Needing Licenses To Buy Default Mortgages

6 Replies

We were forced to get a debt collectors license in Maryland to collect on one 2nd lien non performing note we purchased last year, even though SCOTUS ruled a year ago if you own it you are not a debt collector. They are doing it under state law that covers debt of any kind, including real property has to have a debt collectors license, even if you own it. We also had to register for a business license as a foreign LLC with the state.

I also hear Georgia is doing something similar, and then someone mentioned Illinois requires a license for something.

Does anyone know what other states are requiring a debt collectors, and or business registration license for note buyers? 

I believe the distinction is between "debt collection" and being "licensed to purchase/own" mortgages/DOTs. 

@Christopher Winkler is exactly right regarding the Supreme Court decision surrounding debt collection as the owner of the debt, however we have found some state attorneys are still recommending having a debt collection license so as not to be the "test case".

As @Chad U. states, NMLS is the definitive site for determine mortgage licensing requirements (frequently separate licensing requirements for loan purchase vs. origination).

There is a third, and wholly separate issue of servicer licensing (also found on the NMLS).  An investor must first understand state servicer licensing requirements, then confirm that their intended servicer is licensed in the appropriate state if required (many will service a loan in a state in which they are not licensed, so be aware).   This adds to the complexity of the business as some servicers require the use of one of their "approved" attorneys in order to initiate a foreclosure action.

We suggest asking an attorney in the state where you are considering a loan purchase for their opinior on the above three questions.  Their responsiveness to these questions may also be a good indication of their responsiveness in general (a frequent issue that requires good systems and hands management especially as your business grows).

There are investors on this site with far more experience than myself and our company, but this is our general assessment of compliance overview in regards to required licensing.

@Christopher Winkler Georgia does require a license. Don't have the website in front of me but I know that it covers purchasers of debt. We've heard directly from at least one investor who had to sell his portfolio of GA loans because he wasn't licensed and the state found out about it. Apparently, they are active in finding unlicensed debt buyers.

Not legal advice, just my opinion based on my own experience. The state of Illinois has a statute that some people interpret as requiring a license for note holders. According to a couple of Illinois attorneys I've talked to, there is enough ambiguity in the law that they don't believe that it applied to investors. They suggested that as long as we're registered as a foreign entity in the state, then we should be fine. The attorneys mentioned that the state of Illinois does not actively pursue investors like they do in GA. The most likely issue that may come up is that the defendant in a FC complaint may bring it up as a defense but neither attorney ever heard of a situation where the lack of a license invalidated a mortgage. In their words, being registered as a foreign LLC was "90% of the battle." Again, this is not legal advice, definitely consult your attorney first before taking action.

@Chris Seveney it was the attorney representing the homeowner who said in a filing before sale that we are not debt collectors, and using the mini Miranda saying we are debt collectors, we needed to be registered. Our attorney advised us to get it out of the way, and it cost us about $600.00 to get the license and register as a foreign LLC. So it was done to insure our ability to forecose, then they go and file Ch 7, which is good as they can get rid of some debt and start paying us!