Do I need a license to Invest in Notes in Maryland

Tax Liens & Mortgage Notes
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Do I need a license to Invest in Notes in Maryland

Nick Patel
Investor · White Marsh, MD · Member since 2016 · 48 posts · 11 votes

Does anyone know whether you need to be licensed to invest in non-performing notes (1st lien) in Maryland? I called Maryland State board and was told that as a company (LLC or solo Propritership) I am required to have a Mortgage lending license in MD under my LLC. I felt like she may have misunderstood my question or I was not detailed enough on my explanation. I want to ask BP expert on their experience and knowledge to confirm this information is accurate.

After looking at the Maryland licensing requirement, it seems to be a lengthy and the costly process. Plus yearly renewal. My point of view is that if I have my servicing company doing the outreach and all of the legal requirements then why do I need to be licensed (my LLC is just a passive investor with no direct contact to the borrower)?

Thank you in advance for your reply,

Nick Patel

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Brian Pendergraft
Attorney · Clinton, MD · Member since 2016 · 70 posts · 55 votes
8y

Time to apply the IRAC method.

Issue: Do you need a license to invest in non-performing notes in Maryland?

Rule: Maryland Code B.R. § 7-101(c) defines a collection agency as follows: "Collection agency" means a person who engages directly or indirectly in the business of...(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it.

Analysis: By buying a non-performing note, you are collecting a consumer claim that was in default when you acquired it.

Conclusion: You need to be licensed as a collection agency to buy non-performing notes in Maryland.

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  • Marco Bario
    Specialist · Frederick, MD · Member since 2017 · 475 posts · 454 votes
    8y

    Hi @Nick Patel -

    I consulted an Attorney on the topic who advised that I would need a Maryland Debt Collector's License. He pointed me to a current case before the Maryland Court of Appeals - Blackstone v. Sharma. The outcome of this case will determine if the license is needed following the ruling. Currently you may be blocked from foreclosing without it.

    Although I don't live there now - I'm Maryland born and raised, and have an interest in investing there. I applied for and received the Debt Collector's license. Happy to share regarding the application process if you'd like to reach out. 

    2Reply
  • Christian Sifuentes
    Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes
    8y
    Chris Seveney may be able to help on this topic.
    0Reply
  • Jamie Bateman
    Investor · Baltimore County, MD · Member since 2014 · 466 posts · 439 votes
    8y

    @Marco Bario Just to clarify, was the guidance you received based on where the LLC is located? My understanding was that, in general, note investing and related laws are based more on the location of the property/note itself as opposed to the lending company's location. And, like @Nick Patel, I was under the impression that if the servicing company was handling interactions with the borrower, everything would be legal from the investor's standpoint. I certainly could be wrong about that, though.

    I am very interested in this forum, as I am starting out in the note business in MD as well.

    In case it helps, here are a couple of blurbs from the state's DLLR site:

    A Collection Agency engages directly or indirectly in the business of collecting for, or soliciting from another, a consumer claim; or collecting a consumer claim the person owns, if the claim was in default when the person acquired it.

    A Mortgage Loan Originator is an individual who for compensation or gain, or in the expectation of compensation or gain, takes a loan application or offers or negotiates the terms of a mortgage loan.

    Jamie

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    8y

    @Nick Patel / a mortgage lender license is required if your originating mortgages in Maryland. I believe your inquiring about a debt collector license and my recommendation is to speak to an experienced foreclosure attorney. 

    @Marco Bario is correct the courts are currently reviewing a case to determine if a license is needed.  

    I am in the process of getting my debt collector license and yes it is a pain. 

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  • Marco Bario
    Specialist · Frederick, MD · Member since 2017 · 475 posts · 454 votes
    8y

    Love interacting with so many Maryland / Mid-Atlantic investors here. I'm a Silver Spring kid who lives in Los Angeles now, but miss the area. 

    @Jamie Bateman - You are correct - it's where the property is located. In some cases and with the right scenario your servicer being licensed in a state is all you need. But I'm learning that isn't true everywhere.

    Recently I was looking at a note in Kansas, but learned after consulting an attorney that owning the loan without a license could be seen as a felony. There's language in the text of the law which mentions the possibility of jail time for a second offense. Decided to pass on that one.

    All this said, I'm not an attorney and I recommend checking based on your own specific scenario. 

    0Reply
  • Brian Pendergraft
    Attorney · Clinton, MD · Member since 2016 · 70 posts · 55 votes
    8y

    Time to apply the IRAC method.

    Issue: Do you need a license to invest in non-performing notes in Maryland?

