SAFE At Last

New law removes mortgage loan originator licensing requirements for sellers and REALTORS®


 Tom Larson  |    May 07, 2014
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On April 24, 2014, Gov. Walker signed into law 2013 Wis. Act 360 (Act 360), legislation modifying Wisconsin’s SAFE Act law to be consistent with federal law. Act 360 is a welcome relief to homeowners and REALTORS® alike as it eliminates the requirement to obtain a mortgage loan originator’s license (MLOL) for many sellers and REALTORS® who were involved in certain seller-financed transactions.

Background

The Secure and Fair Enforcement Mortgage Licensing Act of 2008 (SAFE Act) was enacted to enhance consumer protection and reduce mortgage fraud by requiring states to establish MLOL requirements that meet minimum federal standards. SAFE Act provisions require states to establish MLOL requirements that meet minimum requirements with respect to residential mortgage loans made primarily for personal, family or household use. 

The SAFE Act applies only to transactions involving properties that are not the seller's primary residence but will become the buyer’s primary residence. The types of homes commonly impacted in these situations include a seller’s second home and homes owned by developers, builders, lenders, trusts, estates or other persons who have never lived in the home.

The Consumer Financial Protection Bureau (CFPB) released its final rule on January 30, 2013. The portions of the rules affecting this discussion take effect January 10, 2014. The Wisconsin SAFE Act (Wis. Stat. Ch. 224), which was adopted and effective in January 1, 2010, was inconsistent with some of these new federal standards. Wisconsin’s SAFE Act imposed additional limitations on who could offer, negotiate and draft seller financing terms, like land contracts, when residential purchases by consumers were involved. Specifically, Wisconsin’s law was inconsistent with federal law in the following areas:

  • Seller financing exemption when seller was not in the routine business of financing real estate transactions: Wisconsin required a seller to have an MLOL when the property was not the seller's primary residence and the buyer was purchasing the property to be used as the buyer's primary residence — for example, a situation in which a trust, estate or individual seller offered seller financing to a buyer intending to live in the home. This standard applied regardless of the number of times such financing was offered by the seller. Federal law, however, created an exemption for sellers who were involved in five or fewer transactions per year. 
  • Exemption for those providing only real estate brokerage services: For affected transactions, Wisconsin’s law required the real estate licensee to obtain an MLOL when financing terms were “negotiated” as part of the offer to purchase. Because most offers to purchase are contingent on financing with the terms of such financing specified in the offer, real estate brokers were often required to obtain an MLOL, even though they provided only real estate brokerage activities and used the forms that Wisconsin law required them to use. Federal law, however, created an exemption for most real estate brokers who provided only real estate brokerage services.

The inconsistencies between federal and state law were harmful to the real estate industry for the following reasons: 

  • Created confusion and perpetuated the misunderstanding regarding the role a real estate licensee could play in a transaction that involved seller financing. 
  • Disallowed a real estate licensee to provide real estate brokerage services without holding an MLOL when the real estate licensee performed only real estate brokerage services. 
  • Required sellers to obtain an MLOL in circumstances that were clearly exempt by federal law. 

2013 Wis. Act 360

To reduce confusion and create uniformity between federal and state law regarding seller financing, Act 360 makes two changes to Wisconsin law: 

  • Exempts sellers who occasionally provide seller financing: Act 360 exempts sellers who are not “regularly engaged” in the business of a mortgage loan originator. Specifically, the bill exempts sellers offering seller financing on five or fewer transactions per year. 
  • Exempts real estate brokers who are engaged solely in the practice of real estate brokerage and use state-approved forms: The practice of real estate brokerage is heavily regulated in Wisconsin and requires, among other things, real estate brokers to use forms approved by the Real Estate Examining Board (REEB). See Wis. Stat. § 452.14(3)(m). Because most offers to purchase are contingent on financing and most utilize state-approved forms containing state-approved financing contingencies, Act 360 recognizes that real estate brokers performing only real estate brokerage services and using only state-approved forms should not be subject to the MLOL requirements.

As amended by Act 360, Wisconsin’s SAFE Act law will not affect most REALTORS® and sellers. Specifically, under the new law, an MLOL will no longer be required in transactions involving seller financing for (a) sellers who provide seller financing on no more than five residential transactions per year, and (b) real estate licensees who use state-approved forms in affected transactions involving financing contingencies. In other words, a REALTOR® involved in qualifying seller-financed transactions will be required to obtain an MLOL only if the REALTOR® is acting outside the scope of his or her real estate license, such as acting as a mortgage broker, or using forms that are not approved by the Wisconsin REEB. 

For more information on Wisconsin’s new SAFE Act Law, please contact Tom Larson at tlarson@wra.org at by phone at 608-240-8254.

Tom Larson is Vice President of Legal and Public Affairs for the WRA.

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