California Licensing Reporting Requirements
Subscribe to our Geraci Law Firm Newsletter to receive upcoming webinar announcements straight to your inbox.
The most common and avoidable regulatory violations committed by brokers and lenders licensed by the California Department of Real Estate or Department of Financial Protection and Innovation are caused by a failure to report to the applicable regulator in a timely manner, if done at all. You can protect yourself from citations, discipline, and guaranteed audits by complying with DRE Broker and CFL reporting requirements.
In this webinar, you will learn:
- The reporting requirements that apply to you.
- Applicable deadlines to file your reports.
- Potential adverse consequences if you fail to report correctly.
Hello everyone. Welcome. We're going to give it about a minute or two here. Thank you so much for your patience and waiting for us. We are going to get it started in about a minute or two. Hello again thank you so much for coming in and we welcome you to our webinar. We're going to give it about a minute until everyone comes in and join us for this webinar.
All right, let's get started. Hello everyone and welcome to our wonderful webinar. Thank you so much for joining us. I know you guys have a lot of busy schedule going on and we really appreciate your time. So just a little bit of a couple of housekeeping issues. We're going to be taking q and a at the end, and we're also going to be recording this. So in the event that you may have missed it or there was a internet connection error or anything of that sort, please do not worry. We will send this over to you after the webinar is finished. So again, thank you so much for coming and joining us. We're going to be talking about California licensing reporting requirements out of all wonderful things, right? It's an incredibly exciting topic or we're going to try to make it really exciting.
I know it can be dry and it can be boring, but we're really here to do all that we can to be very informative, but we'll also try to make this very entertaining for you guys. So anyways let's get started. One second. Okay, so my name is Tae Kim. I'm a corporate and securities attorney here at Geraci Law Firm. I specialize in fund formation, real estate syndication, and licensing throughout the United States. Specifically, I address our client's needs as to how to get the licenses and the requirements to actually get the licenses. And Dennis, please introduce yourself.
Hi, welcome everyone, and thanks for attending here on this lovely Wednesday morning. Hopefully you'll learn some good stuff. I'm Dennis Baranowski, I'm a partner here at Geraci, as well as a supervising attorney for our banking and finance group. In addition to advising and assisting our clients in every aspect from pretty much inception and structuring of a loan transaction all the way through closing and post-closing requirements sale loans. I also advise our clients with respect to compliance with applicable broker and lender licensing laws and regulations including brokers that are regulated by the California Department of Real State.
Great. All right, sounds good. So what are we going to talk about today? As I indicated before, and I'm indicating here, we're going to be talking about compliance, compliance and annual reporting requirements, some of the best practices, miscellaneous stuff that the DFPI and the DRA requires specifically here as indicated. We're going to talk about understanding which reporting requirements are applicable to you how to comply with the requirements and consequences of not complying. Dennis is going to be speaking specifically about the real estate broker license or the DRElicense, and I'll be talking more about the CFL, the DF and the licenses that comes from DFPI. What this webinar is not about is whether you need a CFL or A DRElicense. That is an entirely separate webinar and we could probably talk about that exhaustion, but that is something that we do are not going to address here and so I want you to be aware of that. So Dennis tell us a little bit about the DREbroker reporting.
Yeah, so here today we're going to discuss three primary areas. I've broken it down into what I would call global reporting requirements. So these would be reporting requirements that are applicable to all DREBrokers threshold broker requirements, which is a special category of broker and then multi lender broker requirements. There are additional reporting compliance needs for threshold in multi lender brokers which we'll jump into after this. Again, just real fast, these are only compliance requirements for brokers that are regulated by the Department of Real Estate of California. It doesn't apply to CFL licensee, it doesn't apply if you don't lend in California, you're out of state or you're exempt from licensing. This is only if you are licensed by the and regulated by the DRE. So yeah, let's jump in here and we'll look at global DRE requirements. And I've kind of broken it down here and the list doesn't necessarily cover fully, but the first requirement you have is annually as a broker you need to file a business activity report.
