Is using a HELOC for private lending considered brokering?

7 Replies

If I take out a line of credit against my primary residence and lend it to someone for a fix and flip, is that considered brokering since I'm lending out someone else's money? If so, would a brokers license be required?

You should contact a tax professional, but to my knowledge, it's not. The Heloc is your secured debt to do with in any legal means. It's considered a personal loan, unless you do it more than a certain number of times per year (don't recall that number)

Keep it to once or twice a year and your fine.

It's not someone else's money, @Julian Buick . It is your money. You borrowed it personally and can do with it what you will. The bank that made the HELOC has nothing to do with your loan on a flip.

That said, there might be a requirement in Washington that requires you to be licensed to originate a loan secured by real estate. This has nothing to do with the fact that it's HELOC money. The laws in CA allowing you to do this a certain number of times without this license do not at all apply to WA. Your state has it's own laws that might or might not be the same.

This is not a question for a tax professional, but for an attorney knowledgeable about lending in Washington (i.e. not necessarily a real estate attorney). Realistically, you could probably just talk to a local mortgage broker. If required, he or she could likely originate your loan for you, provide paperwork, and ensure legal compliance. This wouldn't be a bad idea anyway, since you are new to this.

This is exactly what I have done with my HELOC. I haven't run across any issues regarding the lender because (the way I understand it), yes, it's borrowed money, but it's already secured against your property so it's your money to do as you please. I have talked about this with the lender and I don't think they really care what you do with the money, as long as you make your payments. You could take the money out and go buy anything you want, of course one would be silly to finance bad debt with your primary residence, although people do all the time :( ... On the private lending side, I have had several loans originated with an attorney so I have a deed of trust and promissory note for each property I invest in. I am funding rehab costs for two fix and flips at a time and on average they are taking 3-4 months to complete. Once they are done, the investment money goes right back into the LOC. I have done 4 already within the past 9 months and I plan to do another here shortly.

The first thing I would recommend is calling Doug: http://www.seattle-realestate-lawyer.com/

I have to ask... why would you use money out of your personal residence equity to fund someone else's deal? I know lots of people take the risk using it for something they're in control of, but have never heard of using a HELOC to loan to someone else.

Another thing to ask Doug about would be the legal requirements for you to lend money to someone else.

-AA

You are free to lend this money any way that you wish to lend it, however on the 8th time lending for someone to purchase real estate you will be considered brokering and will need a California Finance Lender's License. 

Originally posted by @Jayden Hakunti :

You are free to lend this money any way that you wish to lend it, however on the 8th time lending for someone to purchase real estate you will be considered brokering and will need a California Finance Lender's License. 

Julian is in Washington.  California laws still apply?

my mistake. I did not even regard where he was located. However he will need his state's equivalent licensing because it's required per the SAFE Act.

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