Can someone help me with a few Hard Money lending questions?

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Can someone help me with a few Hard Money lending questions?

Robert Anderson
Weymouth, MA · Member since 2014 · 16 posts · 2 votes

Hi, I want to become a hard money lender in Massachusetts. I’ve been involved with a few small house flips the last couple years. I’ve never had to borrow money. I’m tired of flips And want to be the money guy. I’m not rich, but I have enough to do about 3 or 4 solid loans at at time. I’m aware that when it comes to lending money, I better know what I’m doing or it can go south quickly. I generally just want to ask a handful of questions if anyone can help me out, that would be awesome ). 
here are a few questions.

Do I need a License to be a Hard Money lender in Massachusetts? If yes, what’s the name of the license?What type of attorney would I contact? 
what department of Massachusetts would I call? 
can anyone send me a link that pin points exactly what I need to do to become a lender? 

I talked to someone this week from Massachusetts department of finance and banking, he didn't seem to know much about this field. He said if it's 4 loans or less, I just need to set up an LLC. I don't feel confident enough to go by his advice, and find out I'm breaking laws. any info someone has to offer, I'm listening . I'm also willing to pay a fee for anyone's time and services that have knowledge of this field. I know I'm going to think of 20 more questions when I post this.
ok thank you all for reading this. Have a great day

Bob A

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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
6y

Do I need a License to be a Hard Money lender in Massachusetts? If yes,

what’s the name of the license?

NationwideLicensingSystem

What type of attorney would I contact?

You need an attorney with many private lending clients.  Not just a real estate attorney.   Go to the registry, look up some private mortgages, and some times on the discharge there is a "Return to" field, which would be the attorney.  Although with electronic filing, there will be very few with this field.  Alternatively, call some of the larger hard money companies and ask them for the name of their attorney.  They might give it to you.

what department of Massachusetts would I call?

See link for NMLS above

can anyone send me a link that pin points exactly what I need to do to become a lender?

You will find that while the link gives you specifics, it's the questions you didn't ask that are more important.  Find yourself a good attorney.  The reason that a real estate attorney is not enough, is the attorneys who handle closings for institutional lenders only know how to close the deal, and are typically provided loan docs by the institution, because they have attorneys on staff to ensure compliance.  Real estate attorneys usually know nothing about lending compliance. 

I'm assuming that by 3-4 deals, you have over 1 million available for lending.  In general, in MA, if you don't have at least a million to lend (aside from your other assets toward retirement, housing, etc) then you don't have enough to lend.  All that networking and marketing, and then you are suddenly out of money.  Then you are telling all those people "oops, sorry, I can't do that deal right now."  Part of the reason to use a private lender is speed to close.  

You may want to consider finding 1 flipper or buy and hold investor you trust, and partnering solely with that person.  You two together can grow your portfolio significantly without spending time marketing for new borrowers.  Just an alternative to consider.  

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  • Doug Smith
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    6y

    I spent more than 25 years in lending for some of the largest banks in the world before I left to run the Castle Rock loan portfolios, so I've done a loan or two. I've never, however, lent in MA, but I do know that if you make fewer than 5 loans in a 12 month period, you don't need a license, but most lenders I know stick to not making consumer loans. Since most jurisdictions consider most business owners "savvy", they regulate them much less. 

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    I would say if you're talking about a small number of loans a year (3-4) you likely aren't going to need a license. You can work with investors on flexibility and potentially partner with them etc. in ways that a typical HML wouldn't. If you're planning on doing this long term it might be worth it for you to look into what a license would entail though. May be worthwhile to just start out by getting your feet wet and seeing if you have an appetite for lending and then deciding down the road what fits you.

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    6y

    Do I need a License to be a Hard Money lender in Massachusetts? If yes,

    what’s the name of the license?

    NationwideLicensingSystem

    What type of attorney would I contact?

    You need an attorney with many private lending clients.  Not just a real estate attorney.   Go to the registry, look up some private mortgages, and some times on the discharge there is a "Return to" field, which would be the attorney.  Although with electronic filing, there will be very few with this field.  Alternatively, call some of the larger hard money companies and ask them for the name of their attorney.  They might give it to you.

    what department of Massachusetts would I call?

    See link for NMLS above

    can anyone send me a link that pin points exactly what I need to do to become a lender?

    You will find that while the link gives you specifics, it's the questions you didn't ask that are more important.  Find yourself a good attorney.  The reason that a real estate attorney is not enough, is the attorneys who handle closings for institutional lenders only know how to close the deal, and are typically provided loan docs by the institution, because they have attorneys on staff to ensure compliance.  Real estate attorneys usually know nothing about lending compliance. 

    I'm assuming that by 3-4 deals, you have over 1 million available for lending.  In general, in MA, if you don't have at least a million to lend (aside from your other assets toward retirement, housing, etc) then you don't have enough to lend.  All that networking and marketing, and then you are suddenly out of money.  Then you are telling all those people "oops, sorry, I can't do that deal right now."  Part of the reason to use a private lender is speed to close.  

