A. As used in this section: “Exempt subordinate mortgage lender” means (i) a bank, savings institution, industrial loan association, or credit union or (ii) a seller in a real estate sales transaction who takes a subordinate mortgage or deed of trust on such real estate. “New money” means money advanced in excess of the outstanding principal balance at the time a new advance is made. “Real estate” includes a leasehold estate of not less than 25 years. “Residential real estate” means real estate improved by the construction thereon of housing consisting of one- to four-family dwelling units.
B. An add-on interest loan shall be subject to the following provisions:
1. Any person may charge add-on interest that results in an annual yield of not more than 18 percent upon loans secured in whole or in part by a subordinate mortgage or deed of trust on residential real estate;
2. An add-on interest loan may be made only under this subsection and shall not exceed a period of five years and one month; and
3. The lender may also impose a loan fee not exceeding two percent of the principal amount of the loan provided that such loan fee shall not be imposed more often than once each 18 months except to the extent that new money is advanced within such 18-month period by a renewal or additional loan. New money shall be money advanced in excess of the outstanding principal balance at the time such new advance is made. These provisions shall apply whether such loan fee is payable directly to the lender or to a third party in connection with such loan.
C. No charge, other than actual costs documented to the applicant and expended for a credit report and an appraisal of the real estate conducted in connection with the loan application, may be made if a loan secured by a subordinate mortgage or deed of trust is not made. Such charge:
1. Shall not exceed one percent of the amount of the loan applied for; but in no event shall such charge exceed $50 or one-half of such costs, whichever is less; and
2. May be made only if the lender commits to make the loan. Such commitment shall be in writing and signed by the lender or a person who the lender has authorized to execute such documents.
D. Any loan secured by a subordinate mortgage or deed of trust on residential real estate upon which the interest is charged at an annual interest rate on the unpaid balance thereof shall be subject to the following provisions:
1. Such a loan may be lawfully enforced at the annual interest rate stated in the contract of indebtedness on the principal amount of the loan. Such annual interest rate may vary in accordance with an exterior standard;
2. In addition to the annual interest rate permitted by subdivision 1, the lender may charge the borrower a loan fee not exceeding five percent of the principal amount of the loan, provided that such loan fee shall not be imposed more often than once each 18 months except to the extent that new money is advanced within such 18-month period by a renewal or additional loan. Such loan fee may only be reimposed by the lender upon a borrower in connection with the refinancing of a loan made pursuant to this subsection; and
3. The lender may charge the borrower with the actual costs of the loan as permitted by § 6.2-328.
E. The rates, charges and other provisions permitted or required by this section or by § 6.2-328 shall apply to all loans secured by a subordinate mortgage or deed of trust, including, without limitation, (i) single maturity loans, (ii) amortizing loans, and (iii) loans secured by a credit line deed of trust as permitted by § 55.1-318.
F. Except for the loan fee permitted in this section, no discount, initial interest, points or charges by any other name may be collected, charged or added to a loan secured by a subordinate mortgage or deed of trust upon residential real estate.
G. The provisions of this section shall not apply to any loan by an exempt subordinate mortgage lender.
H. For the purpose of this section, an interest rate that varies in accordance with any exterior standard, or that cannot be ascertained from the contract without reference to any exterior circumstances or documents, shall be enforceable as agreed in the contract of indebtedness or other signed agreement.
I. The borrower under any loan to which the provisions of this section apply may assert any defense or claim he may have under §§ 6.2-304 and 6.2-305 against any assignee or transferee of the contract of indebtedness.