how does the dodd-frank law apply to private money?

Question

I've been investing in real estate (rental) for a while now and have recently looked into using private money lenders.  I was about to put an offer in on a house when my investor called me and told me that he was unable to give out loans on residential real estate because of my states somewhat recent compliance with the dodd-frank act.  I went by the title company and they told me that an individual is only able to owner-finance one house a year under this law as well.   Is there a way to get around this without my investor having to get a mortgage brokers license?  It seems that I can get around this by buying commercial real estate.  Would buying multi unit buildings fall under commercial real estate as per the dodd-frank act?

Jay Hinrichs · Answer

@Darren Eady  have a great 4th... !!!!

Darren Eady · Answer

@Jay Hinrichs

I agree with you completely!  Thanks for your comments

Jay Hinrichs · Answer

@Darren Eady  well I can assure you  NV  OR and CA  will maybe give you a one time pass.. OR did for me.. I had done 400 plus loans when I had my first audit by the state and told them I was exempt.. well you know how that went. My lawyer was wrong and we had to comply to full blown NMLS rules.. which is OK I am NMLS mortgage banker.

I made one post on BP about just having a NMLS RMLO do my paper work in Nevada and promptly got a letter from their division of finance. state what you just said.. need license brick and mortar etc.

And CA I have been HML in that state since early 80s also can quite guarantee you need to be a CA RE broker NMLS or CF to do any quantity of loaning or broker of notes to folks that live in that state.  YOu can simply have a RE broker do your disclosures for you.. its not hard but it is the law and they will enforce it.

So my point is we just can't make a blanket statement that private lending is exempt in the US because it certainly is not in all states.  Each person wanting to embark on this should consult their state department of finance or who ever controls mortgage activity .. give a letter in writing as to your proposed business model and have the state right you back with what's required.. very easy to do usually cost a few bucks.. Need not engage a lawyer ( as we know lawyers are not always correct and want to argue points that you and I may not want to pay to argue)... I have been down that path twice now with Attorney telling me we were fine and state wringing me up and.. of course if we wanted to spend a hundred grand or more taking it to law review judge we could.. but who does that.. not making any friends at the state and we are just little guys trying to make a living

Darren Eady · Answer

@Jay Hinrichs

I've had two attorney's go through each state for lending requirements for business to business loans (company to LLC and IRA) on non-owner occupied properties and they found 13 states that have a "potential" requirement.  Each state can interpret it's laws to mean what they want it to mean for a private lender, but even the thirteen states that have requirements are vague on their definition of when that requirement is applied.  I'm staying away from those states regardless, but the only thing that is clear is that the law is unclear.

States like Nevada, had my last company come in for a sit-down and explained how they required licensing AND a brick and mortar presence in their state, but so far . . . they were the most strict and their were no penalties for the loans completed to date in their state.

With so many new lenders jumping in to the industry lately, I would imagine the rules will become more strict soon.

Jay Hinrichs · Answer

@Darren Eady  not to correct you but this is absolutely not correct... its state specific.

Like here in Oregon any loan on any 1 to 4 requires dodd frank.. private lenders have a 3 loan exemption.. so if you do a few no problem.. however someone like you or me if we are domiciled in this state or doing loans in this state we are required to have the license

CA requires RE broker or RMLO or CF

there are 18 states that require licenses for 1 to 4 .. Nevada is another one.....

One must check each state out individually..

Zach Pyke · Answer

I would be renting the house out.  Thank you for your advice Darren.

Darren Eady · Answer

Is this a home you are going to live in or rent out?  Dodd-Frank does not currently oversee the private money arena on business to business loans (loan to your IRA or LLC) or private money for investment properties (non-owner occupied).