Licensing requirements for Hard Money Lending in Arizona
Hi guys! Anyone out here a private hard money lender in AZ? Trying to get my head around all the requirements to get in to the game. It seems like you (maybe) need a Mortgage Broker or a Mortgage Banker license in AZ.
It seemed in reading some of the rules/regulations that if your funding the loan yourself, that one is not needed. However, another hard money lender I spoke with seemed to be adamite that one is needed but provided no further insight.
Curious if there is anyone out there that has been funding notes that could shed some light.
Here are a list of scenarios to prompt discussion:
1) Would a license be required if funding myself and only I am the beneficiary?
2) Would a license be required if me and several family members pitched in to fund a note, and we were all listed as beneficiaries? (No origination fee charged)
3) Same scenario as #2, but with an origination fee charged.
4) Assuming the answer to #1 is no, would a license be required if I initially funded and then assigned part of all of my position to someone else?
There are perfectly legal ways to broker financing in AZ without any licensing.
The key is the lender and what type of licensing and programs they have. I am not a lawyer and can get into all the details on licensing and law, but I do know that I broker loans to specific lenders for AZ properties all the time and do not hold any AZ licenses. I've reached out to the state and confirmed that the lenders I work with are property licensed whereas I do not need to be licensed for the transaction types I do (I have that in writing and verified with my attorney as a CYA as well). Keep in mind, I have only found 4 lenders that are properly licensed for me to do this.
You can charge yourself an origination fee...but always do it borrower paid, NEVER lender paid. Lender paid adds a whole world of law, legality, and tax situations that you can easily avoid by going borrower paid on compensation. There are many reasons why one might want to charge themselves a broker origination fee... You may also want to consider other private money outlets other than Hard Money. There are options that will charge you less origination and can put you in 30 year fixed rate mortgages versus bridge loans. This all depends on your goals, of course. No wholesale lender will work with you without a license.
If you are looking for a primary residence, you will not be able to originate or broker your own loan in AZ. The above is in reference to investment, non-owner occupied properties only. Once you intend to occupy, the laws and rules all change and get much much stricter.
You should contact a real estate attorney that understands private lending law in AZ. If you don't know of one, you could contact Melissa Martorella at Geraci LLP in Irvine CA. They specialize in private lender regulations and securities. It's my understanding you need to be licensed as a MLO and also need to have a brick and mortar office in order to originate business loans. I believe there could be an exemption in AZ for the first 4 loans self funded but after that you'd be subject to the state lending guidelines. Don't quote me on that though. As mentioned, this isn't the same as brokering loans on properties there but it does matter if you are going to originate.