Alexson Law https://alexsonlaw.com/ Fri, 11 May 2018 20:08:39 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.3 Analysis of Each Real Estate State Loan or Purchase Sale Transaction https://alexsonlaw.com/analysis-real-estate-state-loan-purchase-sale-transaction/ Mon, 13 Aug 2018 14:41:29 +0000 https://alexsonlaw.com/?p=772 In conclusion, the payment of referral fees and or the giving of other consideration for a referral is sometimes a part of a real estate business transaction. Each time we have fee payment issue, we should determine whether state or federal law (or both) apply. If such law does apply, you must analyze the terms […]

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In conclusion, the payment of referral fees and or the giving of other consideration for a referral is sometimes a part of a real estate business transaction. Each time we have fee payment issue, we should determine whether state or federal law (or both) apply. If such law does apply, you must analyze the terms of the payment and if allowed, properly document the contractual obligations. Most of my clients own and operate commercial real estate, so some of the laws relating to residential real estate loans may not apply. However, the analysis must be done for each transaction, or component of the transaction.

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Fees Paid to Finders or Otherwise Unlicensed Individuals or Entities https://alexsonlaw.com/fees-paid-finders-otherwise-unlicensed-individuals-entities/ Mon, 16 Jul 2018 14:31:53 +0000 https://alexsonlaw.com/?p=769 Can pay a referral fee to an unlicensed person?  The answer is yes if that person has not performed any licensed acts in connection with the transaction for which the fee is being paid. B&P Code Section 10130 states, in part, “It is unlawful for any person to engage in the business, act in the […]

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Can pay a referral fee to an unlicensed person?  The answer is yes if that person has not performed any licensed acts in connection with the transaction for which the fee is being paid. B&P Code Section 10130 states, in part, “It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker or salesman within this state without first obtaining a real estate license from the department.” B&P Code Section 10131, in part, defines a broker as “a person who for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: creates loans, secured directly or collaterally by liens on real property.”

Under the case, Tyrone vs Kelly, 9 Cal. 3d 1, the court defined a “finder” as a person whose employment is limited to bringing parties together, so that they may negotiate their own contract…”

The California Attorney General issued an opinion in 1995, (78OPS CAL ATTY GEN 71) that confirmed that a real estate broker can pay a commission to an unlicensed person for providing the name, telephone number and address of a prospective borrower provided that the unlicensed person did not obtain the information in the course of soliciting borrowers or lenders on behalf of another or others. The opinion also stated that the finder’s exemption can only apply if the activity is limited to arranging an introduction between the parties and the unlicensed person cannot be involved in any role in the negotiation of the loan.

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Guidelines For Best Practices in Connection With Retirement Accounts of the Elderly https://alexsonlaw.com/guidelines-best-practices-connection-retirement-accounts-elderly/ Mon, 04 Jun 2018 12:00:03 +0000 https://alexsonlaw.com/?p=778 I am serving on an American Bar Association, Senior Lawyers Division, Task Force in connection with setting up ABA approved guidelines to identify elder financial abuse with respect to retirement accounts.   The relevant statute and the definition of Monitors, are hereinafter described.  A broker-dealer who is a member [“Member”] of the Financial Industry Regulatory Authority (“FINRA”) […]

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I am serving on an American Bar Association, Senior Lawyers Division, Task Force in connection with setting up ABA approved guidelines to identify elder financial abuse with respect to retirement accounts.   The relevant statute and the definition of Monitors, are hereinafter described.  A broker-dealer who is a member [“Member”] of the Financial Industry Regulatory Authority (“FINRA”) shall permit each owner [“Investor”] of an account described in sections 408(a), 408(k) or 408A of the Internal Revenue Code [“IRA account”]  to designate up to three trusted contact persons as defined in, and consistent with the procedures and requirements of, FINRA’s Rule 4512(a)(1)(F) (such persons hereinafter called “Monitors”) .  The Member, at its discretion, may permit the designation of more than three Monitors.  An Investor who designates one or more Monitors shall be able to withdraw or cancel those designations at any time, substitute other individuals to replace one or more prior Monitors or, if there are less than three Monitors, add additional individuals to serve as Monitors.  There are various, notice events that are suggested to could indicate the account owner is the subject of financial abuse.  The Task Force needs to collect and/or review data relating to how the industry is implementing the rules relating to Monitors and the use of “Notice Events”.  If anyone in my network has any data or first-hand knowledge of these rules and their implementation, please contact me.

