Some Hard Money Lenders Forced to Comply With Licensing Reqs

[Corey Dutton]

Some hard money lenders and brokers may have to comply with new licensing requirements for lending on residential property. Depending on what State you are working in, if you are lending your own money on residential property, you may be required to be licensed. As a hard money broker on these transactions, the same may apply. But how and why?

Under the Consumer Financial Protection Bureau set up under Dodd Frank, those conducting the business of residential mortgage loans may be under new obligations to become licensed. For example, in the State of Nevada, if you are a hard money lender, even if you are lending your own money on residential property 1 to 4 units, you must be licensed under the SAFE Act under the Division of Mortgage Lending in Nevada. And if you are a hard money broker on such transactions, you must also be licensed.

But again, each State has taken a different line in response to this. If you are hard money lender or a hard money broker and you are unsure, contact the Division of Mortgage Lending and/or the Division of Real Estate at your State level to inquire. Tell them what business activities you are engaging in, and inquire about licensing requirements. You may be shocked to find out that you may need a license.

[Ellis San Jose]

My understanding (For California) is that the property isn't the issue, it's the borrower. If the loan is to a non owner occupant, it is considered a commercial loan and not subject to to the same regulations which are intended for consumers.

Hard money and private lenders are unwilling to lend to owners occupants because of the huge potential liability.

[Account Closed]

@Ellis San Jose : It's neither property nor borrower that determines SAFE Act licensing requirements in CA ... it's all about what the loan is used for, not what the loan is secured by. RE or DOC licensing, yes, SAFE ACT (NMLS) licensing, no...when money is used for a business purpose.

@Corey Dutton : I've been told by one CA attorney, that is up on recent lending laws, that you do need a license to lend your own money in CA, even if it is for business purposes. I'm still not totally convinced however. It's good that you are bringing this up. I think it's topic investors are reluctant to face.

[Corey Dutton]

I think it just takes a phone call to the Division of Real Estate or Mortgage Lending at the State level. They will tell you. If you're lending out other people's money, I think it's pretty important to make sure you aren't operating illegally, for the sake of your investors who depend on you to know. Most investors who are doing trust deed investing don't know about these new requirements. It only takes one complaint, by one disgruntled borrower over a trivial disagreement to get you on Big Brother's radar. Ask Bruce Norris of the Norris Group about licensing reqs in CA for hard money brokers like himself. He certainly knows the right answer. He's brokering millions and millions of dollars in trust deeds each year in CA. Thanks for your comments all !!!

[Account Closed]

Corey: Looking at the CA BRE website (CA BRE License Verification) I see Bruce Norris is not NMLS licensed. You are right he brokers a lot of money, but I'm not sure what he says is conclusive regarding licensing requirements, it's best to talk with a mortgage attorney. I have huge respect for Bruce and his operation by the way.

[Corey Dutton]

Unfortunately, in CA, you are to be a licensed real estate brokerage to do hard money brokering. It doesn't fall under the NMLS. You will see that Norris has his CA Real Estate brokerage. He does loans under that.

[Ellis San Jose]

http://www.dre.ca.gov/files/pdf/faqs/SAFE_FAQ_filing_NMLS.pdf

Q. I am a broker or salesperson arranging residential mortgage loans 1-4 unit properties for investors. Do I need a Mortgage Loan Originator License Endorsement on my DRE license?

A. Yes, if the loan is made for personal, family, or household use. Note: , taking an application or negotiating the loan terms. Disciplinary action and penalties would apply if any of these activities were conducted without the MLO License Endorsement.

I am looking specifically at "Note:A mortgage loan originator who only originates loans for investors who will use the loan to purchase rental properties for income will not need an originator license, but if any of those investors purchase a property for a family member or for other personal use, then he purchased it for personal, family or household use and the loan agent would have to have the MLO License Endorsement on the DRE license BEFORE soliciting the investor/borrower"

[Account Closed]

Originally posted by Corey Dutton:
Some hard money lenders and brokers may have to comply with new licensing requirements for lending on residential property. Depending on what State you are working in, if you are lending your own money on residential property, you may be required to be licensed. As a hard money broker on these transactions, the same may apply. But how and why?

Under the Consumer Financial Protection Bureau set up under Dodd Frank, those conducting the business of residential mortgage loans may be under new obligations to become licensed. For example, in the State of Nevada, if you are a hard money lender, even if you are lending your own money on residential property 1 to 4 units, you must be licensed under the SAFE Act under the Division of Mortgage Lending in Nevada. And if you are a hard money broker on such transactions, you must also be licensed.

But again, each State has taken a different line in response to this. If you are hard money lender or a hard money broker and you are unsure, contact the Division of Mortgage Lending and/or the Division of Real Estate at your State level to inquire. Tell them what business activities you are engaging in, and inquire about licensing requirements. You may be shocked to find out that you may need a license.

All the hard money lenders in my areas are already licensed. Rates have come down some in the last couple of years, but you have to be licensed in CA to broker loans with interest rates or 10-18+% anyway.

[Corey Dutton]

@Ellis San Jose remember this is just for CA. Each State has it's own interpretation of the SAFE Act. This is just California's.

[Account Closed]

@Ellis San Jose : If I make a loan to an investor secured by his personal residence and the money is used to rehab a flip, then the loan money was not used for personal, family or household use and therefor a NMLS license endorsement is not required. That's why I say "It's neither property nor borrower that determines SAFE Act licensing requirements in CA ... it's all about what the loan is used for, not what the loan is secured by."