By Jason A. Bielagus, Esq.1
Since the "SAFE Act" went into effect in 2010, there have been a lot of questions about what it is, what it prohibits, and what is allowed. This article will discuss the "SAFE Act," what it regulates, and what the exceptions are.
In 2008, Congress passed "HERA," which contains within it the "SAFE Act," Public Law 110-289, 12 USC § 5101 et seq.
In 2009, New Hampshire passed, "Licensing of Non-Depository First Mortgage Bankers and Brokers," RSA 397-A, modeled on the federal SAFE Act. For this reason, RSA 397-A is often referred to as the "SAFE Act."
RSA 397-A applies to loans secured by a mortgage interest in property that the borrower uses as a residence. RSA § 397-A:1 XIV states that:
'Mortgage loan' or 'residential mortgage loan' means any loan, including a first or second mortgage loan, primarily for personal, family, or household use which is secured in whole or in part by a mortgage, deed of trust, or other equivalent consensual security interest upon a dwelling or any interest in real property or in residential real estate.
As such, RSA 397-A applies to loans secured by a mortgage interest in property that the borrower uses as a residence. RSA 397-A does not apply to loans secured by a mortgage on property that the borrower owns as an investment, or that the borrower uses for business or commercial purposes.
In general, RSA 397-A prohibits an unlicensed lender from making a loan that is secured by a mortgage interest in property that the borrower uses as a residence. See RSA § 397-A:2 and 397-A:3, paraphrased as follows:
...Any person who engages in the business of making or brokering mortgage loans secured by real property located in this state shall be required to obtain a license from the NH Banking Department...
...It is unlawful for any individual to transact business in this state as a loan originator unless such individual is licensed under this chapter...
...An individual shall not engage in the business of a mortgage loan originator with respect to any dwelling without first obtaining and maintaining annually a license under this chapter...
This law provides for a penalty of $25,000.00 per violation (per loan).
RSA § 397-A:4 provides for several exceptions to the general rule:
I. Depository institutions or an institution regulated by the Farm Credit Administration.
III. Any individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual.
IV. An individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that served as the individual's residence.
V. (a) Except as provided in subparagraph (b), an attorney licensed in New Hampshire performing activities that are within the definition of a loan originator, provided that such activities are: (1) Considered by the New Hampshire supreme court to be part of the authorized practice of law within New Hampshire; (2) Carried out within an attorney-client relationship; and (3) Accomplished by the attorney in compliance with all applicable laws, rules, ethics, and standards.
VI. An owner of real property who in any 12 consecutive month period makes no more than 3 mortgage loans to purchasers of the property for all or part of the purchase price of the real estate against which the mortgage is secured.
VII. A person who is not the owner of the real property in question, and any affiliate of the person who collectively make 3 or fewer mortgage loans in a 12 consecutive month period, provided that: (a) The person or affiliate of the person does not act as an originator; (b) All origination activities are conducted by an originator duly licensed in this state; (c) Only the licensed mortgage banker or broker that employs or retains the originator is directly or indirectly compensated by the person or the affiliate of the person; and (d) Only the licensed mortgage banker or broker that employs and retains the originator may directly or indirectly compensate the originator.
Given the above, when a lender will make a loan that will be secured by a mortgage, one of the following conditions must be met:
• The borrower owns the property as an investment, or uses it for business, commercial, or non-residential purposes; the borrower does not use the property as a residence;
• The lender is licensed (the lender has an NMLS license);
• The lender is a bank, or a subsidiary of a bank;
• The lender and borrower are related as parent-child, or as siblings;
• The lender is the seller, and is selling one of his or his residences; or
• The lender is the seller, and the lender has made no more than two loans in the last 12 months.
If one of the conditions above is met, the loan is not likely to be in violation of RSA 397-A. If none of the conditions above is met, then the loan could be in violation of RSA 397-A.
I should note that the SAFE Act is relatively new, as far as laws go, and the Supreme Court of New Hampshire has yet to review it. Until the Supreme Court decides cases about the SAFE Act, we cannot be certain as to how courts will interpret or enforce this act.