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Real Estate Appraisal Requirements-As a commercial lender do I need an appraisal or a valuation of my collateral https://alexsonlaw.com/real-estate-appraisal-requirements-commercial-lender-need-appraisal-valuation-collateral/ Sun, 03 Jun 2018 12:00:34 +0000 https://alexsonlaw.com/?p=781 Financial Institution Letter (FIL-29-2017) applies to all FDIC-supervised institutions. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (Title XI) requires the Agencies to adopt regulations prescribing standards for appraisals used in connection with federally related transactions within the jurisdiction of each agency, including that they be performed by […]

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Financial Institution Letter (FIL-29-2017) applies to all FDIC-supervised institutions.

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (Title XI) requires the Agencies to adopt regulations prescribing standards for appraisals used in connection with federally related transactions within the jurisdiction of each agency, including that they be performed by certified or licensed appraisers.

The Agencies’ appraisal regulations identify categories of real estate-related financial transactions that do not require appraisals. In particular, Title XI authorizes the Agencies to establish a threshold level below which an appraisal is not required.

Under current thresholds, all real estate-related financial transactions with a value of $250,000 or less, as well as qualifying business loans secured by real estate that are $1 million or less, do not require appraisals. Qualifying business loans are business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.

For real estate-related financial transactions at or below the applicable thresholds, the interagency appraisal regulations require financial institutions to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices.  This evaluation does not need to be performed by a licensed or certified appraiser or meet the other appraisal standards.

The Appraisal NPR creates a new definition of, and separate category for, commercial real estate transactions and proposes to raise the threshold for requiring an appraisal from $250,000 to $400,000 for those transactions.

No increase in the qualifying business loan threshold is being proposed, but the Agencies are requesting data and information about this threshold.

No increase in the residential real estate transaction threshold is being proposed, but the Appraisal NPR requests comment on whether other factors should be considered in evaluating this threshold.  For further examples, you can visit the FDIC website.

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How Do I structure an equity infusion into my commercial real estate of brokerage company? https://alexsonlaw.com/structure-equity-infusion-commercial-real-estate-brokerage-company/ Sat, 02 Jun 2018 12:00:57 +0000 https://alexsonlaw.com/?p=784 There are a number of issues that should be considered when structuring an equity infusion and/or a strategic alliance.    The first question is always, what is the regulatory issue associated with the business or new business plan?    When setting up the business structure for the equity infusion, are there limitation on what type of entity […]

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There are a number of issues that should be considered when structuring an equity infusion and/or a strategic alliance.    The first question is always, what is the regulatory issue associated with the business or new business plan?    When setting up the business structure for the equity infusion, are there limitation on what type of entity must hold the license?  We also need to ask whether the investors will want governing responsibilities.   Do we need to set up a new company, or subsidiaries to effectuate our business plan?    Are there already bank loans?  If so, we will need the consent of the lender to our new investment structure.    If the company is a public company, are there any reporting issues?

As legal counsel, it is essential to be aware of the legal and regulatory benefits that may be available.  For example, certain commercial developments may offer incentives to the developer, thus offering an easier path to approval and fewer transactional costs.  Also, if we are setting up an advertising partnership in, for example, the fintech lending space, are there any advertising guidelines we need to address?  Please contact us to explore our innovative strategic alliance and/or Regulation D packages.

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Hidden Fees and Fintech https://alexsonlaw.com/hidden-fees-fintech/ Fri, 01 Jun 2018 12:00:56 +0000 https://alexsonlaw.com/?p=787 The Federal Trade Commission (the “FTC”) filed a complaint against Lending Club in the district court for the Northern District of California, in April, 2018.   The complaint alleges that Lending Club’s online advertising “lures prospective borrowers by promising ‘no hidden fees,’ but when the loan funds arrive in a consumer’s bank account, the “hidden fees” […]

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Fintech and Financial InstitutionsThe Federal Trade Commission (the “FTC”) filed a complaint against Lending Club in the district court for the Northern District of California, in April, 2018.   The complaint alleges that Lending Club’s online advertising “lures prospective borrowers by promising ‘no hidden fees,’ but when the loan funds arrive in a consumer’s bank account, the “hidden fees” have been deducted from the consumers’ loan proceeds.” The complaint  discuses other advertising practices, such as,  a paid blog post, stating “once you’re approved, your money goes straight into your account, with no hidden fees,” along with online, mail and television advertising that direct consumers to Lending Club’s website. In addition to  hidden fees, the complaint states that Lending Club: (a) misled consumers into believing they were approved for a loan, which discouraged them from seeking credit elsewhere; (b) withdrew double payments from consumers’ accounts; and (c) continued to collect electronic payments from consumers after they had canceled their automatic payments or completely paid off their loans.   Lending Club has denied the FTC’s complaint allegations.

