The real estate, lending, and investing markets tanked near the end of 2008. Immediately following their downturn I noticed a flood of indictments in the local area. These indictments were related to investment schemes, securities fraud, real estate fraud, soliciting securities, and brokering real estate deals without the proper license. Just one week ago I read a news release on the indictment of a local man who was guilty of one of these crimes. HE DIDN’T HAVE THE APPROPRIATE LICENSE! I was extremely curious in the details of his case, so I made a few phone calls. I was very disheartened in what I found. For the purposes of the story I will refer to this individual as Joe.
Joe is a 31 year old father of three with another kid on the way. Joe was involved in the community. His kids play soccer. He always paid his taxes and he is a devout member of a local church. Joe is just your average, ordinary, next door neighbor who is now in prison for 10 years due to 12 counts of securities/real estate crime. Each of which is a 2nd degree felony. In my research I made contact one of his neighbors and found that Joe simply didn’t know that a license was required for the type of business he was involved in.
A sad story it is. Any human, from any perspective can feel sympathy for Joe. However, YOU CAN’T AFFORD TO BE THAT GUY! Your state securities department, real estate division, and the SEC don’t care how much of a stand up guy or gal you are. If you violate securities or real estate law they will hang you out to dry! The looming question I hear on a regular basis is this: “Do I need to be licensed to broker/bird dog hard money deals?” The answer is about as complicated as the regulation that contains it. So in short, it depends on the state of residence and the type of real estate.
Most states only require you to be a licensed broker-dealer if you are involved in the brokering, lending, and referring of residential mortgages. You must also be licensed if your lending capital is that of other peoples or corporations. Generally speaking if you are brokering commercial deals you don’t need a license. Most states also require you to have a loan officer licence (LO Lic) if you are initiating a real estate loan. For example the Utah Division of Real Estate says “Wholesale lenders, hard-money lenders, and commercial property lenders are NOT required to be licensed with the Utah Division of Real Estate as long as they do not conduct the business of residential mortgage loans as defined in Utah Code 61-2c-102.” These laws and codes may differ from state to state. You must do the research before you are involved in any dealings related to real estate, investing, and securities.
I am not suggesting that I am an advocate of all the regulation and regulators, however I am suggesting that you must be in compliance with them. No deal and no amount of money is worth going to jail for. To reiterate; DON’T BE THAT GUY! I’m not interested in seeing any more people like Joe going to jail simply for being uninformed.