Florida Removed Licensing Requirement for Private Lenders
On March 21, 2018, Governor Rick Scott signed Florida House Bill 935 (“HB 935”) into law. Those who have been tracking this bill will know that the original legislation required a mortgage lender license for any lender making a loan secured by a 1-4 family residential property (“Dwelling”), regardless of the loan’s purpose. In a welcome move, the legislation was extensively modified to remove the licensing requirement based on property type and instead put into place common sense regulations and penalties.
HB 935 borrows its definition of a “business purpose loan” from the exempt transactions section of the Truth in Lending Act (12 C.F.R. 1026.3(a)). HB 935 then prohibits any party from misrepresenting a consumer loan secured by a Dwelling as a business purpose loan secured by a Dwelling. Any person who does so may face felony criminal charges.
Additionally, HB 935 clarifies certain exemptions for private individuals who are not in the business of mortgage lending. The previous law stated that individuals could make, purchase, and sell mortgages in Florida, provided they did not hold themselves out to the public as being in the mortgage lending business. HB 935 defines what it means to “hold oneself out,” including advertising, soliciting, and working from the business address of an organization that provides mortgage loans to the public.
What Didn’t Change?
The law did not modify the current licensing requirements in Florida. Specifically, a lender is only required to be licensed if they are:
- Making consumer loans secured by Dwellings.
- Making any loan secured by multifamily residential property with greater than five units, if the borrower is an individual, or the lender is a non-institutional investor
- Making any loan secured by commercial real property, if the borrower is an individual, or the lender is a non-institutional investor.
- Servicing any of the above loans.
What Do You Need To Do?
Thanks in large part to the private lending community who vociferously fought against unnecessary regulation, HB 935 should provide a large sigh of relief for private mortgage lenders making loans in Florida. The new changes should have no effect for reputable mortgage lenders and loan originators. Mortgage lenders relying on originators to make mortgage loans in Florida should make sure the originator is not concealing or manipulating a consumer loan into an alleged business purpose loan. It is paramount for a mortgage lender to employ common sense processes and procedures, such as conducting a file review to make sure the borrower is consistently stating the purpose of the loan and the occupancy of the property. Prudent private lenders should obtain a handwritten statement from the borrower at the outset of each loan stating the intended purpose of the loan proceeds to confirm the loan is a business purpose loan.
The law goes into effect July 1, 2019.