MICHIGAN DIFS Mortgage Loan Originator and Seller Financing FAQs The following Mortgage Loan Originator and Seller Financing FAQs discuss the Department of Insurance and Financial Services analysis of licensing requirements under the Mortgage Loan Originator Licensing Act and the Mortgage Brokers, Lenders, and Servicers Licensing Act. Answers provided in these FAQs do not include other restrictions that may exist in the Michigan Occupational Code or other state or federal laws or regulations.
Q: Is a “land contract” a residential mortgage loan subject to the MLOLA? A: Yes. HUD’s response to public comments on the SAFE Act Final Rule clearly states that “residential mortgage loans” include installment sales contracts (i.e., land contracts).
Q: Does the MLOLA provide an exemption for a maximum number of residential mortgage loan transactions that may be originated before an individual is required to be licensed as a mortgage loan originator? (The Safe Act Final Rule refers to this as a de minimis exemption.) A: No, such an exemption does not exist. Generally, origination of one residential mortgage loan requires licensure under the MLOLA. However, certain loan origination transactions may be exempt from the licensure requirements of the MLOLA as discussed below. In addition, the SAFE Act Final Rule provides limited licensing exceptions for certain transactions. Please review all of the Mortgage Loan Originator and Seller Financing FAQs below to determine if you qualify for a limited licensing exemption.
Q: What is the definition of “seller financing”? A: Seller financing is the activity of an individual or entity that owns and subsequently sells a dwelling subject to the MLOLA, which is financed by the seller through a residential mortgage loan as defined by the MLOLA.
Q: What types/level of seller financing activity would subject a seller to the MLOLA’s licensing requirement? A: Mortgage loan origination involving a residential mortgage loan as defined by the MLOLA for personal, family, or household purposes on a dwelling located in the state of Michigan generally subjects the seller to the licensing requirements of the MLOLA. However, certain seller financing transactions may not require licensure under the MLOLA, as discussed in the next FAQ.Under the SAFE Act Final Rule or HUD’s response to comments on the Final Rule, what specific seller financing transactions do not require a mortgage loan originator license? The SAFE Act Final Rule, or HUD’s response to public comments on the Rule, states that a mortgage loan originator license is not required for the following seller financing transactions provided that such activity is not habitual: • An individual who sells his or her own residence in a seller financed transaction, and pursuant to the transaction, offers or negotiates the terms of a residential mortgage loan;• An individual who sells his or her vacation home in a seller financed transaction and, pursuant to the transaction, offers or negotiates the terms of a residential mortgage loan;• An individual who sells an inherited property in a seller financed transaction, and, pursuant to the transaction, offers or negotiates the terms of a residential mortgage loan;• An individual who sells his or her dwelling to an immediate family member (spouse, child, sibling, parent, grandparent, grandchild, step parent, stepchildren, stepsiblings, and adopted relationships) in a seller financed transaction and, pursuant to the transaction, offers or negotiates the terms of a residential mortgage loan.DIFS has taken the position that origination of the above-mentioned transactions does not require licensure under the MLOLA unless the number or frequency of the transactions indicates that the individual appears to be engaged in the business of mortgage loan origination. As discussed in the next FAQ, DIFS will presume that an individual is “engaged in the business” of origination if four or more transactions are originated in a calendar year.
Q: In a seller financing transaction, does the MLOLA provide an exemption for a maximum number of residential mortgage loan transactions that may be originated before an individual is required to be licensed as a mortgage loan originator? A: No, such an exemption does not exist. However, the SAFE Act Final Rule states that an individual generally is not “engaged in the business of a loan originator” when an individual acts as a loan originator in providing financing for the sale of a property owned by that individual, provided the individual does not engage in such activity with habitualness. In considering whether activity is “habitual,” DIFS will generally apply the following standard. Unless other evidence to the contrary indicates that an individual is “engaged in the business” of loan origination, during a 12-month period from January 1 to December 31, an individual will not be considered to be engaged in the business of mortgage loan origination if the individual is not engaged in any activity under the MLOLA except seller financing transactions AND the individual originates three or fewer seller financed mortgage loan transactions. If four or more transactions are originated within such 12-month period, DIFS will presume the individual is “engaged in the business” and licensure as a mortgage loan originator is therefore required. Note that under the MLOLA, a mortgage loan originator must be a natural person.
