Johnson v. Federal National Mortgage Ass'n ( 1980 )

Darrell Hickman, Justice.

This is an appeal from the Chancery Court of Craighead County and involves the issue of usury. The case presents no unusual problems because a routine FHA loan is involved. The chancellor found that all of the loan closing charges were legitimate and that the interest charged did not exceed 10%. We agree with this judgment and affirm the decree.

Gary Johnson purchased a house in 1974 from George and Marie Baldwin. Originally the parties agreed that the sale price would be $43,500.00. For some reason, apparently because Johnson could not get a conventional loan, a new offer and acceptance was signed reflecting a sales price of $40,000.00. It was agreed that the sale would be secured by an FHA mortgage. Boyle Mortgage Company made a $35,-500.00 loan to Johnson, and the Baldwins, who were the sellers, paid a 7% discount to Boyle Mortgage Company. Boyle later sold the mortgage to Federal National Mortgage Association, the appellee. Johnson’s main argument is that the 7% discount, which amounted to over $2,000.00, made his 8-%% loan usurious. In addition, he alleges that virtually all the charges made by Boyle should have been considered interest, increasing the already usurious interest charge.

In no way is this situation similar to that in Hare v. General Contract Purchase Corp., 220 Ark. 601, 249 S.W. 2d 973 (1952), where we issued a caveat regarding discounts. In this case the sellers did not increase the sales price to accommodate the discount points; it was purely an arms-length transaction.

Furthermore, the sellers paid the discount points. The additional amount was, therefore, not interest.

There was no evidence at all that any of the other charges made by Boyle Mortgage Company, which the chancellor found legitimate, could be considered a cloak for usury. The fees included charges for photographs, appraisals, title insurance, credit reports, abstract and attorney fees. In every instance the evidence was that the money charged for these services was paid to a third party and was legitimate.

Boyle Mortgage Company did collect interest that was due on the note before the first payment would be due, which is a standard practice. Also, Boyle Mortgage Company did collect a one percent origination fee. The court considered both charges interest but this did not affect the legality of the loan. The burden of proof is upon the one asserting the defense of usury and he must prove it by clear and convincing evidence. Moore, d/b/a Pulpwood Suppliers, Inc. v. Owens, 268 Ark. 324, 597 S.W. 2d 65 (1980). Not only did Johnson fail to prove usury, but the evidence is overwhelmingly to the contrary.

Affirmed.

George Rose Smith, J., concurring. Purtle, J., not participating.