    Rule: Maryland Code B.R. § 7-101(c) defines a collection agency as follows: "Collection agency" means a person who engages directly or indirectly in the business of...(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it.

    Analysis: By buying a non-performing note, you are collecting a consumer claim that was in default when you acquired it.

    Conclusion: You need to be licensed as a collection agency to buy non-performing notes in Maryland.

    3Reply
  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Brian Pendergraft:

    Time to apply the IRAC method.

    Issue: Do you need a license to invest in non-performing notes in Maryland?

    Rule: Maryland Code B.R. § 7-101(c) defines a collection agency as follows: "Collection agency" means a person who engages directly or indirectly in the business of...(ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it.

    Analysis: By buying a non-performing note, you are collecting a consumer claim that was in default when you acquired it.

    Conclusion: You need to be licensed as a collection agency to buy non-performing notes in Maryland.

     Well now, that begs the question: is a Residential Mortgage considered Consumer Debt?

    0Reply
  • Nick Patel
    OP
    Investor · White Marsh, MD · Member since 2016 · 48 posts · 11 votes
    8y

    Thanks, Everyone for your feedback.

    @Jamie Bateman : yes, both (note and the LLC) are in MD.

    I have learned the some of the applications are in the hold status and DLLR are backed-up with new applications... They used to allow 3 notes per investor but they don't do that anymore.

    Per @Chris Seveney - I am in process of working with FC attorney. Is "Debt collector license" same as  "Debt Management License" (https://mortgage.nationwidelicensingsystem.org/slr...)?

    @Brian 

    @Bob Malecki - I see your point. You have servicing companies that can handle consumer debt in the middle. For a small company, it would be too much burden to get a license and something you will not use for anything (Note buyers are just a passive investor). 

    Side topic: If you consider consumer Debt, then same law should apply to all 50 states and one license should satisfy every state? Too many fragmentations. Maybe this can be a good argument for our politician. :-)

    Thanks, everyone for your contributions.

    1Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    8y

    @Nick Patel no

    It’s a collection agency license. 

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  • JR T.
    Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
    8y

    @Bob Malecki Yes a mortgage loan is a consumer debt. 

    Getting the collection agency license is simple. You do it all online and pay the fee and you'll be issued it shortly thereafter. Renewals are handled similarly online.  If you plan to sue the person for foreclosure, as noted above, you need to have been properly licensed as a debt collector from the time you acquired the note.

    1Reply
  • Brian Pendergraft
    Attorney · Clinton, MD · Member since 2016 · 70 posts · 55 votes
    8y

    @Bob Malecki as @JR T. stated a mortgage loan is considered consumer debt.

    But let's IRAC this too because why an explanation as to why can never hurt.

    Issue: Are residential mortgages considered consumer debt?

    Rule: Consumer debts are personal debts as opposed to business or government debts.

    Analysis: Residential mortgages are personal debts.  They are loans to individuals to buy homes for personal use.

    Conclusion: Residential mortgages are considered consumer debt.

    1Reply
  • Nick Patel
    OP
    Investor · White Marsh, MD · Member since 2016 · 48 posts · 11 votes
    8y
    Originally posted by @Chris Seveney:

    @Nick Patel no

    It’s a collection agency license. 

    Thank you, Chris, for your feedback. It was very helpful in getting me started in the right direction with the forms. I used my local business newspaper to find FC attorney. Thank again,

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    8y

    @Nick Patel I would research your attorneys as there are a lot of attorneys who do these in bulk and are all about quantity not quality. If you need a referral I have a very good attorney in MD

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  • Nick Patel
    OP
    Investor · White Marsh, MD · Member since 2016 · 48 posts · 11 votes
    8y

    Chris,

    Yes, I can use your referral If you don't mind sharing a good attorney's contact info. 

    Thanks,

    Nick Patel

    0Reply
  • Edward B.
    Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
    8y

    It surprises me not at all that Maryland is one of the states making it harder to clear these problems off the books rather than easier. Some people just can't help themselves it seems.

    0Reply
  • Sherman Ragland
    Involved In Real Estate · Upper Marlboro, MD · Member since 2014 · 246 posts · 230 votes
    8y
    You do not need a license to invest in notes. Depending upon what you do with the note, you may need a license, or hire someone with one to take a specific action. As an investor, you are the owner of the asset. Rarely do you need a license when you are representing yourself.
    0Reply
  • Robert Harpster
    Investor · Federal Way, WA · Member since 2020 · 42 posts · 10 votes
    6y

    Wondering about the outcome of this? Is a license required to purchase a note in Maryland?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    6y

    @Robert Harpster

    Not at this time

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