It has to be filed within 90 days after the end of your fiscal year. So it's not calendar, it's fiscal, although I am most of our clients, I believe typically up for a calendar year as the fiscal year, it goes January 1st to December 31st. So you would need to file night and days after that, or within 90 days, I should say from the first January. It's going to be completed and submitted electronically using the Department of Real Estate Business Activity Reporting System. And the report itself is broken down primarily into two parts, and one in part A needs to be completed by brokers that make a range or service one or more loans. They're secured by residential real property, so one to four unit residential property. And then part B needs to be completed by brokers that are either a threshold broker, multi lender broker, or in many cases both.
And we'll talk about that a little bit more, how you can actually fall in both categories. They're not mutually exclusive. And then moving past the annual reporting requirements, there is also a renewal requirement for brokers. And your license is good for four years. So every four years you have to submit either a broker or corporate renewal application with the renewal fee of $300. It's for both a broker or and a corporate renewal. And in addition to the actual renewal application you're also going to have to submit your continuing education course verification. And so we'll jump into that next part of continuing education. Yes, you are required, and over that four year period, you're going to need to complete 45 hours of DRE approved continuing education. And what is that comprised of? Well, you have to do six separate three hour courses on ethics, agency, trust fund handling, fair housing, risk management, and management and supervision.
And then you also have to do another at least 18 hours of consumer protection courses. And then the balance of nine hours or less needs to be filled with either consumer service or consumer protection courses. So you can kind of catch the theme there. It's all really consumer pointing not necessarily pointing at your commercial borrowers commercial brokers that are dealing with commercial borrowers. But these are still requirements that you are going to have to meet every four years. And then the next box is what I would call what happens if my life changes or the changes within my business both from an individual broker standpoint as well as from the standpoint of a corporate broker. So anytime you change your mailing address, your main office address, phone number, email address, you change your name. And for a corporate entity, if the corporate entity changes its name or you know you add a fictitious business name or you stop using a fictitious business name you have to submit a report to the DRE notifying them of those changes.
And then also you have a few additional corporate ones where if you're changing the identity of a designated officer from a responsible broker or any type of information about the licensed broker officer you would also have to notify the DRE of those changes as well. And then finally, as the notification, if you employ salespeople or individuals that are licensed salespersons real estate salespeople you do have to notify the DRE when you bring somebody on and hire them as an employee. And then when they're no longer employees of yours you also have to notify the DRE. They're no longer employees. So these are very simple changes and sometimes you don't think about them because life moves fast and you're doing a lot of things, but this is where we see a lot of technical violations from our clients because they're changing their address or they're changing an email or phone number or whatever it might be, and they're not notifying it.
It's a very, very simple form to complete. It's a very simple process to complete. And so there really is no reason why you shouldn't be able to comply with these requirements. And if you need help, obviously ask a friend, ask us. We're happy to help you navigate through the recording requirements being met for brokers regulated by the DRE. Alright, let's move into threshold brokers. So first of all what is a threshold broker? And I'm sure a lot of you have heard the term. I don't know if all of you are familiar with what that term even means. And really a threshold broker is just a broker that in any successive 12 month period, and so no, it's not calendar year, it's 12 months. So it could run from now starting October 6th and it could run through October 5th. So it's a one year period that it's not calendar year, it's just success of 12 months.
And if during any success of 12 month period, you as a broker do one on the following, you either negotiate a combination of 10 or more loans or loan sales with an aggregate amount of over a million dollars, or you collect an aggregate of payments of at least $250,000 on behalf of the owners of the, there's criteria that are involved here, but some minutia, this is primarily the business of what our clients are doing. And so if you have additional questions afterwards, I'm happy to go over those additional requirements as well. But just time permitting and also I just don't want to get everyone, it gets a little confusing when you start throwing out some additional criteria. So these are primarily the main criteria where we see our clients eating that threshold minimum, but there's also a rebuttal presumption that's created at a three month period, a three consecutive months as well as a six consecutive month period.
