State reference
Hard money lending in New Jersey
Hard money lending in New Jersey: licensing requirements, what decides whether your rate is lawful, federal preemption and how long deals take.
NEW JERSEY
Business-purpose lending sits outside the licensing statute
The state's mortgage licensing statute is keyed to loans made primarily for personal, family or household use. A genuine business-purpose loan to an entity, secured by investment property, falls outside that definition, which is why unlicensed private lenders operate lawfully here. Two cautions: the business-purpose characterisation has to be real rather than a label on the paperwork, and lending to a natural person for personal use is licensed. Other statutes - usury, broker licensing, servicing - can still apply.
This page covers four things about borrowing hard money in New Jersey: whether the lender needs a licence, what actually decides whether your rate is lawful, how federal preemption interacts with it, and how long deals take here. Every figure shows the statute or dataset it came from.
Does a lender need a licence in New Jersey?
N.J.S.A. 17:11C-53 defines a "residential mortgage loan" as one "primarily for personal, family, or household purposes" secured by a dwelling, so the Residential Mortgage Lending Act does not reach a genuine business-purpose loan.
What decides whether a rate is legal in New Jersey
Almost every site publishing on this topic gives you one number per state. That number is close to meaningless on its own. A rate that is lawful for one lender in New Jersey can be unlawful for another on the same day, on the same property, because four separate questions decide which body of law applies to your loan.
| Gate | The question |
|---|---|
| Purpose | Is the loan for a business, commercial or investment purpose, or for personal, family or household use? |
| Borrower | Are you borrowing as a natural person, or as an LLC, corporation or partnership? |
| Lender | Is the lender licensed, and under which statute? |
| Lien position | Is the loan secured by a first lien on residential real property? |
- Purpose
- Many states remove the usury defence entirely for business-purpose loans. Washington is the clean example: under RCW 19.52.080 a borrower on a loan made primarily for a commercial, agricultural, investment or business purpose may not claim a defence of usury. This is why every hard money lender makes you sign a business-purpose affidavit.
- Borrower
- Several states exempt entity borrowers from some or all of the cap. In New York a corporation or LLC cannot assert the 16% civil usury defence at all, though the 25% criminal ceiling still applies. This is the other half of why lenders insist on title vesting in an LLC.
- Lender
- Licensed lenders frequently operate under their own rate statute rather than the general cap. California is the sharpest case: a loan made or arranged by a licensed real estate broker and secured by real property is exempt from the constitutional rate limit outright, under Civil Code §1916.1.
- Lien position
- If it is, federal law may preempt the state rate limit entirely under 12 U.S.C. §1735f-7a. A great many hard money loans are first-lien residential, so this gate is live far more often than borrowers realise.
Rate limits in New Jersey
The $50,000 exemption does not apply to a first lien on residential property.
| No written agreement | 6% |
| With written agreement | 16% |
| Entity borrowers | Corporations, LLCs and LLPs cannot plead civil usury |
| Loans of $50,000 or more | Exempt - except loans secured by a first lien on residential real property |
| Statute | N.J.S.A. 31:1-1 |
New Jersey allows 6% absent a written agreement and 16% where there is one. Two exemptions then sit on top, and the interaction between them is where hard money borrowers get caught.
The first is the entity exemption: a corporation, LLC or LLP cannot interpose the defence of civil usury. The second is size: loans or forbearances of $50,000 or more are exempt - except loans secured by a first lien on residential real property.
Read that exception carefully, because a first lien on residential property is precisely what most hard money loans are. A $300,000 first-lien loan on a New Jersey flip does not get out of the civil usury statute through the size exemption. Loans in that category are instead governed by a maximum rate set by the Commissioner of Banking, which moves - so it is a figure to confirm at the time you sign rather than one to memorise.
The entity exemption is doing most of the work in the usual structure. That is one more reason New Jersey lenders insist on title vesting in an LLC.
Federal preemption, and the distinction nearly everyone gets wrong
Two different provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 are routinely written about as if they were one. They are not, and only one of them normally touches a hard money loan.
- Section 501 — 12 U.S.C. §1735f-7a
- Preempts state limits on the rate, discount points, finance charges and other charges on a loan secured by a first lien on residential real property, made after 31 March 1980, that meets the federally related mortgage loan definition. This one can apply to hard money, because a great many hard money loans are exactly that. States had until 1 April 1983 to opt out.
- Section 521 — 12 U.S.C. §1831d
- Lets federally insured state-chartered banks charge the rate allowed where the bank is located, and export it. Hard money lenders are generally not banks, so this provision usually has nothing to do with your loan, despite how often it is cited in articles about private lending.
Who supervises this in New Jersey
New Jersey Department of Banking and Insurance. Regulator names change; the CSBS directory is the authoritative list, and NMLS Consumer Access is where you check a specific company for free.
Before you sign in New Jersey
- Confirm the licence, or confirm on the record that none is required for this loan type. How to verify a lender.
- Establish which of the four gates your loan goes through, because that decides which rate limit applies.
- Score your term sheet against the 14 red flags.
- Price the loan on total cost, not rate. True-cost calculator.