## Facts

- Susan Velletri obtained a two-year, interest-only construction loan with a face amount of $250,000 to purchase and renovate commercial property.
- The loan documents required twenty-three monthly “interest only” payments of $3,150 and a final balloon payment of $253,150, reflecting a stated interest rate of 15%.
- At closing, the lender’s servicing entity withheld $12,500 as an “origination fee,” $513.70 as interest, and $65,000 as construction funds placed into an escrow account for later reimbursement requests.
- Despite these withholdings, the $3,150 monthly payment was calculated on the full $250,000 face amount.
- After Velletri fell behind, the lender demanded full monthly payments and late fees notwithstanding substantial funds remaining in escrow; Velletri later defaulted again.
- The lender filed a foreclosure action; Velletri defended on the ground that the loan was criminally usurious at inception and therefore void and unenforceable.

## Issues

1. Whether the loan’s effective interest rate, calculated under section 687.03, Florida Statutes (2006), exceeded 25% at inception, making the transaction criminally usurious and unenforceable.
2. Whether the origination fee and other amounts withheld at closing should be treated as interest (or otherwise included) in computing the effective rate.
3. Whether funds withheld in a construction escrow should be treated as principal “received” by the borrower for usury calculations.

## Decision

- The Second District reversed the foreclosure judgment and remanded for entry of judgment in favor of Velletri.
- The court held that applying the statutory calculation to the amounts actually made available to the borrower established that the loan was criminally usurious at inception.
- The court rejected the lender’s attempt to exclude the origination fee from the effective-rate computation absent evidence it was paid to a borrower’s agent.
- The court concluded the trial court’s approach improperly treated escrowed construction funds as if they were received by the borrower at closing.

## Legal Principles

- Under Florida law, a loan is criminally usurious if its effective interest rate exceeds 25% per year; a criminally usurious note and mortgage are unenforceable.
- Section 687.03 requires determining the effective rate by comparing the borrower’s net proceeds actually received and controlled against the repayment obligation.
- Charges taken at closing that function as compensation for the extension of credit, including origination fees not shown to be paid to a borrower’s agent, may be included in the usury computation.
- Funds withheld in escrow and not available for the borrower’s unrestricted use at closing may not be treated as principal received when computing the effective rate.

## Conclusion

Because the loan’s effective interest rate exceeded 25% when calculated based on the net amount actually available to the borrower, the transaction was criminally usurious at inception, rendering the note and mortgage unenforceable and requiring reversal of the lender’s foreclosure judgment.


Velletri v. Dixon, 44 So. 3d 187 (Fla. Dist. Ct. App. 2d Dist. 2010)