And so it's really, it's lesser numbers. So within any three month period if you negotiate a combination of two or more loan sales or loans with an aggregate amount of over $250,000 again that's in any success of three month period, there's a rebuttal presumption that you are going to be a threshold broker. Then the six month requirement is if you negotiate a combination of five or more loans or loan sales for an aggregate of over $500,000, there's a rebuttal presumption. So what does the rebuttal presumption actually mean? What that means is that there's an assumption that you, since you've conducted this amount of business in either the three or six month time period which are really kind of paired down versions of the requirements for a threshold broker, that over the period of the next nine or six months, depending on which one you're looking at that you are going to continue at the same rate and that you'll then be subject to the threshold broker reporting requirements.
That's not to say is within the first three months you do 10 or more loans and aggregate over a million dollars, you're a threshold broker. There is no rebuttable presumption it's just how it is because it's still within that 12 executive months even though you did it quickly. So rebuttal consumption is you've done it for three months or six months at a lower threshold number. So the assumption is that you're going to continue. So what does that require of you? What does that mean? But what you have to do is if you need that threshold, either the 12 numbers or the three or six months with rebuttable presumption, you do have to file an initial notification with the DRE. And again, it's a very simple form. A lot of these forms are not that complicated. It's just stating that you've met the threshold or that you've are subject to the rebut rebuttable presumption.
Not a lot of other stuff that you really have to throw into that initial notification, but it is important that you do. So again, this is a very common violation that we find with our clients and within the industry that can be easily avoided. So what does it mean? What do you have to do if you file that initial notification and you're now obligated as a threshold broker? Primarily it's kind of two things. One, as is of course, just like every other broker, you're going to have to file the business activity report and you would complete part B of that. And then also you're going to have to do some trust fund reporting both on a quarterly and an annual basis. Now the good thing is if you're a threshold broker and you're not handling any trust fund money from and at that point you don't have to fully comply, you'll just have to file what's called a trust fund not accountability report. And all it says is, Hey, during the reporting period we did not handle any trust funds.
A lot of our clients, again, kind of fall into that category. But if you do handle trust funds, then you do have to file a quarterly status report. You're able to file it on your own. It's due 30 days after the end of each fiscal quarter and you're able to complete it and prepare it on your own. It's an important distinction as far as who is able to prepare these status reports because especially as we move through with respect to the annual recording requirements as well as the multi lender broker requirements because here you're able to prepare them and get them filed in other situations, that's not going to be the case. So you're also subject to, if you've handled trust funds you're also subject to an annual trust account review and that has to be performed by a cpa and it has to be an independent cpa, meaning you can't have your controller or whoever's on board for your company prepare that report as an employee.
It has to be independent from your company. It has to be submitted within 90 days after the end of your fiscal year. And again, if you're not handling trust funds, you just filed an trust fund, not accountability report. Then finally, there's kind of ongoing reporting requirements and really this is in addition to the global ones. And so if you no longer meet the threshold requirements, you can file a cancellation of reporting, which, so if you had a great year and you just happen to focus on it and then next year you're moving into something different or you're about funding, you spending loans, whatever it may be, you can file a notification with the DRE to let them know that, Hey, look, I'm no longer a threshold broker so don't expect any of the reports either, whether it be part B of the business activity report or trust account reporting.
I'm not going to be submitting 'em because I'm no longer falling within the criteria for a professional broker. Other things you'd have to notify, and again, it's material changes and similar to the global requirements, if you change your fiscal year or you change your company game, anything like that, you'll also have to make sure that you file an amendment and notify the Department of real estate. So let's move into multi lender brokers and it's if you're asking, well what is that? Well, it's exactly what it sounds like. You're brokering to loans or brokering loans where there's more than one lender identified in the loan documents. So typically you're looking at the fractionalized loan, multi benning loan either multiple terms that are thrown out, they all mean the same thing. You're still, if you are A DRE licensee you're still going to be considered a multi lender broker.
So what do you have to do if that happens? You broker your first loan to where there's two lenders on it, single loan, two lenders. Once that's done, you are going to need to, within 30 days of that transaction closing, you need to notify the California Department of Real Estate by filing initial notification just like on the threshold side and you just have to know, Hey, I've done my first transaction so I'm kind of on your radar. So what does that mean? You file that, what are you subject to now? Well again, going back to the business activity reports. So when you file your annual B r you're going to have to complete part B. There's also trust fund reporting requirements just like threshold, the quarterly and annual unlike threshold though, the quarterly actually needs to be prepared by an independent cpa, the quarterly ones as well as the annual.
