By the Division of Banks

Licensing Requirements For The Purchase Of Home Improvement Installment Contracts Secured By A Second Mortgage

Mass. Gen. Laws chapter 255D governs retail installment sales agreements and recognizes that retail installment agreements may cover home improvements which become fixtures. This chapter, however, does not provide the method of perfecting the security interest. Based upon general real estate concepts, the Division of Banks is of the opinion that a mortgage is the only appropriate means of perfecting such an interest.

Mass. Gen. Laws chapter 255E governs mortgage lending and requires that any entity, including the building contractor, originating a home improvement retail installment agreement, which is secured by a mortgage on the property, must obtain a mortgage lender license from the Commonwealth. A subsequent purchaser of these retail installment contracts need not be licensed as a mortgage lender under said chapter 255E, but must obtain a sales finance company license pursuant to said chapter 255D.

Additionally, chapter 255D provides that "no fee, expense or other charge whatsoever shall be taken, received, reserved or contracted for, except as provided in this section and in sections sixteen to twenty-two, inclusive, and except for official fees, and for items expressly provided for in the retail installment sales agreement as set forth in section nine." Official fees may be charged in the sales agreements described above.