Construction and Residential Loans Considered Residential Transactions For the Purposes of Mortgage Lender Licensing - Q3 2000

By the Division of Banks

A building contractor needs funding to build "spec" homes(one or more at a time) or rehab existing homes to sell as he completes them. A second scenario involves an individual who, as an investor needs funding to purchase a home to rent/lease or re-sell at a profit to others who will live in these homes. A financial institution inquires as to whether certain types of lending transactions were considered to be commercial or residential loans.

Mass. Gen. Laws chapter 255E requires a mortgage lender license for any person engaged in the business of making mortgage loans to natural persons made primarily for personal, family or household purposes secured wholly or partially by a mortgage on residential property. "Residential property" is defined as real property in the Commonwealth having there on a dwelling house with accommodations for four or less separate households and occupied, or to be occupied, in whole or in part by the obligor on the mortgage debt. These licensing requirements do not apply in the case of a lender making less than five such mortgage loans within any period of twelve consecutive months.

In the case of the contractor seeking loans to build or rehab homes for sale, the Division would consider such loans commercial in nature as they are not "primarily for personal, family, or household purposes." Similarly, loans provided to an investor to purchase homes to rent or sell to others would be commercial as the purpose is not " primarily for personal family or household purposes." In addition, these transactions would not meet the definition of " residential property" which includes the component that the dwelling is occupied by the obligor on the mortgage debt. Accordingly, mortgage lender licenses would not be required.