FAQ: Hard Money Lending Laws

I love that my clients and readers share my views on capitalism.  In response to my previous post, “Need a Construction Loan?  Consider Hard Money Lending,” I received an overwhelming number of questions asking how people can get into the business of lending, rather than borrowing, hard money. I will answer a three of the more frequently asked questions that were emailed to me.

1.  Do I need a license to become a hard money lender?

It depends.  State law governs licensing of mortgage lenders and, therefore, varies from State to State.  However, under Pennsylvania law, lenders making mortgage loans to borrowers  strictly for business or commercial purposes and for non-residential property are NOT required to obtain a mortgage brokers license.  Because the exception to the licensing requirement applies to a narrow classification of loan, lenders should consider obtaining a license.  Furthermore, those operating outside the Commonwealth of Pennsylvania should check with their State’s licensing commission on licensing requirements.

2.  Do I have to comply with the Truth in Lending Act or RESPA?

No, provided the mortgage loan is made to a borrower strictly for business or commercial purposes.    The Truth in Lending Act and the restrictions of Regulation Z, do not apply to “business, commercial, agricultural, or orginational credit.”  Therefore, the various restrictions that Regulation Z places on the types and amounts of fees a lender may charge in a residential mortgage transaction do not apply to typical hard money loans.

Moreover, Section 2606 of RESPA specifically exempts “credit transactions involving extensions of credit . . .primarily for business, commercial, or agricultural purposes.”   However, hard money lenders should be careful not to secure the loan with any part of the borrower’s primary residents, otherwise, TILA and RESPA may apply.

3.  Will you get back to blogging about construction?

Yes, as soon as clients and readers stop asking me about side hard money lending businesses they want to start. 


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