Stiff Fines for Paying Broker Fees on Residential Hard Money Loans

[Corey Dutton]

Many States such as Nevada, Arizona, and even Utah are imposing stiff fines for paying broker fees on residential hard money loans. Under the new SAFE Act and Dodd Frank, many States have imposed a requirement on hard money brokers to become licensed in order to receive compensation on a hard money loan. This is not on commercial hard money loans, but only on residential hard money loans.

Each State has it’s own way of treating this, so check on your State level if you’re an unlicensed broker of residential hard money loans. Many people will argue and say that this requirement is only on owner occupied residential, and does not apply to residential investment properties. But again, it depends on the State you are located in. Here in Utah, this requirement applies to any hard money loan on a residential property of 1 to 4 units and it doesn’t matter if the property is owner occupied or not.

For example in Nevada, if you receive compensation on ANY loan, whether it’s commercial or residential, you are required to have a physical location in Nevada and a business license. Unlicensed brokers who are receiving fees on residential hard money loans in Nevada are getting hit with $10,000 fines by the Nevada Division of Mortgage Lending. The same thing applies in Arizona. Many hard money lenders won’t even pay unlicensed brokers anymore on residential hard money loans in Arizona!

In my perspective, it is absolutely ridiculous to impose such requirements on a non-bank, private money lender. Non-bank lending has always been free game, and it should be. Private money lenders are the biggest reason for the rapid recovery of the real estate market because they financed the purchases of distressed pools of assets and floated them on down the food chain. And it wasn’t the hard money lenders that got us into this real estate meltdown, so why has non-bank lending become so highly regulated? Please share your opinions on this topic below.