Licensing requirement for Georgia note investing?

Question

As I understand it a license is required to buy residential mortgage notes in the state of Georgia and I'm posting to see if anyone has specific info on this or links to article that provide the requirements. Perhaps @Dion DePaoli could provide some perspective?

Thanks,

Bob

Thanks,

Bob

Bill Gulley · Answer

Well, I agree with Patrick's basic assessment and his suggestion to obtain specific legal advice.

Joshua has provided a pretty good link I believe as to a firm for compliance activities, not sure if it is on a continuing basis, but I skimmed through the site.

For those note folks here, you might see from that law firm the issues of unlicensed mortgage activities and a key point which I've been bring up for several years, if you are buying/selling notes as a business operation you need a license. There is a difference buying/selling in the name of some business entity as "being in the business" and dealing in your individual name as a private investor.

Notice the attorney's warning "if your company" so this applies to those who may be determined to being in the business of mortgage activities.

So, IMO, without further research specific to GA, is that it appears to me if you're acting as an individual, meeting the requirements as an investor (using your own money and holding, not just flipping notes) you'll be fine up to 4 (in some cases 10) mortgages. That also means you'll need to comply in the mortgage servicing arena as well.

Further, IMO, this is a big blow to those attempting to deal in NPN's due to the regulatory issues of loan modifications and license requirements for lenders, a loan modification is a new mortgage and then subject to current regulation.   Buying NPN's isn't an investor activity, it is a brokerage/business activity because the bad debt must be restructured. If an investor holds a bad debt they need to 1. attempt collection or 2. get rid of the note.

The best money I have found in the note arena is to buy a performing seller financed note (locally and there are more than you can buy) and have the borrower refinance out of that note, giving them an incentive to refinance from the discount, take your discount and move on. The theory of the velocity of money applies. You can pay most of the costs for the refinance, if you reduce the payoff the borrower will have regular income tax due from the forgiveness of debt, some exceptions apply.  :)

Patrick Desjardins · Answer

There is a lot of misinformation about Georgia's licensing. I wouldn't trust anyone here to provide a definite answer good enough for you to safely buy loans in your fund.

Basically what I've always been told is that you were safe if you bought notes as an investor, but not as a business. The threshold is 4 loans per year. The legal challenge is that it's easy to build a case claiming that a company buying an NPN (which needs to be worked out) is doing it as a business, as it's totally different from passively buying a performing note in your IRA or seller-financing your home. This distinction is very relevant in states that want active note buyers to be licensed as debt collectors.

If you plan on buying them for your fund, I would definitively sign up with one of the companies that monitors licensing requirements and help you stay compliant. They can also help you with the licensing requirements based on your entity structure (ie do you need RCM management company license, or Fund1 to be licensed? etc)

Just my 2 cents. I'd be very cautious on this one.

Dion DePaoli · Answer

I pulled the letter from GA pertaining to license:The Georgia Licensing Dept is requiring the servicer of GA loans to verify the owner's status (per O.C.G.A. 7-1-1001):

1.  Any person who purchases mortgage loans from a mortgage broker or mortgage lender solely as an investment and who is no in the business of brokering, making, purchasing or servicing mortgages, is NOT required to have a license to own the loan.  If the loan is on property that is a rental or vacation home, a license is NOT required to own the loan.2.  If the loan is on a primary residential property the lender/buyer/owner of the loan, excluding the above exceptions, must have a Georgia Lender License.  Georgia Mortgage Lender License # ____________.So to answer your question, which is a very common confusion here in BP.  NO you cannot simply outsource the license.  If you are in the business of making loans to primary residence consumers YOU, meaning you and your company, will need to be licensed in most, if not all states.  Hiring an RMLO does not absolve you from the requirement for the license as you will be "in the business" of making loans.  Folks believing they are circumventing this fairly straightforward interpretation are just not happy accepting reality.  The point of the license requirement is to be able to control and hold accountable those people and entities which are extending consumer credit secured by real property.   If you want to get into the business of making loans.  Go get a license.

Joshua Andrews · Answer

I have not researched this fully, but here is an article that may provide some insight.

http://thomas-law.com/warning-2-2-note-buyers/

Mike Hartzog · Answer

The fine is sounding pretty good by comparison ;-)

Dion DePaoli · Answer

The Georgia Fair Lending Act of October 2002 was the first of its kind to allow for Mortgagee Assignees to be liable for the origination of the loans they held.  The law was eventually eroded but it gives an idea of the spirit of the Georgia rules and the level of their desire to protect the public against unscrupulous practices.    Particular to us, a couple years ago - 2012/2013 we had a pool of loans which contained some Georgia loans and we were fined through our servicer for lack of license.  It wasn't a beating and once the fine was paid we didn't experience any further issues but we did pay a couple hundred dollars in fines.

Since then I have not heard of the same thing happening again but there has been more awareness of the potential.  I think the suggestions here are on point by Bill and Pat, if you are putting investor money at risk you should get legal involved for a risk assessment prior to taking on any unknown liability.

Gary Headrick · Answer

Here is what the state says.

https://mortgage.nationwidelicensingsystem.org/slr/PublishedStateDocuments/GA-Mtg-Lender-License-Registration-Description.pdf

Travis Hughes · Answer

Sorry to resurrect this topic.  I've got a question that you guys will probably consider super basic.  Is there any way that an unlicensed individual investor can simply outsource this item?  I had been thinking about this on the regulatory side (Dodd Frank, TILA, etc) as well as actually writing the instruments, hopefully to follow conventional guidelines so that it is easier on the resale side, in addition to meeting all of the licensing requirements.  Can an individual investor not hire these tasks out to an RMLO and just pay them an origination fee or something?

@Bob Malecki

@Bill Gulley

@Dion DePaoli

Bob Malecki · Answer

Thanks @Ken Martinez, I think we met at a Papersource event or Noteworthy a while back. Nice to hear from you. Looks like the exemption may be just for individuals, not companies though. Quite a list of prerequisites: http://mortgage.nationwidelicensingsystem.org/slr/PublishedStateDocuments/GA-Mtg-Lender-License-Description.pdf

Some exemptions include:  Federally insured financial institutions and their wholly owned subsidiaries;  W-2 Employees of licensees and registrants (see Code);  Attorneys who provide legal services who are not in the business of negotiating loans;  Any person performing any act relating to mortgage loans under order of any court ;  Nonprofit corporations making mortgage loans to promote home ownership or improvements for the disadvantaged;  Any natural person who makes five or fewer mortgage loans in any one calendar year;  Other… refer to Code Section 7-1-1001.

Bob

Ken Martinez · Answer

You can check out the requirements at NMLS Resource Center, http://mortgage.nationwidelicensingsystem.org/slr/Pages/DynamicLicenses.aspx?StateID=GA, and look under Mortgage Lender license.  It does say there less than 6 per year and you are exempt.

Licensing requirement for Georgia note investing?

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