Can a Real Estate Agent Negotiate Loan Terms in a Short Sale? Be S.A.F.E. or You Might be Sorry.

We've all been warned before about being careful not to practice law without having your law license. Now we have to be careful about doing things that might be construed as being something a mortgage loan originator would do.  If you do it without a license, you could be committing a felony.

Have you heard about S.A.F.E. (Secure and Fair Enforcement for Mortgage Licensing Act)? 

It was part of the Housing and Economic Recovery Act of 2008 and it required states to license mortgage loan originators.  In Georgia, that led to the Georgia Residential Mortgage Act being passed last summer.

It makes it a felony, if you don't have a mortgage loan originator license,  to do the things that a mortgage loan officer does.

Our broker sent us an email today from a real estate attorney in Atlanta. He cautions real estate agents who get involved with short sales to be very careful about getting involved in negotiating the terms of a loan if you are not a licensed mortgage loan originator.

I'm sure every state now has their own law covering the details.  The definitions can be the tricky part.  There hasn't been any case law yet in order to guide us so there is a lot of uncharted territory to be concerned with.

'Mortgage broker' means any person who directly or indirectly solicits, processes, places, or negotiates mortgage loans for others, or offers to solicit, process, place, or negotiate mortgage loans for others

'Mortgage loan originator' means an individual who for compensation or gain or in the expectation of compensation or gain takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.

'Mortgage loan' means a loan...including the renewal or refinancing of any such loan.

 ...a real estate broker or real estate salesperson who directly or indirectly negotiates, places, or finds a mortgage for others shall not be exempt from the provisions of this article;

So I guess it comes down to what it means by negotiating terms of  a mortgage directly or indirectly.   That covers a pretty broad area. 

The email we received goes on about a typical short sale scenario.  It would be OK to do what a real estate agent normally does and to give that information to the lender, but it probably wouldn't be OK to negotiate with the lender on behalf of the seller.  You basically can only be a supplier of information and maybe give your opinion about the offer you have on the table with the buyer.  You can't try to shape the terms of a settlement between the bank and the seller.

You might even be deemed to be negotiating the overall terms of the short sale approval if you try to get a full commission after the bank comes up with terms that includes cutting your commission. 

I don't do short sale listings yet but I've read many posts talking about agents negotiating the terms of the mortgage with the seller's lender.  It's what I thought a good short sale specialist did.  But now it might get you in trouble if you don't have a license. 

It should be interesting to see how the Act plays out.  It would be nice to have more precise guidance for the most common real estate agent short sale situations.  Unfortunately, sometimes it takes a court case to clarify things.