Lending in South Carolina

[Jason Merchey]

My attorney did a search and talked with some colleagues and determined that I would need a mortgage broker's license to lend private money. Since 9/17 it has been law. Some folks are still doing it, of course. Maybe one could fly under the radar, but I don't want to be standing when the music stops. Eh well. Equity partnerships it is!

[Jeff S.]

"(31) 'Mortgage loan' means a loan made to a natural person primarily for personal, family, or household use, primarily secured by a mortgage, deed of trust, or other security interest on residential real property ... "

Almost the exact wording in Dodd-Frank so similarly, this applies to consumer purpose loans only, @Jason Merchey. Owner occupancy is irrelevant. You can secure a loan against an owner occupant's property so long as the use of the money is for a business purpose. Been discussed here a hundred times if you do a search.

Residential loans to either a natural person or an entity, for the purposes of a flip, would generally be a business purpose loan, exempt from DF, and seemingly exempt from this licensing requirement. This is the realm of most private lenders. If you're loaning money, it's important you know the difference between a business purpose and a consumer purpose loan and how to document this to protect yourself.

It also appears you can loan to an LLC or similar entity without the license requirement.

I would absolutely rely on an attorney and not to anyone behind a counter or an Internet message board. Though it appears you got good legal advice, Jason, make sure it's an attorney who specializes in lending, and not a general real estate attorney who has to research the basics on your dime. Hard to find, but they are out there. A good lending attorney will be able to explain the difference between a business and consumer purpose loan and how to document this to protect yourself. Ask a few of the larger hard money lenders in your area which lending attorney they use.

Don't think that because many are breaking the law, somehow you are exempt. You'll learn this the first time someone contests one of your loans or complains to the licensing authorities.

Jeff S. -- Private Lender in Los Angeles