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Earlier this year, the Florida Office of Financial Regulation (the Regulator) concluded an investigation against a Miami-based mortgage lender with the lender agreeing to a fine for executing mortgage loans without a license as required by Chapter 494, Florida Statutes (the Mortgage Licensing Law). Many lenders making loans secured by mortgages against Florida real estate may be unaware of the Mortgage Licensing Law, which applies to some but not all lenders and to some but not all mortgage loans. For those persons and loans covered by this statute, the soliciting or offering to make a mortgage loan, offering or accepting an application for a mortgage loan or negotiating or offering to negotiate a mortgage loan, constitutes acting as a “loan originator” and such persons may need to be licensed. Likewise, a person who makes a mortgage loan or services a mortgage loan for others may need to be licensed as a mortgage lender. But precisely who is covered by these requirements, who is exempt and which loans are covered “mortgage loans” are complex issues.

Who is Covered?

Mortgage Licensing Law defines a “mortgage lender” as a person making a mortgage loan or servicing a mortgage loan for others, or, for compensation or gain, directly or indirectly, selling or offering to sell a mortgage loan to a noninstitutional investor. The Mortgage Licensing Law does not cover lenders who do not hold themselves out to the public as mortgage lenders and does not cover lenders making occasional loans, such as a loan to a friend, relative or a seller provided purchase money mortgage. Further, depository institutions are not covered under the Mortgage Licensing Law.

What is a “Mortgage Loan” Under Mortgage Licensing Law?

A “mortgage loan” under the Mortgage Licensing Law includes any residential loan primarily for personal, family or household use which is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling (defined as a residential structure with one to four housing units); a loan on commercial real property if the borrower is an individual or the lender is a noninstitutional investor (as defined in the Mortgage Licensing Law); or a loan on improved real property consisting of five or more dwelling units if the borrower is an individual or the lender is a noninstitutional investor. Whether a loan is residential or commercial is wholly based on the zoning of the subject property.

An example of an issue that arises under the Mortgage Licensing Law is whether a lender making a loan on a one to four unit residential property that is not owner-occupied, that is, not being used primarily for personal use of the borrower, needs to obtain a license under the Mortgage Licensing Law. A literal reading of the text of the Mortgage Licensing Law suggests that the answer is no. However, depending upon the nature of the borrower or the lender, a loan with a mortgage encumbering a five or more unit residential property or commercial property may require that the lender be licensed. This is just one of several ambiguities arising under the Mortgage Licensing Law.

Florida’s Mortgage Licensing Law is particularly arcane and ambiguous. Recent developments in the enforcement of the Mortgage Licensing Law have therefore changed the landscape of mortgage lending in Florida.

Read the full article as published in Law360 - "Inside Florida's Mortgage Lender Licensing Law" (April 21, 2015). Subscription required.