and urban development, by the administrator of veterans affairs, 
or by the administrator of the farmers home administration, and 
which is not made pursuant to the authority granted in 
subdivision 1, clause (3) or (4).  The term mortgage does not 
include contracts for deed or installment land contracts. 
     (4) "Cooperative apartment loan" means a loan or advance of 
credit, other than a loan or advance of credit made by a credit 
union or made pursuant to section 334.011, to a noncorporate 
borrower in an original principal amount of less than $100,000, 
secured by a security interest on a share or shares of stock or 
a membership certificate or certificates issued to a stockholder 
or member by a cooperative apartment corporation, which may be 
accompanied by an assignment by way of security of the 
borrower's interest in the proprietary lease or occupancy 
agreement in property issued by the cooperative apartment 
corporation and which is not insured or guaranteed by the 
secretary of housing and urban development, by the administrator 
of veterans affairs, or by the administrator of the farmers home 
administration.  
     (5) "Cooperative apartment corporation" means a corporation 
or association organized under sections 308.05 to 308.18 or 
chapter 317, the shareholders or members of which are entitled, 
solely by reason of their ownership of stock or membership 
certificates in the corporation or association, to occupy one or 
more residential units in a building owned or leased by the 
corporation or association.  
     (6) "Forward commitment fee" means a fee or other 
consideration paid to a lender for the purpose of securing a 
binding forward commitment by or through the lender to make 
conventional loans to two or more credit worthy purchasers, 
including future purchasers, of residential units, or a fee or 
other consideration paid to a lender for the purpose of securing 
a binding forward commitment by or through the lender to make 
conventional loans to two or more credit worthy purchasers, 
including future purchasers, of apartments as defined in section 
515.02 to be created out of existing structures pursuant to the 
Minnesota Condominium Act, or a fee or other consideration paid 
to a lender for the purpose of securing a binding forward 
commitment by or through the lender to make cooperative 
apartment loans to two or more credit worthy purchasers, 
including future purchasers, of a share or shares of stock or a 
membership certificate or certificates in a cooperative 
apartment corporation; provided, that the forward commitment 
rate of interest does not exceed the maximum lawful rate of 
interest effective as of the date the forward commitment is 
issued by the lender. 
     (7) "Borrower's interest rate commitment" means a binding 
commitment made by a lender to a borrower wherein the lender 
agrees that, if a conventional or cooperative apartment loan is 
made following issuance of and pursuant to the commitment, the 
conventional or cooperative apartment loan shall be made at a 
rate of interest not in excess of the rate of interest agreed to 
in the commitment, provided that the rate of interest agreed to 
in the commitment is not in excess of the maximum lawful rate of 
interest effective as of the date the commitment is issued by 
the lender to the borrower. 
     (8) "Borrower's loan commitment" means a binding commitment 
made by a lender to a borrower wherein the lender agrees to make 
a conventional or cooperative apartment loan pursuant to the 
provisions, including the interest rate, of the commitment, 
provided that the commitment rate of interest does not exceed 
the maximum lawful rate of interest effective as of the date the 
commitment is issued and the commitment when issued and agreed 
to shall constitute a legally binding obligation on the part of 
the mortgagee or lender to make a conventional or cooperative 
apartment loan within a specified time period in the future at a 
rate of interest not exceeding the maximum lawful rate of 
interest effective as of the date the commitment is issued by 
the lender to the borrower; provided that a lender who issues a 
borrower's loan commitment pursuant to the provisions of a 
forward commitment is authorized to issue the borrower's loan 
commitment at a rate of interest not to exceed the maximum 
lawful rate of interest effective as of the date the forward 
commitment is issued by the lender. 
     (9) "Finance charge" means the total cost of a conventional 
or cooperative apartment loan including extensions or grant of 
credit regardless of the characterization of the same and 
includes interest, finders fees, and other charges levied by a 
lender directly or indirectly against the person obtaining the 
conventional or cooperative apartment loan or against a seller 
of real property securing a conventional loan or a seller of a 
share or shares of stock or a membership certificate or 
certificates in a cooperative apartment corporation securing a 
cooperative apartment loan, or any other party to the 
transaction except any actual closing costs and any forward 
commitment fee.  The finance charges plus the actual closing 
costs and any forward commitment fee, charged by a lender shall 
include all charges made by a lender other than the principal of 
the conventional or cooperative apartment loan.  The finance 
charge, with respect to wraparound mortgages, shall be computed 
based upon the face amount of the wraparound mortgage note, 
which face amount shall consist of the aggregate of those funds 
actually advanced by the wraparound lender and the total 
outstanding principal balances of the prior note or notes which 
have been made a part of the wraparound mortgage note.  
