Thanks Steve for clearing up all of this confusion!!
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| Does the SAFE Act prohibit private and hard-money lending?
If you haven’t heard, the federal SAFE Act (SAFE meaning the Secure and Fair Enforcement for Mortgage Licensing Act) established a nationwide licensing system for mortgage professionals, and Georgia’s Residential Mortgage Act was modified to bring it in compliance with the SAFE Act. It’s kind of gotten a lot of buzz recently.
The changes to Georgia’s laws have been significant: You need a license to negotiate a short sale. You may or may not be able to offer seller financing.
And private lenders loaning out of their self-directed IRAs, as well as hard-money lenders are wondering: Does the SAFE Act require that I have a license?
Well, the devil is in the details, and the details are always in the definitions. So, let’s see what the law really says.
First of all, it’s important to realize that you need to look at the Georgia Residential Mortgage Act – because that’s the law of the state of Georgia. And Georgia law prohibits non-exempt persons from transacting business as a mortgage broker, mortgage lender, or mortgage loan originator without a license.
Great. So how are you supposed to know if you’re acting as a mortgage broker, lender, or loan originator?
That’s easy. Georgia Law defines those terms for us.
A mortgage broker is any person who “solicits, processes, places, or negotiates mortgage loans for others.” You’re a mortgage lender if you make, originate, underwrite, or purchase mortgage loans. A loan originator is anyone who “takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.”
Well, maybe that’s not too helpful. But it’s pretty clear that mortgage brokers, lenders, and loan originators all work with something called a “mortgage loan.” Luckily, there’s a definition in the Georgia law of that too, and it’s this:
A “Mortgage Loan means a loan or agreement to extend credit made to a natural person, which loan is secured by a deed to secure debt, security deed, mortgage, security instrument, deed of trust, or other document representing a security instrument or lien upon any interest in one-to-four family residential property located in Georgia, regardless of where made, including the renewal or refinancing of any such loan.”
That’s a mouthful. But read it again, because there are two important words to all private and hard-money lenders in that definition.
Catch them? It’s the part that says “residential property.”
Why are those two words so important? Because residential property has its own definition in Georgia’s law as well. And that definition goes like this:
“Residential Property means improved real property used or occupied, or intended to be used or occupied, as the primary residence of a natural person. Such term does not include rental property or second homes. A natural person can have only one primary residence.”
And therein lies the rub.
You see, as long as the property is non-owner occupied, it’s not considered residential property. If it’s not residential property, then you don’t have a mortgage loan. If there’s no mortgage loan, then the private and hard-money lenders aren’t acting as mortgage brokers, lenders, or loan originators.
And if they aren’t acting as mortgage brokers, lenders, or loan originators, then they aren’t doing anything prohibited by the Georgia Residential Mortgage Act. And that means that no license is required.
As long as the property is non-owner occupied, that is.
Harlan and Associates. We help investors be successful and profit in today’s real estate market. We’d love to work with you! Just contact us today and we’ll be happy to discuss how Harlan and Associates can be of service to you!
(Want to read the code for yourself? It’s all in O.C.G.A. 7-1-1000 and 7-1-1002. Email us, and we’ll send you copies of the statutes!) |
