How do short-sales laws affect New Hampshire brokers and agents?
It’s unclear whether a special license is required
A short sale is a transaction that involves the sale of real estate having a market value that is less than the amount of outstanding mortgages. A short-sale mitigation specialist is a person who works with mortgage lenders to get them to accept less than what is owed in order for the sale to proceed with marketable title.
The work involves gathering financial information regarding the seller and the value of the real estate to determine if a seller will qualify. The information must show the lenders that the seller does not have the capability of paying the obligations and the real estate value is insufficient to pay them in full.
Typically, the lenders will not review a file until a purchase and sale agreement is executed. Payment for the services may be made by lenders, sellers or buyers, depending on the circumstances.
Some companies only provide short-sale mitigation services. However, it is not unusual for a real estate broker or agent to assist a seller in obtaining discharges from mortgage lenders to complete the sale. A broker or agent who acts in this capacity must make certain he or she is in compliance with New Hampshire laws.
RSA 397-A regulates the licensing of lenders, mortgage bankers, brokers and servicers. A person involved in the “negotiation” of the terms of mortgage loans is required to be licensed by the New Hampshire Banking Department as an “originator,” unless the person is exempt (banks, attorneys, government agencies and nonprofit agencies) or otherwise excluded under the law. The licensing process is complicated and time-consuming.
The definition of an “originator” was amended in 2016 and now makes clear that the term does not include an individual engaged solely in loan modification activities not resulting in a new extension of credit. The intent was to exempt negotiating of the terms of loans that do not result in a new extension of credit, such as short-sale mitigation.
It should be noted that the term “originator” does not include an individual or entity that only performs real estate brokerage activities and is properly licensed under New Hampshire law, unless the individual or entity is compensated by a lender or mortgage company. The definition of “real estate brokerage” expressly excludes “providing” financing, but is assisting a seller to obtain a discharge from a mortgage lender in a short sale included within the permitted activities as a service of brokers or agents?
Clearly, a real estate broker or agent involved solely in short-sale mitigation activities qualifies under the first exemption and does not have to be licensed as an “originator.” However, a broker or agent typically provides a broad range of real estate brokerage services and cannot qualify under that exemption. If his or her services include communicating with lenders to arrange for mortgage discharges in a short sale, especially if he or she is compensated by a lender or mortgage company, then RSA 397-A may treat that activity as “negotiating” the terms of a loan, and the broker or agent must be licensed as an “originator.”
Previously, the Banking Department has found that “negotiating” the terms of a loan in a short-sale context is covered. Is that still the case following the 2016 amendment that exempts loan modification activities not resulting in a new extension of credit? The law is unclear.
Even though a short-sale mitigation service provider is not required to be licensed as an “originator,” he or she is required to be licensed with the Banking Department under another state law, RSA 399-D, covering debt adjustment services, as a “debt adjuster.” The law requires any person who, in his or her own name or on behalf of other persons, engages in the business of debt adjustment in New Hampshire or with persons located in the state, to be licensed. The process is as complicated and time-consuming as that of RSA 397-A.
The definition of debt adjustment includes any person who engages in the business of mortgage loan loss mitigation that is not subject to RSA 397-A. It also includes a person who negotiates with one or more creditors on behalf of a debtor for direct or indirect compensation, or serving as an “intermediary” between a debtor and one or more creditors of the debtor for the purpose of obtaining concessions. There are express exemptions for banks, attorneys and certain fiduciaries, and the Banking Department has authority to grant exemptions to other persons not falling within the intent of the RSA 399-D.
Clearly, this definition covers any person acting solely as short-sale mitigation service provider. What is unclear is whether a real estate broker and agent who assists a seller in obtaining a discharge from a mortgage lender or any other creditor in a short sale is in the business of debt adjustment. If he or she provides real estate brokerage services as a primary activity but offers an ancillary service involving short-sale mitigation to close the transaction, is he or she subject to this law?
The possible application of RSA 397-A and RSA 399-D to real estate brokers and agents engaged in short-sale mitigation activities may be a surprise to some. Legislation may be necessary to clarify the law in this area. Until that happens, brokers and agents should be careful. If they are currently involved in assisting sellers in obtaining discharges from mortgage lenders or creditors in short sales and are not licensed under RSA 397-A or 399-D, it is recommended that they consult with counsel and consider whether under the facts and circumstances it is advisable to ask for a no action letter from the banking department.
W. John Funk is a shareholder-director at the Concord-based law firm of Gallagher, Callahan & Gartrell who specializes in financial services law. Robert J. Dietel, also a shareholder-director at the firm, specializes in administrative law.