Every now and then a state law gets passed that
has consequences beyond what our Legislature likely intended. One such law is the Georgia Residential Mortgage Act (“GRMA”). GRMA was amended in the 2008-2009 legislative session. The amendments to GRMA made it comply with the federally mandated Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“S.A.F.E. Act”). Unfortunately, the con- sequence of this law is that serious questions now exist regarding the role REALTORS®
can play in help-
ing their buyer clients obtain mortgage financing. The revisions to the GRMA are patterned on a model
federal law. The state and federal laws create a uni- form approach to licensing and regulating mortgage lenders and loan originators both in Georgia and throughout the United States. Real estate brokers and salespersons are generally exempt from the law’s coverage. However in the Georgia statute, unlike the model federal law, the exemption is so narrowly writ- ten that it creates more questions than it answers re- garding the line between real estate brokerage and mortgage lending. Specifically, the exemption for real estate brokers and sales persons applies to: “A real estate broker or real estate salesperson not
actively engaged in the business of negotiating mortgage loans; however, a real estate broker or real estate salesperson who directly or indirectly negoti- ates, places, or finds a mortgage for others shall not be exempt from the provisions of this article.1 What the underlined language of the law means
will be the subject of the remainder of this article. For REALTORS®
, the first problem with the law is
that it makes it a felony for anyone to break the law. Felonies are the most serious category of crimes and include such things as murder, aggravated assault, rape, kidnapping and now, if you are not licensed as a mortgage lender, directly or indirectly finding, plac- ing, or negotiating a mortgage loan for others. The second problem is that until there are cases inter- preting the law’s meaning (or the law is changed) it is a matter of opinion and debate as to exactly what the law means. The Georgia Department of Banking and Finance, the agency charged with enforcing the law, has issued its own guidance in question and an- swer format on what it thinks the law means. Unfor- tunately, on the key issue of what is meant when the law prohibits a real estate licensee from directly or indirectly “finding or placing” a mortgage loan for another, the guidance is minimal. Beyond the most general examples, the Department simply warns real estate licensees not to directly or indirectly find or place a mortgage loan for others rather than elabo- rating on what exactly this prohibition means. Since many REALTORS®
would freely acknowledge that
they help (or know that they in the past have helped) their buyer clients find mortgage loans, this limited guidance is not very comforting. This article will, in question and answer format,
1 O.C.G.A. § 7-1-1001(a)(6).
www.garealtor.com Georgia REALTOR® 17
discuss the law’s likely meaning in two broad areas: (1) recommending mortgage lenders and loan pro- grams; and (2) short sales. The article will then com- pare the state law to the model federal law and make recommendations for changes to the law. Finally, the article will discuss the type of lender authorization forms REALTORS®
should insist their sellers get signed
in a short sale situation. RECOMMENDING MORTGAGE
LENDERS AND LOAN PROGRAMS CAN A REALTOR®
RECOMMEND A SPECIFIC
MORTGAGE LENDER OR LENDERS TO A CLIENT OR CUSTOMER WITHOUT BEING LICENSED UNDER GRMA? The guidance of the Georgia Department of Bank-
ing and Finance is that a real estate broker or sales- person can provide a list of mortgage companies to a consumer without violating the law. The Depart- ment is silent on the issue of whether a REALTOR® can recommend just one mortgage lender instead of a list of lenders creating at least a question on whether this is allowed. However, the answer to this question should also be yes under GRMA because any other answer would likely criminalize free speech and thus be unconstitutional under the First Amendment to the United States Constitution. In a free country, a person can give his or her opin-
ion or recommendation of a vendor or service provider without needing a special license to do so. A REALTOR®
can recommend a doctor without being
licensed as a medical doctor or a lawyer without hav- ing passed the Bar examination. In our democracy, REALTORS®
preferences, views, opinions and recommendations including which mortgage lender they like and why without fear of criminal prosecution. Any attempt to restrict free speech is always closely scrutinized by our courts. In this case, it is extremely doubtful that our courts would ever uphold a restriction that REALTORS®
must be licensed as mortgage lenders
before they can recommend a mortgage lender to a client or customer. Moreover, since the law itself merely provides that a real estate licensee cannot “directly or indirectly” find a loan for another, recom- mending a mortgage lender should be seen as some- thing different from finding a mortgage loan. Of course, there may be other good reasons to
give a buyer a list of qualified lenders (even if you end up recommending one off of the list). First, it avoids any dispute whether or not you have com- plied with GRMA. Second, in the event the lender does a horrible job, it may limit your liability to have recommended more than one. Finally, many real estate brokerage firms now have
affiliated business relationships with mortgage lenders. The affiliated business disclosure statement CONTINUED ON PAGE 38
should therefore be able to express their
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