Loan servicers need to be state licensed?

Question

I have a question about loan servicing. I bought a note through FCI. A non performing note. It was being serviced by FCI. I wanted to move the servicing to Loan Servicing Center in Chowchilla CA. I get an email from some guy Gordon at FCI claiming that Loan Serving Center is not licensed in Arizona where the property is located. They will not transfer servicing to them only to me. I checked what I could find and AZ does not seem to have a license requirement for loan servicing. I see that FCI has a corporation registered in AZ but nothing else I could find. Note servicing center says they service note in all states but NC and NH .

Does anyone here know the license requirements for loan servicing? In AZ but really in any state. This guy at FCI is making a big deal that FCI is one of the only companies licensed in every state.

Kevin Foster · Answer

Hello to everyone!Wow...this thread jumps head long into an issue that is (and should be) something that all investors are aware of...for their own risk/liability reasons. It is a slippery slope side-barred for years by many servicers (and still by some). Recent and proposed legislation has shifted the risk/liability from just the servicer to also include the seller/financer. It is very important that clients question their servicer about licensing...and compliance issues! This is an area attracting attention from the CFPB and regulators...that can ultimately land in the lap of unknowing investors.Full disclosure first...I work for a prominent servicer based in Puyallup, WA (outside Tacoma). There are a number of licenses involved in servicing...the type and coverage depends on state regulation and the type of services to be preformed. Most licensing that a servicer needs are not found as a 'servicing' license, but fall under other financial categories such as escrow, title, mortgage or lending related. The best place to research is on the state finance related websites. There is no all encompassing federal license for servicing like there is for mortgage lending.@Scott Mclaren...AZ doesn't have a 'Servicers License" but does require other types based on the type of business transactions. Our Phoenix office is fully licensed and holds an Escrow Agents license because we process payments and hold impound funds for taxes & insurance for investors. Feel free to PM me.@Jay Raught...good job...sounds like you are aware and ahead of the risk/liability curve!@Don Konipol...I would enjoy an opportunity to talk w you further about your needs...and our services, subsevicing & proprietary IT platform. Feel free to PM me.Sorry to all for the length of my reply...some issues deserve more explanation than just a short quip or shot from the hip...this is one of those issues.

Don Konipol · Answer

First of all, to be clear, I assume we are talking about a note secured by a residential owner occupied property. There are no Federal licensing requirements for servicing commercial mortgage loans.A loan servicer of residential owner occupied properties is required to be Federally licensed. There is no additional licensing required in Arizona, or any other state that I am familiar with. Either what was told to the OP was misunderstood, or incorrect information was provided.We use FCI as our sub servicer for our commercial mortgage notes. They seem to be good at receiving payments and crediting them to the correct accounts. Almost everything else we asked them to do, any special instructions, anything out of the ordinary, they screwed up, although they did correct it when we informed them.I do like their dashboard, and the ease of checking the payment status of our loans online. Also, there pricing is great, much less costly then we could duplicate in house. They seem to be getting better as time passes (we have been using them for 2+ years). We have explored some competitors, but have not found anything that jumps out as any better. So, we will continue to utilize them without being totally satisfied. If anyone uses other third party loan servicers and would recommend them I'd love to hear about it

Bob Malecki · Answer

I believe you need to be licensed in all states to service a loan or use a servicer who is licensed. I concur with @Jay Raught as well, recommending you just keep the note serviced by FCI and focus on your exit strategy. We have many loans boarded with FCI and they have a very competent staff.

Scott Mclaren · Answer

Kevin, thank you for your input on this topic. I have been wondering about this licensing issue ever since I bought my first note. Getting to AZ in particular, if the loan in question does not have an escrow account and is residential, then I wonder if there is any state registration/ licensing requirements? FCI is registered as a corporation in AZ , that is all I can find on them. Not sure if that is required .It seems like our federal government is out to make things complicated as possible. What's new huh.?

Scott Mclaren · Answer

Ann, Thanks for your input. I know my strategy for this loan. It is just the servicing I have questions about. I want to know if there are servicing licenses in all states or just a few or none. It is really a small sidebar to the investment itself. I know I can have it serviced. I was just looking for anybody who knew the answer. @Scott Mclaren , what really matters is the laws in AZ, not in "really in any state." I feel that if you buy a note you should have already done your due diligence about the laws in that state where the property is located, because those laws control your actions as to the asset. However, since that didn't happen, it's time to start. Assuming you've already been to the NMLS website for AZ, which is not helpful, I'd say the next place is the state. If you can't find the info on that website, I'd reach out to the state and ask them. Then if Gordon still refuses to transfer the servicing to your preferred company, I'd have him transfer to you, then you can transfer to your preferred company. Assuming that there are no laws in AZ that prevent your servicing the loan without a license

Scott Mclaren · Answer

Yes Don, it is a residential loan, owner occupied. Non performing. Thank you for your input. I will be talking to the AZ departments tomorrow to verify the licensing issue. No there is no mistaking what this guy at FCI is saying. He is very clear saying that the servicing company I want them to transfer servicing to is not licensed in AZ and refusing to transfer it to them. He is instructing his minions to transfer it to me. I agree 100% with you about FCI. I have some performing loans being serviced by them and it works great. Good information on the dashboard etc. I also agree about having them anything doing outside the plain collections they screw it up. This is a NPN and that is why I don't want them to handle it. They are more expensive for NPNs as well. I bought a performing note that was all set up with ACH with Loan Servicing Center so I kept it there. It seems a lot more of a streamlined operation. I thought I would try them to hold the servicing for this note. Apparently FCI takes offense if you pull a note away from them.

Scott Mclaren · Answer

I know I could leave the note servicing with fci, I just don't want to. I cant find any licensing requirement for AZ . I was just wondering if anybody knew if there was any. Also if licensing is a requirement to service loans in any or all states.

Jay Raught · Answer

@Scott Mclaren that guy is correct. If you move that note and the borrower contests the debt and whomever is trying to collect the debt is not licensed, you lose. We use FCI for a majority of Notes, I am also going to try out Peak, FCI is very good. I would really consider leaving the note in FCI.

Ann Bellamy · Answer

@Scott Mclaren, what really matters is the laws in AZ, not in "really in any state." I feel that if you buy a note you should have already done your due diligence about the laws in that state where the property is located, because those laws control your actions as to the asset. However, since that didn't happen, it's time to start. Assuming you've already been to the NMLS website for AZ, which is not helpful, I'd say the next place is the state. If you can't find the info on that website, I'd reach out to the state and ask them. Then if Gordon still refuses to transfer the servicing to your preferred company, I'd have him transfer to you, then you can transfer to your preferred company. Assuming that there are no laws in AZ that prevent your servicing the loan without a license.