     (10) "Lender" means any person making a conventional or 
cooperative apartment loan, or any person arranging financing 
for a conventional or cooperative apartment loan.  The term also 
includes the holder or assignee at any time of a conventional or 
cooperative apartment loan. 
    (11) "Loan yield" means the annual rate of return obtained 
by a lender over the term of a conventional or cooperative 
apartment loan and shall be computed as the annual percentage 
rate as computed in accordance with sections 226.5 (b), (c) and 
(d) of Regulation Z, 12 C.F.R. section 226, but using the 
definition of finance charge provided for in this subdivision.  
For purposes of this section, with respect to wraparound 
mortgages, the rate of interest or loan yield shall be based 
upon the principal balance set forth in the wraparound note and 
mortgage and shall not include any interest differential or 
yield differential between the stated interest rate on the 
wraparound mortgage and the stated interest rate on the one or 
more prior mortgages included in the stated loan amount on a 
wraparound note and mortgage.  
    (12) "Monthly index of the federal national home loan 
mortgage association corporation auction yields" means the gross 
net weighted average yield of accepted offers in the second free 
market system conventional home mortgage auction held by eight 
month forward commitment program of the federal national home 
loan mortgage association corporation in a month. 
    (13) "Person" means an individual, corporation, business 
trust, partnership or association or any other legal entity. 
    (14) "Residential unit" means any structure used 
principally for residential purposes or any portion thereof, and 
includes a unit in a townhouse or planned unit development, a 
condominium apartment, a nonowner occupied residence, and any 
other type of residence regardless of whether the unit is used 
as a principal residence, secondary residence, vacation 
residence or residence of some other denomination. 
    (15) "Vendor" means any person or persons who agree to sell 
real estate and finance any part or all of the purchase price by 
a contract for deed.  The term also includes the holder or 
assignee at any time of the vendor's interest in a contract for 
deed. 
    Sec. 2.  Minnesota Statutes 1982, section 47.20, 
subdivision 4a, is amended to read: 
    Subd. 4a.  [MAXIMUM INTEREST RATE.] No conventional or 
cooperative apartment loan or contract for deed shall be made at 
a rate of interest or loan yield in excess of a maximum lawful 
interest rate which shall be based upon the monthly index of the 
federal national home loan mortgage association corporation 
auction yields as compiled by the federal national home loan 
mortgage association corporation.  The maximum lawful interest 
rate shall be computed as follows: 
    (1) The maximum lawful rate of interest for a conventional 
or cooperative apartment loan or contract for deed made or 
contracted for during any calendar month is equal to the monthly 
index of the federal national home loan mortgage association 
corporation auction yields for the first preceding calendar 
month plus an additional three-eighths of one percent per annum 
rounded off to the next highest quarter of one percent per annum.
    (2) On or before the last day of each month the 
commissioner of banking shall determine, based on available 
statistics, the monthly index of the federal national home loan 
mortgage association corporation auction yields for that 
calendar month and shall determine the maximum lawful rate of 
interest for conventional or cooperative apartment loans or 
contracts for deed for the next succeeding month as defined in 
clause (1) and shall cause the maximum lawful rate of interest 
to be published in a legal newspaper in Ramsey county on or 
before the first day of each month or as soon thereafter as 
practicable and in the state register on or before the last day 
of each month; the maximum lawful rate of interest to be 
effective on the first day of that month.  If a federal national 
home loan mortgage association free market system conventional 
home mortgage auction corporation eight month forward commitment 
purchase program is not held in any month, the maximum lawful 
rate of interest determined by the commissioner of banks 
pursuant to the last auction is the maximum lawful rate of 
interest through the last day of the month in which the next 
auction is held. 
    (3) A contract rate within The maximum lawful interest rate 
applicable to a cooperative apartment loan or contract for deed 
at the time the loan or contract is made is the maximum lawful 
interest rate for the term of the cooperative apartment loan or 
contract for deed.  Notwithstanding the provisions of section 
334.01, a cooperative apartment loan or contract for deed may 
provide, at the time the loan or contract is made, for the 
application of specified different consecutive periodic interest 
rates to the unpaid principal balance, if no interest rate 
exceeds the maximum lawful interest rate applicable to the loan 
or contract at the time the loan or contract is made.  
