Owner Financing and the Repeat Investor
A New Hampshire real estate investor owns a duplex in Manchester and sells it to an owner-occupant buyer for $410,000. The buyer puts 10% down and the investor takes back a 30-year note at 8.5%, with a balloon payment in 10 years. Over the past 18 months, the investor has made four similar owner-financed sales, advertises "Owner financing available - no bank needed" on Facebook, and has a licensed mortgage broker prepare the loan documents and take the buyer's application. The buyer later learns the investor is not licensed by the New Hampshire Banking Department. The investor says he is exempt because he is the seller.
1. Is the investor automatically exempt because he is the seller? Explain.
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No. New Hampshire's licensing statute contains limited exemptions, but "I am the seller" is not a blanket safe harbor. The inquiry is whether the person is in the business of making or brokering mortgage loans. Four owner-financed sales in 18 months, a public advertisement offering financing, and a balloon note with a 30-year amortization look like a lending program rather than a one-off sale of a personal residence. The Banking Department will look at frequency, advertising, whether the loans are originated with third-party documents, and whether the investor holds itself out as a financing source. The investor should not rely on a seller exemption without a written legal analysis. If no exemption applies, the investor may be engaging in unlicensed mortgage lending.
2. What are the broker's obligations when preparing documents for this investor?
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The broker cannot ignore the lender's licensing status. A licensed broker should determine whether the investor is licensed or exempt before facilitating the loan, document that determination, and decline to close if the investor is unlicensed and no exemption applies. Preparing documents and taking the application for an unlicensed lender can make the broker part of unlicensed activity and can violate the broker's own duty of honesty and fair dealing. The broker should also review the balloon payment and the buyer's ability to repay; a 10-year balloon on a 30-year amortization creates a foreseeable refinance risk. The broker should disclose its role and compensation and should not draft documents that obscure the investor's status.
3. What should the investor do about the Facebook advertisement and the existing loans?
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The investor should stop advertising "owner financing available" until the licensing question is resolved. The advertisement is evidence of a ongoing business and may be misleading if it implies the investor is an approved or licensed lender. For the existing loans, the investor should obtain counsel, evaluate whether an exemption applies, and consider whether any loans must be serviced or transferred. The investor should also review the balloon terms and the buyer's disclosures. If the Banking Department determines that the investor was unlicensed, remedies could include fines, cease-and-desist orders, restitution, and civil claims. A voluntary compliance review before a complaint is filed is usually better than waiting for enforcement.