Q: Can a seller who regularly provides seller financing for residential properties satisfy the MLOLA licensing requirements by simply working through a real estate broker or salesperson who is a licensed mortgage loan originator? A: If the real estate broker or salesperson receives no additional compensation beyond the customary commission on the real estate sale, a license under the MLOLA or MBLSLA is not required for that transaction. If the real estate broker or salesperson receives additional compensation beyond the customary commission on the real estate sale, the answer is “YES” if the real estate broker or salesperson is licensed as a mortgage loan originator under the MLOLA and is also licensed as a mortgage broker under the MBLSLA. The answer is “NO” if the real estate broker or salesperson is not licensed as both a mortgage loan originator under the MLOLA and a mortgage broker under the MBLSLA. HUD’s response to public comments on the SAFE Act Final Rule states that a seller who finances the sale of his or her own property avoids the issue of licensing by retaining the services of a licensed loan originator and having that individual carry out the functions that constitute engaging in the business of a loan originator. However, statutory language in the MBLSLA prohibits this activity unless the real estate broker or sales person is not only licensed as a mortgage loan originator, but is also licensed as a mortgage broker under the MBLSLA.
Q: Does a seller providing the seller financing need to be licensed as a mortgage lender under the MBLSLA? A: The seller providing the seller financing is a “mortgage lender” as defined under Section 1a(q) of the MBLSLA. The seller must be licensed as a lender unless a licensing exemption in Section 25 of the MBLSLA applies. An exemption for lenders with limited activity is provided in Section 25(g), which states: “This act does not apply to the following: (g) A mortgage lender that in the aggregate with any affiliates makes 10 or fewer mortgage loans in a 12-month period from January 1 to December 31.”
Seller Financing Examples Note: All examples below involve residential mortgage loans and meet the MLOLA definition of “originate.” A. Property owner A owns forty acres of farm land and sells three one-acre lots along the road frontage to unrelated individuals. The sales all occur within the same calendar year. Property owner A sells the lots to the individual buyers utilizing land contract agreements. Property owner A does not engage in any other activity under the MLOLA. Property owner A is not required to be licensed as a mortgage loan originator because he is not originating more than three mortgage loans in the calendar year and is not considered to be engaged in the business of mortgage loan origination. B. Investor X purchases twenty foreclosed properties and sells each property to other individuals. The sales all occur within the same calendar year. Investor X sells the properties directly to the individual buyers utilizing land contract agreements. Investor X is required to be licensed as a mortgage loan originator because she is engaged in the business of mortgage loan origination. C. Property owner Y sells the family vacation home to his child utilizing a land contract agreement. Property owner Y is not required to be licensed as mortgage loan originator because the transaction meets one of the statutory exclusions. He is not engaged in the business of a mortgage loan originator based on this transaction. D. Landlord Q sells seven individual properties that she has accumulated over several years to unrelated individuals. The sales all occur within the same calendar year. Landlord Q sells the properties directly to the individual buyers utilizing land contract agreements. Landlord Q is required to be licensed as a mortgage loan originator. Given the number of transactions in a calendar year, she is engaged in the business of mortgage loan origination. In this example, if Landlord Q decides to sell only three properties in a given calendar year, licensure as a mortgage loan originator may not be required if Landlord Q does not conduct any other activity considered to be in the business of mortgage loan origination. E. Builder Y sells five new homes that he built to unrelated individuals. The sales all occur within the same calendar year. Builder Y sells the properties directly to the individual buyers utilizing land contract agreements. Builder Y is required to be licensed as a mortgage loan originator because he is engaged in the business of mortgage loan origination. F. Real estate salesperson Z assists the seller with the sale of the seller’s personal residence. The seller is financing the sale on a land contract. Real estate salesperson Z is compensated for her real estate brokerage activities. Real estate salesperson Z is also compensated beyond customary real estate brokerage fees for her work assisting the seller in originating the land contract. Pursuant to Section 3(l)(ii) of the MLOLA, real estate salesperson Z is required to be licensed as a mortgage loan originator because she is engaged in the business of mortgage loan origination.