    You may want to consider finding 1 flipper or buy and hold investor you trust, and partnering solely with that person.  You two together can grow your portfolio significantly without spending time marketing for new borrowers.  Just an alternative to consider.  

    5Reply
  • Jeff CichockiBusiness Member
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    6y

    Hi @Robert Anderson,

    I'm not a Massachusetts lender, but I would call the state back and ask them specifically about licensing requirements to become a commercial lender. Don't talk about hard money. No one outside our industry knows what it is. All hard money is commercial in nature. They're for business purposes and not against a house that your borrower is going to live in. Also, while you are on the phone with them, ask them what the usury laws are for commercial loans against real property.

    I'm not an attorney, but I went to the Massachusetts state website to look up the MLO requirements. Here's the first sentence of the license definition for who is required to have a license...

    Who Is Required To Have This License? Any natural person who for compensation or gain or in the expectation of compensation or gain: (I) takes a residential mortgage loan application; or (ii) offers or negotiates terms of a residential mortgage loan.

    The way I read it, you only need to be licensed if you are taking residential mortgage loan applications. A RMLA is for owner occupants. As a HML, you would fall under the commercial laws. Like most states, I couldn't find anything that identifies licensing requirements for commercial loans. Most states that don't specify licensing requirements have no requirements.

    Good luck!

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  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

    @Jeff Cichocki Thank you!! I think you may have answered my question about the difference between a HML and Private Money lender. Is the difference then whether you're lending on owner occupied vs non owner occupied?? Would it be safe to say that you could have a loan for each that are identical, with the only difference being one is OO (PML) and the other is NOO (HML)?

    0Reply
  • Dustin Lauer
    Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes
    6y

    @Robert Anderson it may be best to start through note investing with groups like PeerStreet.  If you are set to lend on your own, yes it is certainly worth it to use an attorney for everything.  You may get many conflicting opinions on whether or not you need a license, even if you call NMLS directly.  That said, great reply from @Ann Bellamy and partnering / investing with a couple investors may be a good idea, but you could find yourself quite active all of the sudden if things do not goes as planned.

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    6y
    Originally posted by @Lisa Eckman:

    @Jeff Cichocki Thank you!! I think you may have answered my question about the difference between a HML and Private Money lender. Is the difference then whether you're lending on owner occupied vs non owner occupied?? Would it be safe to say that you could have a loan for each that are identical, with the only difference being one is OO (PML) and the other is NOO (HML)?

    Lisa, No, do not use this as the difference.  I actually wrote a BP blog post on this topic. 

    Hard money (and private money) loans are almost always non-residential, business purpose loans.  

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    As Ann stated that isn't the difference between hard money lenders and private money lenders. There are hard money lenders that lend owner occupied as well as non-owner occupied. 

    0Reply
  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

    @Ann Bellamy thank you for referring me to your article on the subject. That was helpful!

    1Reply
  • Jeff CichockiBusiness Member
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    6y

    @Lisa Eckman, The difference between a Hard Money Lender and a Private Lender is that the HML is a professional and does it for a living and a PL is someone who lends privately on occasion. Either or both could lend on a residential OO property or on commercial (anything for business or investment purposes). The type of lender doesn't have anything to do with what they are willing to lend on. It is a more of a designation of status, experience and underwriting practices. All loans that are against real property are technically asset based loans. Even banks give asset based loans. Underwriting practices are what differentiate banks from HML's and PL's. Banks are credit and income based lenders who secure their loans against a hard asset. A typical HML or PL will base the loan primarily on the hard asset and very little on credit or income. Their underwriting styles are opposite of each other.

    I hope that makes it a little clearer for you.

    As a side note, I looked at your profile. It looks like you are new to lending. Please make sure that you get completely educated before you start lending money on your own. If what you learn seems complicated, find someone you can trust and lend through them. Until you are fully comfortable with lending, it's a lot safer for you to lend through someone who is experienced at lending others money.

    If you want to look into getting trained, there are not many teachers in this arena. I would look up Dyches Boddiford and Bill Bronchick. Both offer hard money courses and classes. Attending live is way better than just buying a course. There is one more guy out there that is teaching this, but his name escapes me.

    Good luck & feel free to keep asking questions.

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  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

     @Jeff Cichocki thank you for the information. Yes, definitely new to this part of RE and trying to get educated on it as quickly as possible. Would love to partner with someone to learn the ropes. Thanks for your input!

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    @Lisa Eckman do you have an experienced investor you know with a solid track record that you are looking to lend to? That's a good place to start. 

    0Reply
  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

    @Odie Ayaga I'm working on it.  :)

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    Patience then. Don't find A deal find THE RIGHT deal.

    0Reply
  • Robert Anderson
    OP
    Weymouth, MA · Member since 2014 · 16 posts · 2 votes
    6y

    @Doug Smith I just want to thank you for your help in regards to my question.

    0Reply
  • Robert Anderson
    OP
    Weymouth, MA · Member since 2014 · 16 posts · 2 votes
    6y

    I just want to thank everyone for their help with my questions. Great and informative information by sophisticated people. Appreciate it.

    0Reply
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