So you can't just prepare your own trust account report and submit it to the DRE If you fall into the multi lender broker. I know that seems like a pretty big obligation, especially if you're not really handling any trust funds, but there's a little bit of a relief for you because you also, in order to be required to file those trust account reports either on a quarterly basis and annually, you know have to be servicing notes, you have to be servicing them for any consecutive three month period, which is huge because I know a lot of you guys don't end up servicing loans when you broker them. And then also the payments have to exceed $125,000. So aggregate of what's going to be collected or the number of people that are receiving payments is over 120 recipients of the lenders of where are you dispersing those payments when you collected them. So if you're just, you're brokering a couple loans, you're servicing it maybe one or two, you're probably going to, unless it's a pretty large balanced loan, there's a good chance that you're not going to have to file these quarterly reports which thankfully can be if you're barely above that threshold. It's still a lot that that's a lot to do for small volume of loans.
But be aware that it's out there. But also be aware that there's an exception that you don't have to do it just because you're servicing a loan. And then the ongoing reporting requirements, just like you have with the threshold brokers any material changes also you can cancel if you're not doing handling multi lender transactions anymore you could also file a cancellation of that multi lender a notification with the DRE and so that way you'll no longer be obligated. And I know a lot of people that there are a lot of clients that have stopped doing this that have stopped handling multi lender transactions and brokering those loans, but there're still looking to comply here and they're like, well what did I do? What do I do? Well the easy thing to do is just file a notice of cancellation of reporting with the DRE and then you don't have to worry about it again.
Cause the DRE will no longer look to you to file those trust account reports or to notify them of material changes, at least from the multi lender side. You still may have to do it from the standpoint of the global requirements, but it's not going to be a specific form that you're going to use related to multi lender brokers or threshold brokers. One quick note before I, I'm going to move past this and then I'll hand it off to, you can be a threshold broker and not a multi lender broker. You can also be a multi lender broker and not a threshold broker and you can be both and if you're both, you do have to comply with the requirements both. And so really it's going to, you'll have to file an initial notification for both the threshold bro being a threshold broker as well as a multi lender broker.
The trust fund reporting is going to be somewhat similar but again, if you are not handling any trust funds, you still have to file the report or your non accountability report under the threshold requirements. But under the multi lender broker requirements, you don't really have to do anything because if you're not handling any trust funds, you're not collecting any payments, then you're not going to be subject. And then you just have to make sure that you're aware of certain nuances in between there of where, okay, well if I'm handling some trust funds, you still may have to report as a threshold broker but you may not have to do it as a multilanguage. So just be aware that these are not mutually exclusive concepts. Some of them overlap, but compliance, if you fall into the criteria of both of these, you have to comply with the requirements of both. Again, there are areas that overlap like the trust fund reporting for the most part, but then there are instances where one you have to report and one you don't. For instance, again, if you're handling trust account trust funds and you have to do the quarterly reports for the threshold broker requirements but you don't meet the minimum criteria for the trust fund reporting from a independent CPA under the multi appropriate requirement. Well, thank you for hearing me out. I hope you learned something. I'm going to turn it over to my much more exciting colleague take
<laugh>. Thank you so much Dennis and thank you so much for that presentation. So transitioning to CFL, if you have a CFL license and you know are conducting C F L activities, we do have to make that reporting. Just as a side note, even if you do not have any C F L activities, you do have to still do this. So my apologies on that. Anyways. So what does it really mean to do A C F L reporting at the end of the day is really two things here. And then the third part of the miscellaneous is just simply best practices and we'll get into that more. But now what do you have to do as a C F L license holder? You have to number one, file the annual report and number two, pay for the annual assessment fee. That's really the bare minimum that you have to do to keep the license inactive and in good standing with the DFPI.
