May a lawyer who did not arrange the loan handle the foreclosure of a mortgage that was plainly usurious?

Plain-English summary

An attorney asked whether he could properly handle the foreclosure of a mortgage involving a plainly usurious loan, where he had not participated in the original mortgage transaction. The Committee observed that the lender's taking of usury violated N.J.S.A. 31:1-1 and was therefore unlawful, but that the only penalty the statute imposes is the loss of the prohibited interest: under N.J.S.A. 31:1-3 the lender, in an action to enforce such a loan, may recover the amount or value actually lent, without interest or costs, and no more.

Because the Legislature in terms permits the lender to bring the foreclosure proceeding in the courts of the State, the Committee reasoned that the lender should be entitled to the assistance of an attorney to recover what the law permits him to recover. It concluded that the attorney, not having participated in the original usurious transaction, may therefore properly represent the lender in the foreclosure of the mortgage.

Currency note

This opinion was issued in September 1965, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It construed the State's usury statutes (N.J.S.A. 31:1-1 and 31:1-3) and the propriety of undertaking the representation. The scope of permissible representation and assistance to a client is now treated under RPC 1.2. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific statute, rate, or requirement mentioned here.

Common questions

Q: Could a lawyer foreclose a mortgage on a loan that was usurious?

A: Yes, on these facts. The Committee held that an attorney who did not take part in the original usurious transaction may properly handle the foreclosure.

Q: Why was the representation proper despite the usury?

A: The Committee reasoned that the usury statute itself permits the lender to sue to recover the amount actually lent (without interest or costs), so a litigant the law allows to proceed is entitled to a lawyer's assistance to recover what the law permits.

Q: What could the lender recover in the foreclosure?

A: Per the opinion and N.J.S.A. 31:1-3, in an action to enforce such a usurious loan the lender may recover the amount or value actually lent, without interest or costs of the action, and no more.

Background and rules framework

The opinion turned on the New Jersey usury statutes, N.J.S.A. 31:1-1 (prohibiting usury) and N.J.S.A. 31:1-3 (limiting the lender's recovery to the principal without interest or costs), and on the principle that a lawyer who did not participate in the unlawful transaction may assist a client in a recovery the Legislature expressly allows. In current New Jersey terms, the scope of a lawyer's permissible assistance to a client is addressed by RPC 1.2.

Citations and references

Statutes:

• N.J.S.A. 31:1-1 (prohibition of usury)
• N.J.S.A. 31:1-3 (lender may recover the amount actually lent, without interest or costs)

See also

• NJ ACPE Op. 289: An Attorney's Participation in a Usurious Loan
• NJ ACPE Op. 176: Usury and the Purchase of an Inactive Corporation to Obtain a Mortgage
• NJ ACPE Op. 133: Mortgage Points, Usury, and a Savings and Loan

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp83-1.html

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

88 N.J.L.J. 629
September 30, 1965

OPINION 83

Foreclosing Usurious Mortgage

An attorney inquires whether it is proper for him to handle the foreclosure of a mortgage involving a plainly usurious loan (when he did not participate in the original mortgage transaction).

The mortgagee's taking of usury violated the express prohibition of N.J.S.A. 31:1-1 and was, therefore, an unlawful action. However, the only penalty imposed by the statute is the loss of the money which it prohibits the lender from taking. The Legislature has specifically provided that in all actions to enforce any such usurious mortgage loan the lender may recover the amount or value actually lent without interest or costs of the action, and no more. (N.J.S.A. 31:1-3)

Since the Legislature in terms thus permits the lender to institute the mortgage foreclosure proceeding in the courts of this State, it necessarily follows that he should be entitled to the assistance of an attorney to recover what the law permits him to recover. The attorney, not having participated in the original usurious transaction, may therefore properly represent him in the foreclosure of the mortgage.