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  1. #1
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    Default When Can Interest on a Debt be Compounded

    My question involves estate proceedings in the state of: Massachusetts

    I am looking for a straightforward, clearly stated citation for Massachusetts' law that says that "loan interest shall not be compounded, nor shall the interest thereon be construed to bear interest, unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith."

    I have found such phrasing for other states but I can't locate the specific wording for Massachusetts outside of the state's provisions regulating usury loans.

    Here are the facts: The terms of an irrevocable trust include provisions for repayment of a loan. A $50,000 personal loan is given to the Grantor with an interest rate of prime plus 1% per annum. There is no mention of compound interest in the wording for the payback. Lender uses the $50,000 to payoff Grantor's existing mortgage. The loan is payable in a lump sum payment when the Grantor sells his house. The house sells 20 years after the beginning of the loan. No payments are made to the Lender prior to the sale of the house. At time of payment, lender demands principal plus compounded interest for 20 years. Grantor believes the loan should be calculated using simple interest.

    Can anyone point me in the right direction to find an answer to this question?

    Thank you!

  2. #2
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    Default Re: Massachusetts Law on Loan Interest

    When you can't find a statute you go to case law.

    Here's one from the Massachusetts Court of Appeals that says:

    "On the second point, relative to the compounding of interest: such compounding cannot be done in the absence of express agreement. The note in this case called for payment of $40,000, "with interest at the rate of seven percent (7%) per annum within one year from this date in the following manner. Interest payments of $700.00 are to be paid each quarter beginning on February 25, 1971 and the principal is to be paid on November 24, 1971." The $700 quarterly interest payments represented simple interest. Nothing suggests compounding. Without express agreement interest is not due on overdue interest. Shapiro v. Bailen, 293 Mass. 121, 123-124 (1936)."

    http://scholar.google.com/scholar_ca...en&as_sdt=4,22

    When I click on the link to Shapiro v Ballen in that decision it brings up a page with several other case decisions that say pretty much the same thing:

    http://scholar.google.com/scholar_ca...en&as_sdt=4,22

    You're welcome to pull up each case and review it but I think that there's enough there to support the contention that the lender is only entitled to simple interest.

    If grantor cannot convince lender of simple interest with this case law then grantor should hire an attorney to explain it to lender in convincing legalese. Grantor might also have to be prepared to litigate the matter if necessary.

  3. #3
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    Default Re: Massachusetts Law on Loan Interest

    Thanks, adjusterjack! I really appreciate the prompt response.

    The Grantor does not want to 'cause hard feelings' with the lender, so she is willing to give him what he thinks he is owed! The Trustee/Lender is the Grantor's son. Ugh!!!! Let the games begin!

  4. #4
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    Default Re: Massachusetts Law on Loan Interest

    Quote Quoting Amigos4
    View Post
    Thanks, adjusterjack! I really appreciate the prompt response.

    The Grantor does not want to 'cause hard feelings' with the lender, so she is willing to give him what he thinks he is owed!

    (
    A very expensive philosophy.

    No reason to "cause hard feelings" by pointing out the law.

    Quote Quoting Amigos4
    View Post
    The Trustee/Lender is the Grantor's son.(
    If it was my kid doing that to me, he'd have the "hard feeling" of a 2 x 4 upside his head.



    "How sharper than a serpent's tooth it is
    To have a thankless child!"

  5. #5
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    Default Re: Massachusetts Law on Loan Interest

    adjusterjack, please direct me to the forum page that explains how to multi-quote comments from other members. I can't find a way to add more than one comment when I reply to a post. What's the secret to multi-quoting?

  6. #6
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    Default Re: Massachusetts Law on Loan Interest

    Hi!

    See that little button on the bottom right? You have three options. Reply - straightforward. Quote - straightforward. The quote sign with the plus? That's for multi-quote responses.

  7. #7
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    Default Re: Massachusetts Law on Loan Interest

    Quote Quoting Amigos4
    View Post
    adjusterjack, please direct me to the forum page that explains how to multi-quote comments from other members. I can't find a way to add more than one comment when I reply to a post. What's the secret to multi-quoting?
    Quote Quoting Dogmatique
    View Post
    Hi!

    See that little button on the bottom right? You have three options. Reply - straightforward. Quote - straightforward. The quote sign with the plus? That's for multi-quote responses.
    Thank you!

  8. #8
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    Default Re: Massachusetts Law on Loan Interest

    There you go! You're welcome

  9. #9
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    Default Re: Massachusetts Law on Loan Interest

    Quote Quoting Dogmatique
    View Post
    Hi!

    See that little button on the bottom right? You have three options. Reply - straightforward. Quote - straightforward. The quote sign with the plus? That's for multi-quote responses.
    Quote Quoting Dogmatique
    View Post
    There you go! You're welcome
    hey that's nifty, I always edited the BBcode manually, old habit from HTML formatted forums

  10. #10
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    Default Re: Massachusetts Law on Loan Interest

    Quote Quoting adjusterjack
    View Post
    When you can't find a statute you go to case law.

    Here's one from the Massachusetts Court of Appeals that says:

    "On the second point, relative to the compounding of interest: such compounding cannot be done in the absence of express agreement. The note in this case called for payment of $40,000, "with interest at the rate of seven percent (7%) per annum within one year from this date in the following manner. Interest payments of $700.00 are to be paid each quarter beginning on February 25, 1971 and the principal is to be paid on November 24, 1971." The $700 quarterly interest payments represented simple interest. Nothing suggests compounding. Without express agreement interest is not due on overdue interest. Shapiro v. Bailen, 293 Mass. 121, 123-124 (1936).".
    I shared the court's findings on this case with the Trustee/Lender. He told me his attorney advised using compound interest in the payoff calculations.
    Surely, his attorney must be aware of the fact that Massachusetts disfavors the use of compound interest unless it is expressly worded in the terms of the loan agreement. What am I missing in my quest to understand the reasoning/justification behind the attorney's instructions to compute the payoff amount by using compound interest? Can you think of any possible explanation that would allow the terms of the loan agreement to change once the agreement has been signed by both parties?

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