Can a non-licensed investor legally earn a consultation fee for advising and facilitating an owner finance deal?

Question

Hi all. Thanks for taking the time to read this. If you might share your knowledge and/or insights, I'd be especially grateful.

I'm a wholesaler in the greater NYC area. I'm not licensed at this time. I've been learning a little about note investing and seller financing and it occurred to me that there might be a way for me to monetize seller leads, I might otherwise have passed on to a realtor.

I should mention that among other marketing strategies, I market to inherited properties lists. These properties tend to be free and clear of debt/liens. These sellers often are not "highly motivated" enough to accept an all cash offer for the property, as cash offers are generally substantially below market value, especially if the property needs updating and or significant repairs.

My questions are, can I advise the seller and refer them to a pro (I think it might have to be an attorney in NY) on my team, who would create a purchase money mortgage for them, for a consultation fee? I'd also be bringing them a "qualified" buyer.

On the buyer's side, I'd market to those who can't get a bank loan, because of the banks' stricter qualifying guidelines these days (Dodd_Frank), pre-qualify them with slightly less strict qualifications, as it's a private transaction, with the help of another pro on my team, like a RMLO (residential mortgage loan originator) or loan broker, and bring them together with the seller, also for a consultation fee. I'll assume you know the benefit to both parties of a seller financing transaction in general.

I'm thinking 2 to 2.5% consultation fee on each side, which considering NY high price point of properties, is not too shabby.

Can I do this?

Is it legal?

Does it make sense?

An added benefit to the seller is, once the loan is seasoned, is, they can sell partials of the note. I'd try to negotiate in the deal, that I'd get the 1st option to buy the partial, which I could monetize by bringing another investor looking to buy a short term cash flow deal (I don't expect everyone to understand this note investing strategy) for a piece of the note, for a fee, or selling it, at a lower interest rate than what I've negotiated.

Thoughts? Comments? Advice?
Thanks, I appreciate it

Wayne Brooks · Answer

No. No license.....no mortgage fees. With a license....2 points a side, not realistic.

Rick H. · Answer

You have several excellent posts from two qualified experts. I'll give you practical thoughts to consider:If you can't charge fees for legal or tax advice, real estate or mortgage brokerage activities requiring a license, are there any services that you can be compensated for legally? And who would be willing to pay for these services? Where does the fee come from?What ways could you legally protect yourself from unpaid fees or deals that people try to circumvent you?While you work on this idea, pick up a copy of Robert J. Ringer's classic, 'Winning Through Intimidation'. Since the title is bit misleading, I have no patience for comments from those who have never read the book nor understand it's contents or premises.Don't give up on the idea.

Dion DePaoli · Answer

Yea Wayne is right. NO. You can not do this at all.In order to hold yourself out to the public and collect a fee as a Mortgage Broker you need a license. There QM Rule put in place a 3% Gross Fee Cap. The value proposition that the OP offered doesn't account for any of the 'real' work. The paperwork was being shuffled off to an attorney, which if they charge any fee, that will count against the 3% cap. There are no "sides" with mortgage fees, like real estate agents. There is the loan and that is it. A Mortgage Broker can only be paid upon the delivery of a bona finde mortgage loan and if the loan is to be a QM loan, the gross amount of fees is capped at 3% of loan amount. One other concept to shoot holes in. Qualifying the borrower that didn't qualify for a conventional mortgage is probably more of a misnomer than a real strategy. It's likely safe to say OP has underwritten zero loans. Likely safe to say, OP has originated zero loans and processed zero loans, so zero experience with these things. So where does the know how come from then? It's kidding yourself, not knowing what you don't even know. Now, some of the underlying point there actually even applies to licensed MB's. They do not know in great detail many underwriting concepts as well. Much of the way the retail market works, a MB has become more of a clerk and less of a loan engineer or underwriter. That doesn't mean that there are not good knowledgeable brokers out there, but look around the forums and see how much credence many want to put simply on having a license. A license does not teach you how to write a loan or the underwriting of a loan. Most license classes merely teach you the state rule around MB and that's about it. So learning how to properly qualify a borrower or how to properly underwrite a loan or the real nuts and bolts is a learned skill from experience. In all that, learning what doesn't qualify is no short task. All of that is aside from following the regulations properly. The whole idea of selling partials is more of a guru concept than it is, what I would refer to as a legitimate strategy. I have never pushed the envelop on partials and I don't think as many get done as some imply but those quickly fall into the definition of a security and out of an actual mortgage loan by structure. Under this idea, I often use the term "whole loan" as a loan in it's whole state is what is exempt from securities. When you stop talking about the whole loan, you start to loose the definition that gives its exemption as a security. So brokering those out is slippery slope at the least that the majority simply do not understand.My suggestion, is just put this whole idea in the garbage can unless YOU are going to go get your license. Even then, I would say before running out and trying this type of revenue generation, you need to write a couple hundred loans and gain exposure to all the different workings of application, loan placement, loan processing, conditional commitment, commitment, underwriting, regulations and secondary market operations. Otherwise you are, IMO, taking unneeded risks of doing something wrong that could lead to problems both legal and monetary. Kuddos for trying to think outside of the box though.