Based upon these allegations, I would advise fintech clients to have policies and procedures to document consumer complaints, how such complaints will be resolved and to have appropriate audit and review procedures in place.   Also, it should be noted that Lending Club loans are made by Web Bank but the FTC’s complaint makes no mention of that fact. Thus, for purposes of this non-usury lawsuit, it is clear that the FTC views Lending Club as the lender.  This fact goes back to the structuring issues we have discussed in the past.  Since the FTC does not have jurisdiction over depository institutions, banks that present false and misleading advertising may have similar suits brought against them by their primary regulators.

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Fees Paid Among Licensed Individuals or Entities https://alexsonlaw.com/fees-paid-among-licensed-individuals-entities/ Mon, 14 May 2018 14:28:38 +0000 https://alexsonlaw.com/?p=766 When considering the payment of fees, the parties must address the circumstance surrounding the payment of the fee, the type of transaction and to whom it would be paid.  This article will discuss the payment of referral fees in California
real estate transactions, mortgage loan transactions and fees paid to unlicensed persons. When discussing the subject […]

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When considering the payment of fees, the parties must address the circumstance surrounding the payment of the fee, the type of transaction and to whom it would be paid.  This article will discuss the payment of referral fees in California
real estate transactions, mortgage loan transactions and fees paid to unlicensed persons. When discussing the subject of referral fees, it is important first to note that these “fees” are not always paid in cash. Both federal and state laws regulating the payment of referral fees may also refer to them as “compensation,” “consideration,” “anything of value,” or “form of payment.” For the purposes of this article, the term “referral fee” will include any type of consideration – cash or otherwise.

While the California law does not prohibit the payment of a referral fee when the payment is from one broker to another broker, there may be requirements for disclosure to the principals by each broker and there are prohibitions on salespersons from giving or receiving
payment, and in certain transactions from paying the person making the referral. There are
several statutes in California the deal directly and indirectly with referral fees. Business and Professions (B&P) Code Section 10176(g) gives the Department authority to suspend or revoke a real estate license for the “claiming or taking by a licensee of any secret or undisclosed amount of compensation, commission or profit.” Any broker who makes an otherwise lawful referral in return for a referral fee is responsible for disclosure of that fee to the principal(s) in the transaction. 

B&P Code Section 10137, prohibits a salesperson licensee from accepting compensation from any person other than his or her employing broker and from paying a fee to another licensee except through his or her employing broker if the transaction requires a license. Any fee for an
otherwise lawful referral must first be paid to the employing broker who can then compensate the salesperson.

Except for very narrowly defined exceptions, real estate licensees are also prohibited from claiming, demanding or receiving fees for the referral of customers to any escrow agent, structural pest control firm, home protection company, title insurer or escrow company (B&P Code Section 10177.4).

Section 8 of the Real Estate Settlement Procedures Act (RESPA). Regulation X, 24 CFR (Code of Federal Regulations) Section 3500.14 forbids any person to pay or receive any fee, kickback, or anything of value that is incident to a settlement service involving a federally-related mortgage loan. A referral of a settlement service is not a compensable act. Essentially a real estate broker or agent cannot be compensated for merely referring his or her client to a mortgage broker, lender, title or escrow company, etc., without providing certain services, goods or facilities. RESPA covers most transactions involving single-family residences or 1-4 units. To emphasis, the language in the statute states that the law applies to “federally-related” mortgage loans. This is a broad definition, so therefore careful analysis must be done relative to each mortgage loan transaction. An in-depth review of this issue is beyond the scope of this White Paper.

Under RESPA, the definition of “Settlement Services” can be summarized anything related to a real estate settlement, including anything which relates to title searches, examinations, insurance, services rendered by an attorney, preparation of documents, credit reports, appraisals, pest control activities, services rendered by a real estate agent or broker and any other service related to a mortgage loan… 12 USC 2603 (3). The law requires that the services have actually been performed. 12 USC 2607 (b). A violation of this law carries criminal and civil penalties. When you are analyzing a fee paid under federal law, you must first determine if RESPA applies, what are the circumstances of the transaction and can fees be paid contractually.

