CFL or BRE Licensing Positives and Negatives

August 25, 2017 by Nema Daghbandan, Esq.

Ever wonder what license you should obtain in California? As the largest law firm who focuses in the private lending space, let us navigate you through the two most typical licenses obtained: the Real Estate Broker’s license (“BRE license”) issued by the California Bureau of Real Estate (“BRE”) and the California Finance Lender License (“CFL”) issued by the California Department of Business Oversight (“DBO”).

Overview

The BRE license has no bonding or net worth requirements and allows companies to conduct both consumer and commercial lending activities. A licensee can also provide servicing of loans, offer escrow services, and sell loans to licensed and unlicensed investors. However, the BRE licensee has fiduciary duties to the borrower and the lender (investor). The CFL licensee, however, does not owe a fiduciary duty to either.

Who Can Be Licensed By Either?

Under guidelines established by the California Bureau of Real Estate, a licensee must be either an individual, a corporation or a limited partnership where the general partner is a licensed real estate broker. A CFL license is administered by the Department of Business Oversight and may be an individual, corporation, LLC, or limited partnership. Due to personal liability, however, we never recommend the CFL license to be in an individual’s name.

Bonding and Net Worth Requirement

The DBO requires that a CFL licensee obtains a bond of not less than $25,000 and have a tangible net worth of not less than $25,000 for non-consumer loans and $250,000 for a consumer loans.

An entity licensed under the BRE is not required to hold a bond, and there is no net worth restriction, no matter what type of loan it is.

Brokering Loans

A BRE licensee is authorized to make loans with funds from an unlicensed investor. Under a CFL license, a company can only broker loans to another CFL lender and is restricted from accepting investment funds from unlicensed entities or persons. The CFL license is more common for businesses who are offering lending services using their own money or credit lines. Ask us how we can structure CFL licensees to obtain funds from unlicensed investors, however.

Selling Loans

Under a BRE license, there is no restriction on who a BRE licensed lender can sell a mortgage to as long as they are qualified to purchase under the Investor Questionnaire (See RE 870). Under a CFL license, only an institutional investor may buy their self-originated loans. They would need to employ a broker to sell to non-institutional investors.

Servicing Loans

CFL licensees can only service the loans they have sold to institutional investors or another CFL licensee, while BRE licensees can service any real estate loan, whether they originated the deal or not.

Loan Officer Licenses

Under the BRE license, all salespersons who originate loans must have a salesperson or broker’s license and NMLS endorsement for all consumer loans. Under a CFL license, unlicensed loan officers can originate loans but must also have the NMLS endorsement for consumer loans.

Construction Loans

CFL licensees do not have many restrictions on construction loans, other than the fact that they must use their own capital to fund new construction. However, BRE licensees must deal with a host of restrictions on the type of funding, amount, and escrow requirements.

Licensing Times

It can take an applicant up to six months to obtain a CFL license, while a BRE corporation license can be issued within 30 days.

Audit Requirements

All CFL licensees are routinely audited about every three years. BRE license holders have more oversight and can be audited at will by the Bureau of Real Estate.

So Which Is Right For You?

Call our office and let us help you select the right one. BRE licensees are typically chosen for people who want to actively sell or broker loans to private lender investors and CFL licensees are typically mortgage pools, mortgage funds. With 14 attorneys, we are the largest law firm who specializes in private money, and we can help you decide.