    (4) Contracts for deed executed pursuant to a commitment 
for a contract for deed, or conventional or cooperative 
apartment loans made pursuant to a borrower's interest rate 
commitment or made pursuant to a borrower's loan commitment, or 
made pursuant to a commitment for conventional or cooperative 
apartment loans made upon payment of a forward commitment fee 
including a borrower's loan commitment issued pursuant to a 
forward commitment, which commitment provides for consummation 
within some future time following the issuance of the commitment 
may be consummated pursuant to the provisions, including the 
interest rate, of the commitment notwithstanding the fact that 
the maximum lawful rate of interest at the time the contract for 
deed or conventional or cooperative apartment loan is actually 
executed or made is less than the commitment rate of interest, 
provided the commitment rate of interest does not exceed the 
maximum lawful interest rate in effect on the date the 
commitment was issued.  The refinancing of (a) an existing 
conventional or cooperative apartment loan, (b) a loan insured 
or guaranteed by the secretary of housing and urban development, 
the administrator of veterans affairs, or the administrator of 
the farmers home administration, or (c) a contract for deed by 
making a conventional or cooperative apartment loan is deemed to 
be a new conventional or cooperative apartment loan for purposes 
of determining the maximum lawful rate of interest under this 
subdivision.  The renegotiation of a conventional or cooperative 
apartment loan or a contract for deed is deemed to be a new loan 
or contract for deed for purposes of clause (3) and for purposes 
of determining the maximum lawful rate of interest under this 
subdivision.  A borrower's interest rate commitment or a 
borrower's loan commitment is deemed to be issued on the date 
the commitment is hand delivered by the lender to, or mailed to 
the borrower.  A forward commitment is deemed to be issued on 
the date the forward commitment is hand delivered by the lender 
to, or mailed to the person paying the forward commitment fee to 
the lender, or to any one of them if there should be more than 
one.  A commitment for a contract for deed is deemed to be 
issued on the date the commitment is initially executed by the 
contract for deed vendor or his authorized agent. 
    (5) A contract for deed executed pursuant to a commitment 
for a contract for deed, or a loan made pursuant to a borrower's 
interest rate commitment, or made pursuant to a borrower's loan 
commitment, or made pursuant to a forward commitment for 
conventional or cooperative apartment loans made upon payment of 
a forward commitment fee including a borrower's loan commitment 
issued pursuant to a forward commitment at a rate of interest 
not in excess of the rate of interest authorized by this 
subdivision at the time the commitment was made continues to be 
enforceable in accordance with its terms until the indebtedness 
is fully satisfied. 
    Sec. 3.  Minnesota Statutes 1982, section 47.20, 
subdivision 6a, is amended to read:  
    Subd. 6a.  [LOAN ASSUMPTIONS AFTER MAY 8, 1981.] If the 
purpose of a conventional loan, or loan made pursuant to the 
authority granted in subdivision 1, clause (3) or (4), is to 
enable a borrower to purchase a one to four family dwelling for 
his or her primary residence, the lender shall consent to the 
subsequent transfer of the real estate and shall release the 
existing borrower from all obligations under the loan 
instruments, if the transferee (1) meets the standards of credit 
worthiness normally used by persons in the business of making 
conventional loans, including but not limited to the ability of 
the transferee to make the loan payments and satisfactorily 
maintain the real estate used as collateral, (2) executes an 
agreement in writing with the lender whereby the transferee 
assumes the obligations of the existing borrower under the loan 
instruments, and (3) executes an agreement in writing to pay 
interest on the remaining obligation at a new interest rate not 
to exceed the lender's current market rate of interest on 
similar loans at the time of the transfer, the most recently 
published monthly index of the federal national home loan 
mortgage association corporation auction yields as compiled by 
the federal national mortgage association or the existing 
interest rate provided for by the terms of the note, whichever 
is greater.  Any such agreement shall not affect the priority, 
validity or enforceability of any loan instrument.  
    Sec. 4.  Minnesota Statutes 1982, section 325G.30, 
subdivision 3, is amended to read:  
    Subd. 3.  [CONSUMER CONTRACT.] "Consumer contract" means 
any written contract with a consumer except:  (1) a contract 
where the price, excluding interest or finance charges, is more 
than $50,000; (2) a contract through which a consumer obtains 
money or credit to be used to purchase or refinance mortgaging 
an interest in realty; (3) a contract in which the sale of 
personal property is merely incidental to the sale of an 
interest in realty. 
    Sec. 5.  [APPLICATION.] 
    This act is effective the day after final enactment. 
Section 2 applies to conventional or cooperative apartment loans 
and contracts for deed renegotiated after that date. 
    Approved June 7, 1983