Do I need a license to broker private/hard money loans?
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Real Estate Investor · Phoenix, AZ · Member since 2009 · 62 posts · 32 votes
16yBack to the original thread on licensing ...
The documentation on the new SAFE act is pretty good (rare but true). If you read the text related to "Loan Originators" (LO) it says when required (e.g. brokering) and when not needed (fewer than 5 loans/yr using own money unless handled by licensed LO).
NOTE: having a license is necessary in these cases, but NOT sufficient. You need to hang your license with a Mortgage Broker or Mortgage Banker ... or get that license too.
State laws can be stricter ... so they have a link to the state regulations.
Don't you love it ... the banks aren't lending ... and Govt. complicates life for private lenders!
Even though LO's (like me) are registered nationally, we need to have a license in each state we lend.
NOTE: request for loans should go to the separate subgroup on private lending
37 Replies
- Member since 2010 · 2 posts · 0 votes16y
thanks Financeexaminer. The other angle looks at this: is it worth to do 1-4 family loan using own private money without the outlook prospect of securitization? You may be able to charge 8% to 10% for a non-documented loan, even though it is risk worthy, the return in venturing private money for 1-4 family seems not so certain from investors point of view. Any comment?
- Hard Money Lender · Atlanta, GA · Member since 2008 · 60 posts · 15 votes15y
In Georgia, you don't need a license to broker hard money loans on non-owner occupied property.
A license is required if you broker hard money loans on owner occupied property.
FYI - we routinely work with brokers that send us hard money deals in the Atlanta area.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Originally posted by money lady:
I heard that there is no license needed to broker private/ hard money loans, Is there any truth to this? I know that you don't need one in the commercial sector. Is there one needed in the residential hard mney sector?I don't know how this got skewed off course to financing with seller finance transactions or only to the SAFE Act.
If you are lending YOUR money and the IRS does not consider you being "in the business of lending", it's likely your state finance regulator will not consider you to be "in the business of lending".
If you are "in the business of lending" you need a license in all states.If you are not "in the business" but arrange any consumer or residential loan between a lender (even if that party is not in the lending business) for any borrower, for consideration, you are brokering a loan and will need a license.
Commercial loans are exempt from the SAFE Act and HUD residential loan requirements as well as state residential statutes, but even if you are only doing commercial lending, you may be required to have a license, in fact several licenses, under state law and if you are using investor pools, SEC Requirements may also apply....
The best place to find out if you need a license is with a good local business/corporate attorney, not here. If for example, your city finance department requires a business license for each category of business someone conducts (buying and selling real estate is not being in the mortgage business), then you need a license. Having that license will most likley be evidence that you are "in the business". If you borrow money from me and then loan it to Jim with a deed of trust and you assign that to me as collateral...or make the loan in my name and do the loan functions, you are brokering and if you are not have the proper license, the loan you created was originated illegally and can be found to be unenforceable for the collection of the debt created. That's a pretty big penalty.
If you're thinking that you can have the seller provide the note and then simply buy the note, you can with your own money without a license, if you used OPM to buy that note, you're back again as a broker.
Generally then, if you are using your own money and your income from lending activities does not place you as "being in the business of lending" you don't need a licens. State laws may have limites, like five loans, three loans, but that is only one statute concerning that chapter or activity of law, and does not effect other legal requirements that may be applied in that situation. Most states will address lending issues and requirements in several different ventures, loan companies, secured lending, mortgage lending, lease financing, banking, and the list goes on....
- Property Manager · Chicago, IL · Member since 2010 · 44 posts · 3 votes15y
I am a newbie and trouble is the last thing i need.Help me stay out trouble.I am buying and holding for future appreciation and renting the
units.I have not formed an LLC and intend to
place my properties in trust to my children.i have yet to spring it on my attorney,but from the
posts i am reading i need to get there asap.Any advice, input would be deeply
appreciated.....Charles - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
Most I have seen use a fee agreement with the NCND on the commercial side.
The fee agreement has a disclaimer that they are not a securities dealer,financial planner,mortgage broker,etc.
It simply states they are a business consultant and xx number of points will be paid from the closing to be put onto the loan.
Basically a fee for bringing two parties together on the commercial side to do a transaction.
This can be for energy,gold mine and other deals as well.
The key is full disclosure.
Residential is highly regulated unlike commercial.On the commercial side everyone is trying to slam in deals before the government wants to "regulate something" and stick it's nose where it doesn't belong.
On the residential side you have the Georgia Residential Mortgage Lending Act which ALSO states you are NOT allowed to counsel people with loan modifications etc. unless you are licensed.
So as said the feds have rules and the states have rules and you have to make sure both are covered.
- Property Manager · Chicago, IL · Member since 2010 · 44 posts · 3 votes15y
Thanks Joel,you cleared up quite a few issues
for me............Charles - Real Estate Investor · Snellville, GA · Member since 2010 · 213 posts · 12 votes15y
Here in Atlanta I have a friend who has been doing residential hard money over 30 years and own oil in Texas the guy is so rich if he likes your deal he will write you a check. I don't know of him doing any underwriting or having any kind of license to loan his own money out.
- Real Estate Lender · Littleton, CO · Member since 2012 · 32 posts · 15 votes14y
In Colorado, my understanding is that if you are making business/commercial purpose loans (i.e. the property is to be used for investment purposes and not owner occupied nor for family, personal or household use) that you do NOT need a license to lend out money (unless the money comes from others). I am not an attorney nor am I a legal expert.