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Can I Pay a Referral Fee on my Real Estate Transaction? https://alexsonlaw.com/can-pay-referral-fee/ Mon, 16 Apr 2018 14:28:31 +0000 https://alexsonlaw.com/?p=763 Referral fees are an extremely valuable tool in the marketplace of transactions. We are going to address the issue of the payment of fees between licensees and the payment of fees between a licensed and unlicensed entity under California and applicable federal law. The more interesting case is where a licensed California real estate broker […]

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Referral fees are an extremely valuable tool in the marketplace of transactions. We are going to address the issue of the payment of fees between licensees and the payment of fees between a licensed and unlicensed entity under California and applicable federal law. The more interesting case is where a licensed California real estate broker will pay a licensed securities or other type of licensee. For example, this scenario could arise if a principal is entering into a 1031 exchange and the replacement property is a membership or other security in a tenant-in-common or Delaware statutory trust. Each of these transactions must be analyzed to determine if a fee can be paid, and if so, how should the contractual obligations be structured.

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Co-Counsel https://alexsonlaw.com/co-counsel/ Mon, 09 Apr 2018 23:49:40 +0000 https://alexsonlaw.com/?p=758 As a mentor and Bar leader, I am often asked by young attorneys; “How do I grow a successful practice as a young lawyer or partnering with another lawyer at my expertise level?” If you are currently with a firm, you should learn as much as possible on a daily basis. If you have a […]

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As a mentor and Bar leader, I am often asked by young attorneys; “How do I grow a successful practice as a young lawyer or partnering with another lawyer at my expertise level?” If you are currently with a firm, you should learn as much as possible on a daily basis. If you have a new transaction or case, be sure to master the law and process of the project so in the next similar transaction or case, you will be on the road to being the “expert”. It is also important when you do set up that “new practice” that you identify attorneys with levels of expertise in various areas of practice, to engage as co-counsel in your client matters. For example, as an expert in commercial real estate and mixed collateral loans and transactions, I serve as co-counsel to estate planning and small real estate firms that do not have depth in this practice area. These engagements can be structured with fixed fee and/or deferred fee packages to give the client the best experience. Ethical legal practice requires that an attorney have relevant expertise to handle a client matter. For more information, please visit us at www.alexsonlaw.com.

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Do I Need a License to Make a Loan? https://alexsonlaw.com/need-license-make-loan/ Mon, 26 Mar 2018 12:00:06 +0000 https://alexsonlaw.com/?p=749 Strategic alliances between banks and fintech companies to offer online loans have been the subject of legal negotiations and court cases over the past few years.   Some of these bank alliances have been challenged in the courts by using the “true lender doctrine”.  The doctrine states that at the time a loan is originated, the lender […]

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Strategic alliances between banks and fintech companies to offer online loans have been the subject of legal negotiations and court cases over the past few years.   Some of these bank alliances have been challenged in the courts by using the “true lender doctrine”.  The doctrine states that at the time a loan is originated, the lender (bank) on the face of the loan, is not the true lender. Rather, the true lender is the fintech company that marketed the loan to the end-user. If a true lender challenge is successful, the fintech entity may face civil and criminal penalties for failing to be licensed as a lender under state law, and the loans may be usurious and void in some jurisdictions.  There are different strategies that we use to protect the fintech entity.   The strategic alliance to share licenses is very document and fact specific.    A high interest rate and a vulnerable consumer population will often result in an adverse result in litigation for the fintech entity.   Other fintech companies obtain state licenses that it needs to originate, broker, purchase, service or collect the loans. At this point, a license strategy is the best legal practice.  

The Office of the Comptroller of the Currency (“OCC”) has published its proposal for how it will address a national Fintech Charter “Fintech Charter”. The Fintech Charter could be used by any entity providing certain financial services, including, money transmitters, check cashers and providers of technology (“Financial Service Centers” or “FSC”). Current OCC regulations allow the OCC to permit “a national bank or a Federal savings association” with a special purpose. The advantage of the national bank charter for a fintech company is that it allows the fintech company to conduct business on a nationwide basis under the National Bank Act (“NBA”). The NBA gives national banks preemption over certain state laws.  The key to the Fintech Charter strategy, is the ability to charge the interest rate of the jurisdiction where the lender is domiciled.  The FDIC has also discussed third-party lending arrangements.

Many states have responded by litigating against an OCC charter and have made efforts to make their own laws more stringent and/or commercially reasonable to become the “go to” state for licensing.  What does this mean to a fintech company?  When you engage counsel to set up your licensing plan, be aware that there is reciprocity for some activities.  The key is understanding the products and services offered and to be sure you are adequately licensed in all jurisdictions that you do business to make the loans in your revenue model.  Please note that I am writing an article about this subject matter in greater depth.  There are breaking developments in this area of practice on a fairly frequent basis and my article will discuss the strategies and recent case law.

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