## Facts

- Nelly Szerdahelyi, a tenant in a building converting to cooperative ownership, sought to buy her apartment but could not obtain conventional mortgage financing because her roommate was unavailable to participate.
- Martin Harris, an attorney associated with the roommate, attempted unsuccessfully to arrange conventional financing and instead arranged a short-term loan through lender-clients.
- The lenders made a one-year $25,000 loan at 21% interest, secured by a second mortgage on the apartment.
- The maximum lawful interest rate under Banking Law § 14-a was 16%, making the loan civilly usurious.
- Harris advised Szerdahelyi that the 21% rate was lawful; she paid interest for 11 months.
- Shortly before maturity, Szerdahelyi asserted the note and mortgage were usurious and void and sought cancellation of the security instruments.
- The lenders tendered repayment of the interest collected above the lawful rate and claimed that, under General Obligations Law § 5-519, the tender permitted enforcement of principal and lawful interest.

## Issues

1. Whether tendering back excess interest under General Obligations Law § 5-519 permits enforcement of a civilly usurious loan otherwise void under General Obligations Law § 5-511.
2. Whether the transaction qualified as a purchase-money mortgage exempt from New York’s usury restrictions.

## Decision

- The Court of Appeals reversed the Appellate Division and reinstated summary judgment for Szerdahelyi.
- The court held that a civilly usurious loan is void under General Obligations Law § 5-511 and cannot be revived by tendering excess interest under § 5-519.
- The court rejected the argument that the loan was a purchase-money mortgage because the lenders were not the seller and the financing was an independent loan transaction.
- The note and mortgage were declared usurious, illegal, and void, and the lenders were denied recovery of both principal and interest.

## Legal Principles

- Under General Obligations Law § 5-511, a loan contract reserving interest above the lawful rate is void, barring recovery of principal and interest.
- General Obligations Law § 5-519 does not create a general mechanism allowing lenders to cure civil usury by refunding excess interest and thereby enforce a contract void under § 5-511.
- Purchase-money mortgage treatment is a narrow exception to usury limits and generally requires seller-provided financing as part of the purchase transaction; third-party short-term financing does not qualify.

## Conclusion

The court held that New York’s statutory declaration that civilly usurious loans are void controls, and lenders cannot restore enforceability by refunding excess interest; the purchase-money mortgage exception did not apply to third-party loan financing of a cooperative purchase.


Szerdahelyi v. Harris, 67 N.Y.2d 42, 490 N.E.2d 517 (1986)