Important Changes to the Maryland Mortgage Lender Law

Lynne T. Krause, attorney and founding partner of Krause & Ferris in Annapolis, provided the following report on changes to licensing requirements under the Maryland Mortgage Lender Law:

During the 2012 Maryland General Assembly session, a little-noticed piece of legislation repealed the exemption from licensing in the Maryland Mortgage Lender Law (“MMLL”) for a mortgage lender who makes “3 or fewer” residential mortgage loans in a year. The amendment to Md. Code, Fin. Inst., §11-501 et seq. went into effect January 1, 2013. The repeal of this exemption significantly affects the private loan industry and hard money lending. According to the Fiscal and Policy Note for this bill from the Department of Legislative Services, the primary purpose of the bill is to make the Maryland Mortgage Loan Law comply with the Federal Secure and Fair Enforcement Mortgage Licensing Act of 2008 (“SAFE Act).

The MMLL is a complicated statute, with most of its provisions relating to licensing of mortgage lenders. The statute generally states that a person must be licensed to make a residential mortgage or deed of trust loan unless that person is exempt from licensing.

The 2012 amendment eliminated the exemption from licensing for a lender who made three or fewer mortgage loans per year. The Maryland Department of Legislative Services in their Fiscal and Policy Note states that since there was no exemption in the SAFE Act for persons who are unlicensed making three or fewer loans per year, they made this change. The 2012 amendment also eliminated a similar exemption for a broker of residential mortgage loans who brokered no more than one loan per calendar year.

Md. Code, Fin. Inst., §11-502 retained other exemptions from licensing that were previously in the statute. Those exemptions include mortgage loans by: (a) nonprofit charitable organizations or religious organization; (b) loans by an employer to an employee; (c) loans to a borrower who is a person’s “spouse, child, parent, sibling, grandparent, grandchild, or grandchild’s spouse;” (d) real estate brokers who make a mortgage loan to facilitate a purchase of real estate brokered by the lender provided it has a repayment schedule of two years or less to assist a borrower in purchasing a dwelling; and (e) a licensed Maryland home improvement contractor who assigns a mortgage loan without recourse within 30 days after completion of the contract.

The 2012 amendment also revised certain definitions of loans that the MMLL covered. The MLLL previously defined a “mortgage loan” as a loan for personal household or family purposes in any amount that was secured by an interest in residential real property in Maryland, or if it was a commercial loan secured by residential real estate, not in excess of $75,000.00 and was supported by independent evidence of the commercial purpose.” The new definition of a “mortgage loan” regulated by the MMLL is “any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or residential real estate on which is dwelling is constructed or intended to be constructed.”

The definitional change to “mortgage loan” was taken directly from the Model State Statute complying with the SAFE Act. Now if a residential mortgage loan has a specific commercial purpose, and was not a loan “primarily for personal, family, or household use” then such a loan is no longer covered by the MMLL notwithstanding the amount of the loan. However, in making such a loan it is very important to document what that commercial purpose is to be if the loan is secured by residential real estate.
As many of you know, banks, savings institutions, and credit unions are generally not required to be licensed in the State of Maryland to make mortgage loans. Also, the MMLL does not apply to a deferred purchase money mortgage in connection with the sale of a dwelling or residential real estate for a residence that the seller built and then resold, such as in a situation in which a builder purchases a lot, builds a home on it, and then sells it, taking back a purchase money mortgage deed of trust. (Md. Code, Fin. Inst., § 11-502(c))

This is a fairly complicated statute and it is important that you read it carefully if you are to handle a transaction arguably covered by this statute. The penalties for violating this statute as detailed in Md. Code, Fin. Inst., §11-523 make it a felony for a person to “willfully” violate this statute. The penalties for a conviction could mean imprisonment for up to 10 years and a fine of up to $50,000.00. Also as additional financial penalties, any unlicensed person “who is not exempt from licensing under this subtitle who makes or assists a borrower in obtaining a mortgage loan in violation of the subtitle may collect only the principal amount of the loan and may not collect any interest, costs, finders fee’s, broker’s fees, or other charges with respect to the loan.” (Emphasis added.)



  1. It is very important to document what that commercial purpose is to be if the loan is secured by residential real estate.

  2. what public purpose is served when a private individual can not hold a mortgage for a friend?

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