On December 7th, 2011 the Denver District Court ruled that DORA (Board Of Mortgage Loan Originators) "... exceeded its statutory authority" by adopting a rule requiring licenses and attempting to regulate for all residential real estate loans regardless of purpose. From the ruling "...Board exceeded its statutory rule-making authority and Rule 1-1-6 is invalid."
Below is from the a blog...
---start of quote--
Some ask why was the rule passed in the first place or “cui bono” (latin “to whose benefit”)?Many believe that the rule benefited mortgage brokers by giving them a monopoly on loans and preventing private lenders and hard money lenders and even friends and family from making loans to businesses and people to invest in residential real estate or at least forcing them to use a mortgage broker (who in all likelihood would charge fees).
This begs the next question of “who would suffer from the rule?”
Many believe that the community at large and investors suffer as well as private lenders and hard money lenders. Certainly it would be logical to assume that limiting the sources of loans would result in high priced loans (fees and/or rates). More costly and fewer loans may result less homes being purchased and repaired which in turn means less demand for homes and lower prices and more homes that are in disrepair and “eye soars” dragging down property values. Additionally a rule such as 1-1-6, which seems Un-American by limiting competition in business-to-business transactions, probably would have resulted in many individuals and business unknowingly violating the rule and being subject to potential fines for promoting the repair of properties and helping to stabilize homes values.
I would think that many would ask “Why did the Board (DORA) promote the interest of mortgage brokers, limit competition, and slow the recovery of property values (and the economy) when many of the statutes passed to help protect tax payers and homeowners from predatory lending and restore a stability to property values?”
--end of quote--The aforementioned is my personal opinion only and you should consult a legal expert before acting. I make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information.
- Real Estate Lender · Littleton, CO · Member since 2012 · 32 posts · 15 votes14y
Today at about 9:10AM M.T. the Board of Mortgage Loan Originators (under DORA of Colorado) stated that they do not intend to challenge or appeal the court ruling that stated "......Board exceeded its statutory rule-making authority and Rule 1-1-6 is invalid.". The Board then voted to repeal Rule 1-1-6.
Rule 1-1-6 essentially said that loans on all residential real estate would be regulated as a consumer "residential mortgage loan". However the statutes stated a "residential mortgage loan" is for "personal, family or household use". In essence the Rule would have prevented private lenders and even friends and family from making loans to businesses and people to invest in non-owner occupied residential real estate or at least force them to use a mortgage broker (who in all likelihood would charge fees) and require disclosures, processes and other regulatory acts that were intended for consumer loans and could complicate, increase cost and slow down the loan process.
Regards,
Todd Hoffman
Good Funds Lending, LLC
[SOLICITATION REMOVED]This post is only my personal opinion. I make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information. None of the content should be considered a binding offer or agreement. Any terms or rates mentioned are subject change without notice.
- Chicago, IL · Member since 2012 · 2 posts · 0 votes13y
Check nmls.com for State licensing requirements. Here's the link:
http://mortgage.nationwidelicensingsystem.org/slr/Pages/default.aspxIt doesn't sound like you're trying to broker residential mortgages (owner occupied properties), but commercial mortgages (funding investors who want to flip the property to a homeowner, investor, etc). In general there ISN'T a licensing requirement for commercial mortgage brokers/lenders.
I am curious about the Securities license that was mentioned though. Will do more research into that and let you know.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
WOW, this is an old thread. Problem with mining old threads is that you're getting opinions based on issues of that time, and things change.
It's incredible as to how hard headed people are on BP looking for ways to avoid regualtions.
Take this to the bank:
IF YOU ARE IN THE BUSINESS OF MAKING ANY KIND OF LOANS OF ANY KIND TO THE PUBLIC, YOU WILL BE REQUIRED TO HAVE A LICENSE!
If you find you are exempt under some statute that doesn't mean you're free to lend in another capacity!
Other lending transactions are covered by banking laws, loan companies, pawn shops, securities law, with additional lending and collateralization as well as collections falling under the Uniform Commercial Code, Fair Trade/Collections and a hoast of other regulations. In addition, now, we have the federal consumer protection agency with basically the authority to make determinations on a cases by case basis.
Begin your research with the clear understanding of what the phrase "BEING IN THE BUSINESS OF" means.
If YOU are not an atttorney, it's likely, more than not, as a beginner, that you are not qualified to ascertain the applicability of lending practices, rules, regulations and laws or where to find such restrictions. Prisons are loaded with smart people, at least in their mind.
Lawers, judges and regulators will determine what you are doing, not you, regardless of what documents you dream up to define your way around any requirement.
If you want to lend your own money, then it should be assumed you have money. If you have money, protect your money by getting legal advice, if you don't have a qualified attorney, you have a fool for a client!
There is absolutely no aspect of being in any lending business that is not regulated by governments, none!
- Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes12y
Updating an old thread: at least for Texas in 2014
http://www.sml.texas.gov/tdsml_faq_mb_general.html
Q: I am a
- Investor · Belgrade, MT · Member since 2013 · 135 posts · 32 votes7y
I know this is an old thread, but I had the same question. There was a good piece of advice earlier in the thread to call your state banking commission. I did so here is what they said. In Montana, you did not need a license so long as:
You can originate up to five personal loans a year. It told them I was filing a trust indenture for a house flip and they said it was fine. I did not ask about owner occupied.
You cannot advertise that you are lending
You cannot violate usury laws. In my case I had an attorney draft promissory note and he made sure of this. MT is tough since you can't go over 15%, which can include points/fees. i.e., you charge 12% and one point, and the loan pays off in 3 months. that is actually 16% apr and illegal.
- Investor · Belgrade, MT · Member since 2013 · 135 posts · 32 votes7y
p.s., above note is to originate loans not broker.
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