Commercial Loans Blog

Brokering Commercial Loans in California

Posted by George Blackburne on Wed, Dec 4, 2013

One of my loan officers brought up an interesting issue today.  He was afraid to work a commercial loan lead on a California commercial property because the mortgage broker controlling the deal was licensed in another state (let's say New York).

commercial loan brokers licenseThe issue of licensing for commercial loan brokers is not as clear cut as one might think.  There may be some shades of gray.  Now be careful here.  I am not writing today as an attorney expressing a legal opinion.  I am just throwing some thoughts out there as a practicing commercial mortgage broker.  Do NOT rely on this article!

Let's suppose the borrower is located in New York, as well as the mortgage broker.  The property is commercial, rather than residential, and it is located in California.  Let's also assume the borrower is a repeat customer of the New York mortgage broker.  In other words, the New York mortgage broker is not actively soliciting commercial loan business in California.  It just so happened that one of his repeat commercial mortgage borrowers happened to own a commercial property in California.

Could the New York broker legally broker the commercial loan to a California bank?  Probably not.  The New York mortgage broker is not legally licensed to arrange commercial loans in California.  He does not have a California real estate broker's license.  To make or arrange a commercial loan in California requires either a California real estate broker's license (or a California Commercial Finance Lender's License?).  As a result, in the chain of players, borrower - mortgage broker - lender, there is no licensed California real estate broker protecting the borrower.

However, could the New York mortgage broker take this commercial loan to a licensed California real estate broker (Blackburne & Sons is a licensed California real estate broker) and co-broker the deal?

Very possibly so.  The New York mortgage broker arguably could "associate in" a California real estate broker.  Attorneys do this all of the time.  A New Jersey attorney, handling a one-off* legal case in Maryland, is legally permitted to "associate in" a Maryland attorney and do most of the work on the case himself, even though the New Jersey attorney is not licensed to practice law in Maryland.

Okay, so under what conditions might "associating-in" a California real estate broker possibly be legally permitted? 

  1. The New York mortgage broker is legally licensed in New York - be it a real estate license or a mortgage broker's license.
  2. The borrower is a New York resident.
  3. The property in question is a commercial property.
  4. The New York mortgage broker was not advertising for commercial loans in California.  If he is advertising on the internet for nationwide commercial loan business, this could be an issue.
  5. The New York broker's position would be even stronger if the property was owned by a corporation or LLC.  The argument here is that the California Bureau of Real Estate is charged with the responsibility for protecting natural persons residing in California, rather than LLC's created by wealthy, sophisticated investors residing in other states.
  6. This was clearly a one-off deal, where an existing New York resident, who had done business previously with the New York broker, just happened to own a commercial property in California.
  7. The New York mortgage broker had not done any other commercial loan business in California ever.
Under the fact pattern described above - in the extremely unlikely case that the California Bureau of Real Estate chose to make an issue out of it - the New York mortgage broker, using the common practice among attorneys described above, would have an extremely defensible case.  As a practical matter, the California Bureau of Real Estate has far more important bad actors to chase than to pursue this well-intentioned New York mortgage broker for arranging a one-off commercial loan in California for his repeat New York client.
But do all of the stars have to line up exactly?  Does your California commercial loan have to meet all seven of the above conditions?  Maybe not.

  1. For example, most states, including Indiana, do not even require a mortgage broker's license to broker commercial loans.  How can an Indiana commercial mortgage broker get a license that does not even exist?  However, states like New York (commercial mortgage broker's license) and New Jersey (New Jersey real estate broker's license) do require licenses to regularly broker commercial loans.  Not having that license could be determinative for a New York or a New Jersey mortgage broker.
  2. What if the borrower is not an existing client, but rather a brand new customer?  Well, is this New York commercial borrower a complete stranger or did the New York mortgage broker already know the guy?  It would help if the New York borrower was the mortgage broker's dentist, a golf buddy, or a Rotary Club brother.  There are lots of shades of gray here.
  3. What if the New York mortgage broker had closed one other commercial loan in California this year with a different out-of-state borrower?  That would probably be okay.  But what if he had already closed two commercial loans in California this year?  Well, how many commercial loans does the New York mortgage broker close per year?  Forty?  If most of them (67%?) were in New York state, he might be okay.  Clearly he is primarily in business to close commercial loans in New York.  But what if the New York commercial mortgage broker had already closed three loans in California this year, and now he proposing to close a fourth?  It's starting to sound like this New York mortgage broker regularly closes commercial loans in California.    I could envision the California Bureau of Real Estate raising a serious objection at this point.  "Get a license, Mr. Broker. Until then, cease work!"
*The term, "one-off", means a one-time deal with little chance of repeating.
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Topics: commercial mortgage licensing