FEATURE
Current Florida bill aims to remove the long-standing business purpose exception from mortgage lender licensing.
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By Nema Daghbandan, Esq. & Melissa C. Martorella, Esq., Geraci Law Firm n 2008, the United States Congress passed the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which required all state regulators to regulate mortgage loan originators who originated consumer loans secured by 1-4 unit residential properties (“Dwellings”). The states were empowered to legislate more restrictive licensing requirements if they desired. To date, ten states, mostly in the western region of the United States, require a mortgage lender license to make a business purpose loan secured by a Dwelling and the remaining forty do not. Utah was the most recent state to start requiring a license for originating a business purpose loans when secured by a Dwelling when it passed legislation last year.
Previous Legislation Attempts
During the 2018 Senate session, Florida legislators introduced two bills covering private mortgage lenders. The bills, introduced by Sen. Rene Garcia (R-Miami) and Rep. Jeanette Nunes (R-Miami), aimed to eliminate the longstanding business purpose exemption for loans secured by a Dwelling. Ultimately, in a welcome move, the legislation was extensively modified to remove the licensing requirement based on property type and instead put into place common sense regulations and penalties. The passed legislation did not modify licensing requirements.
18 Originate Report | April 2019
In 2017, an almost identical bill previously passed through the legislature, but was ultimately vetoed by then-Governor Scott in June. Former Governor Scott issued a letter at the time stating that the regulation “would make Florida one of the most restrictive states in the nation in the residential mortgage lending arena.”
Current Pending Legislation
On March 1, 2019, Sen. Annette Taddeo introduced Florida Senate Bill 1632 (SB 1632). After the initial filing, SB 1632 has been introduced in the Florida Senate as of March 13. The bill should alarm private lenders because it makes a major substantive change to current law. Like previously proposed legislation, the current bill aims to remove the long-standing business purpose exception from mortgage lender licensing. Specifically, SB 1632 revises the definition of the term “mortgage loan.” The current definition is: “Residential loan that primarily for personal, family, or household use which is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling….”[1] The new definition removes the following language “primarily for personal, family, or household use.” If this bill is signed into law, every lender who makes a loan secured by a dwelling, regardless of the purpose of the loan would need to obtain a mortgage lender license.
If the bills become law, the legislation would empower the state Office of Financial Regulation to regulate mortgage loans made for business purposes, require brokers of these loans to be licensed, and allow examination of firms offering or making private loans. To obtain a mortgage lender license the lender must produce expensive audited financials documenting a net worth of at least $63,000. Further, any control person of the company must be fingerprinted and undergo FBI and Florida State background checks as well as provide a credit report, among other requirements. The audited financial requirement alone will have a significant chilling effect due to the prohibitive costs of hiring an accounting firm and will drastically reduce the number of lenders capable of making mortgage loans in the state. Finally, the intent of the pending legislation is on its face contradictory. Specifically, the bill states that “the Legislature finds that Florida borrowers who apply for and receive business purpose loans, which are mortgage loans for business purposes which are secured by dwellings, are afforded limited CONSUMER protection.”[2] It is only rational that corporations and other business borrowers should NOT be afforded consumer protections as they are not consumers. These same borrowers are exempt from most federal consumer protections such as the Truth in Lending Act and the Real Estate Settlement Procedures Act. It is common sense that these same borrowers should not be treated as consumers because they are not consumers. Otherwise, these business borrowers will only see a reduction of available credit as lenders become hamstrung by irrelevant regulations and unnecessary red tape. Ironically, if this legislation passes, a private lender would not be required to conduct a foreign registration of their company in the state of Florida as the state legislature intentionally exempted mortgage lending from registration requirements,[3] but would instead need to pay more than thirty thousand dollars to obtain audited financials no matter how small the business was. Florida like most states exempts mortgage lending from foreign registration requirements in a bid to attract foreign investment capital into the state. However, this legislation if passed would clearly have the exact opposite effect.
AAPL and its General Counsel Geraci LLP’s Position. It is too soon to tell if this is a case of “how goes Florida, so goes the rest of the country” situation, but these developments should, at a minimum, alarm those in the private lending industry. This bill significantly impacts how brokers and lenders will operate under Florida law. Many association members make loans in the state of Florida and many lenders will assuredly choose not to become licensed due to the extensive administrative process. Further, all neighboring states including Alabama, Georgia, Tennessee, North and South Carolina all exempt business purpose loans from licensing require-
