Can an Individual Lend Money on Residential Property? The Limitations of Lending Under the NC Safe Act.
As a real estate closing attorney, one of the more common questions posed is whether an individual can loan another individual money to buy a house. Unfortunately, the answer is not a simple yes or no. Depending on the circumstances the answer may be yes, but in order to determine whether it is appropriate for one individual to lend money for a residential loan to another individual an investigation into a new North Carolina law is required.
In 2009, the North Carolina General Assembly enacted the North Carolina Secure and Fair Enforcement Mortgage Licensing Act (NC SAFE Act), which can be found in Chapter 53, Article 19B of the North Carolina General Statutes. The NC SAFE Act requires individuals and companies who engage in the mortgage business to be licensed by the Commissioner of Banks. But more specifically, the NC SAFE Act applies to residential loans made to a natural person for personal, household or family purposes and secured by a deed of trust.
But What Does This Mean in Simple Terms?
If a family down the street has come across hard times and wants to borrow money from you in order to pay off their defaulting loan, can you loan them the money? A neighbor decides he wants to remodel his home and asks if you can loan him some money, can you? A wise lender would want to secure their loan by a deed of trust or other security instrument. Therefore, if you wanted to loan money to an individual for any of the reasons above and desired to secure your loan, the NC SAFE Act would require you to be licensed with the North Carolina Commission of Banks.
The licensing requirement obviously provides a great hindrance for those who need to borrow funds, but may not have the credit for loan approval. But there is some relief in a few exceptions provided within the statute. The NC SAFE Act allows specific exemptions for situation like loans between family members or seller financing.
If you are in need of funds or are thinking of helping someone with a residential home loan, contact the attorneys at Ferguson, Hayes, Hawkins & DeMay, PLLC. Our experienced attorneys can assist while making sure you stay within the guidelines of the NC SAFE Act.
Ryan C. Hawkins is a partner at Ferguson, Hayes, Hawkins & DeMay, PLLC and a member of the Real Property Section of the North Carolina Bar Association.