Chicago, IL asked in Business Law and Real Estate Law for Indiana

Q: Can a seller put a high interest rate on land contract when he has a letter from Egg company guaranteeing the payment

A private company financed me to purchase a farm. They put a high interest rate on it because they put up all the money and took all the risk. But the egg company I'm contracted with gave them a written guarantee that they would pay the mortgage no mater if my farm was making enough money to cover it or not. Is that fair that they gave me a high interest rate ?

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1 Lawyer Answer
Matthew Morris
Matthew Morris
  • Carmel, IN
  • Licensed in Indiana

A: There are a few things that jump out at me from your question. The first is that you ask two things. One question is "can a seller put a high interest rate on a land contract" and the other is "is that fair...?" Those are two different questions, and the answer to one might be different than the answer to the other. The second thing that I notice is that you describe the rate as "high," but that leads to the question of what you consider to be high, and high compared to what?

On the legal side of this, there are some restrictions in Indiana on consumer loans, but what you describe here does not sound like a consumer loan. And, frankly, even if it were a consumer loan, the law would restrict the interest rate to a rate that you would probably still consider "high" (as much as 25%). You also say that the "seller" applied the high interest rate, and that this is a land contract. So, based on those words, it sounds like you are saying that the prior owner of the property (a private company) was both the seller and loaned you the money to buy it, and that the farm does not have a dwelling on it? From what you have said, and without knowing the interest rate or being sure about the assumptions above, the answer to "can" the seller set this particular interest rate is probably "yes."

But what about fairness? If you think that the rate is unfairly high, that probably means that you have the ability to get a lower interest rate than the rate you currently have. You will want to look at the terms of your current loan to see what it says about early payment. If you have other lenders lining up to give you a lower interest rate in light of the guarantee from the egg company, you might want to refinance with those lower rate lenders and prepay the current loan and move on.

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