Hard Money Brokering

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
14y

If you are brokering hard money loans on commercial real estate, the SAFE act does not apply. Some states, such as Arizona may require a Commercial Mortgage Broker license, while other states such as Texas will require no license at all.

Even if what you broker is a security (not neccessarily that it is), you may be exempt from SEC regulations if your transaction occurs in only one state (intrastate). At that point you may be subject to state securities laws, however most states have exemption from registration for transactions involving fewer than 35 partners.

So there are two sides to consider; laws and regulations that are for the protection of the borrower, and seperately securities laws that are for the protection of the investor/lender.

As a broker you will be subject to both, but might be exempt depending on the type of transaction and how it's structured.

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  • Dion DePaoliPro Member
    Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
    14y

    It is always a good idea to get a license. You can go to your state's website on the matter likely under financial services and see what it takes to get a license. This is NOT a SEC license nor does any license from the SEC/FINRA deal with brokering loans in this manner.

    When you deal with natural people and hold yourself out to the public you have to have a license. There is a loophole when it comes to working with companies as companies at expected to be investment savy. Some lenders will only work with licensed brokers as well. Also, in most states mortgage broker licenses require a company license to work under, not sure if that is the deal with Colorado or not. But look it up, its pretty easy to find.

    1Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    14y

    You can find a great deal of information at the Nationwide Mortgage Licensing system website:
    http://mortgage.nationwidelicensingsystem.org/Pages/default.aspx

    In addition, make sure you work with an attorney in your state who is private lending savvy. The SAFE act has changed the private lending world, and it's important that not only you, but your lenders as well, comply with the SAFE act. Essentially, a lender must be licensed to do residential loans, and the definition of residential can vary by state somewhat.

    For example, in NH, if the proceeds are to be used for any personal or household use, the loan must comply with residential lending requirements. That would mean if you collaterialized a loan with a gas station, and the borrower was going to use the proceeds to pay his kid's college tuition, it would be considered a residential loan and the lender must be licensed.

    I'm not giving legal advice here, just illustrating with an example to point out why it's important to consult with a knowledgeable attorney.

    I realize you asked about licensing for yourself as a broker, but if you don't know the requirements for your lenders as well, you will get them in hot water. Licensing can be expensive, have requirements they can't meet, and will subject all their files to regular expensive audits. The SAFE act affects brokers as well.

    This is why you see so many private lending companies that will lend to companies only, never to people.

    3Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    14y

    If you are brokering hard money loans on commercial real estate, the SAFE act does not apply. Some states, such as Arizona may require a Commercial Mortgage Broker license, while other states such as Texas will require no license at all.

    Even if what you broker is a security (not neccessarily that it is), you may be exempt from SEC regulations if your transaction occurs in only one state (intrastate). At that point you may be subject to state securities laws, however most states have exemption from registration for transactions involving fewer than 35 partners.

    So there are two sides to consider; laws and regulations that are for the protection of the borrower, and seperately securities laws that are for the protection of the investor/lender.

    As a broker you will be subject to both, but might be exempt depending on the type of transaction and how it's structured.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    4Reply
  • Anne C.
    Rental Property Investor · Greater Portland, OR area · Member since 2015 · 3 posts · 1 vote
    4y

    Interesting discussion. What if it is residential real estate and the lender lends to a flipper and the contract is written as a commercial loan where the loan is contingent on the flipper NOT being a resident. Is that considered to be a commercial loan? If the lender is in OR and the borrower is in PA, are OR or PA rules to be followed?

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  • Tarik Turner
    Lender · Hackensack, NJ · Member since 2016 · 1k+ posts · 372 votes
    4y
    Quote from @Anne C.:

    Interesting discussion. What if it is residential real estate and the lender lends to a flipper and the contract is written as a commercial loan where the loan is contingent on the flipper NOT being a resident. Is that considered to be a commercial loan? If the lender is in OR and the borrower is in PA, are OR or PA rules to be followed?


    Yes that would be considered a commercial loan. also the rules are based on the state that the property is located in
    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Ryan Pearson

    No NMLS license is required in Colorado to broker investment or commercial loans.  Some lenders you work with may require it, but there are only a handful of states that actually require the independent broker to have a license, Colorado is not one of them.  You are essentially your own business and responsible for reporting your income to the IRS and state, if your home state has income taxes.  The lenders help facilitate your payments, but the funds for your fees are coming from the borrowers, not the lenders.  You will not get 1099s or any other tax docs from them.

    Cheers!

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    Belsky Mortgage, LLC522 Reviews
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