Federal Deposit Insurance v. Kramer , 100 Mich. App. 495 ( 1980 )

T. C. Quinn, J.

Plaintiff recovered a judgment in the amount of $68,185.79 on a promissory note. When executed August 21, 1967, the amount of the note was $110,000. Payments made through June 1, 1976, reduced the amount due to $58,772.75. The judgment entered includes interest accumulated to date of trial. Defendants appeal.

The defendants admit that the balance due on the face of the note is $58,772.75, but claim that only $4,311 is actually due because plaintiff must forfeit all interest due on the note. The defendants contend that a $1,100 commitment fee, paid July 28, 1967, a $50 escrow fee, a $550 service charge and a hidden charge of approximately $850 which defendant derived by calculating the interest that could have been paid on escrowed tax payments, constitutes hidden interest. Defendants contend that when this interest is added to the 6-3/4% interest called for by the note, the 7% statutory maximum limit is exceeded resulting in usury and that the statute mandates forfeiture of all interest. MCL 438.31; MSA 19.15(1).

The trial court found that the $50 escrow fee and the $550 service charge constituted hidden interest. It also found that the commitment fee and unpaid interest of $850 did not constitute hidden interest. The trial court calculated the interest called for by the note, added to it the $600 calculated to be hidden interest spread over the life of the note and held that the interest paid did not exceed the 7% statutory limit.

The commitment fee was paid more than three weeks prior to the loan. In consideration of that fee, the lender bound itself for 115 days to loan to the defendants $110,000 at 6-3/4% interest if defendants applied therefor. Defendants were not bound to apply for the loan. The trial court properly held that this was a separate transaction distinct from the loan, and that for $1,100 defendants purchased the right to secure a loan if they so chose.

The trial court found no statutory or common law authority that required plaintiff to deposit escrowed monies in interest bearing accounts. Our search has revealed none. The parties agreed in the mortgage that the tax escrow account would be a "non-interest bearing account”. The trial court correctly held that the $850 was not hidden interest.

We also agree that hidden interest should be spread over the term of the loan in determining if the interest rate is usurious. Montgomery Federal Savings & Loan Ass’n v Baer, 308 A2d 768 (CA DC, 1973).

Affirmed. Costs to plaintiff.