So what does the CFL annual report comprise of? Really it's just about your business activities as far as the financial statements go, the balance sheet, the income statement, cash flow statements, these are all going to be reported with the DFPI. It does not need to be audited so you can actually use your own books and records in order for you to report it to the DFPI using your own books. Some of the other information that you do have to disclose is lending activities. We're talking about whether it's going to be a consumer or a commercial lending activity. Did you sell any loans? Do you have any servicing activities, any brokerage activities using the CFL license, what are some of the interest rates with and the principal loan amount of these loans? Note here that the financial statement needs to indicate that you do have to maintain the net worth of $25,000.
That is very important in the annual report. Otherwise the DFPI will comment and if not, you ask for a corrective action in order for you to maintain or keep that $25,000 net worth. In other ancillary businesses such as credit insurance, if you have done any of those and other activities that is in the realm of C F L and even non C F L activities will be report or should be reported to the DFPI. In the annual report you actually see two different aspects as far as the number and the aggregate loan amount of the C F L under the C FFL license or the ones that you have used and relied upon the C F L license to make that loan or to originator to lend that loan. And then there's the non C ffl loans perhaps it's an out-of-state loan or it is a DRE loan.
These all do have to be reported to the DFPI at the time. When you are filing the annual CFL annual report one of the things that you do have to consider here in the report is the ownership. Generally speaking, the rule is this all principal managers, officers, directors, and those owners of the C F L license 10% or more directly or indirectly need to submit their S I Q and submit the background check under your fingerprints of the F B I and the doj. And so if there is a change in the ownership, we do have to submit that as well as the annual report. You're going to reflect some of the beneficial owners as well as the officers of the CFL license holder at the time when we're filing the report. Just this is due March 15th of every year, but we highly advise that you file beforehand. We typically ask our clients to file by March one simply because from practical purposes the system may go down the self-service DFPI portal may not be effective or it gets delayed and there may be some last minute frustration that might come about and there may be a delay reporting and so to avoid all that, just do it earlier then March 15th, but that is the absolute deadline to file by March 15th.
Second thing here, pay your annual assessment fee. So after you file your annual report on March 15th, you are going to get a bill, a small invoice from the DFPI via your designated email address. As a side note here, make sure that your designated email address that you have registered at the time when you have applied for the C F L license is still effective that you do monitor that from time to time and make sure that you respond to the DPI's inquiries and or requests and or emails that you do get. This statement is going to come around August or September and the fee or the annual assessment fee starts at around $250 and it goes up depending on the volume and the lending activities that you have conducted for that year. For that year. Now this is important because if you do not pay for this, there's a potential that it may actually get revoked and there may be some penalties, additional penalties for not paying for this.
So this is also just as important, but note again that the designated email address is probably the most crucial aspect here because you need to get that notice. The DFPI does not send a letter anymore, so everything is going to be done electronically via email. So make sure that assessment fee is paid and that the designated email address is effective. So couple of other miscellaneous and the best practices here address change. If you do move your principal place of business, make sure you notify the DFPI 10 days prior at least and that 10 days is at the time of the filing of that address change request. If you do not do this, there's going to be a penalty of $500. And so I've had plenty of issues with the DFPI regarding this and so if you do have a new address, make sure that you tell the DFPI well ahead of time perhaps upon effective engagement of or execution of the lease agreement.
Just so that the DF DFPI is aware of this change, keep your records and your books up to date. This is just as important because number one, it's required under the California Financial Code but also when you are filing for your annual report, the books and records are going to be your lifesaver. I remember I've had a couple of our clients who actually had to dig this stuff up at the last minute, have to gather everything in the form of an Excel sheet and had to use that to basically file the annual report. It's important to keep this perhaps check it WPA once a month. I don't know how some of the C F L license holder may have been updating as far as keeping the records go, but just keep it, make sure that it's up to date depending on your lending activities.
As I noted before here, any update or amendment to the ownership or if not the principal or the officers, you have to notify the D F B I within 30 days upon change of that ownership. So as I just noted, the principal managers, officers, directors and the 10% or more owner of the C F L license holder must submit their S I Q or the and fingerprint background check that is required even after the C F L license has been given to you. And this is probably the biggest hot topic and there are quite a bit of questions that came about under this N M L S make sure that you register via N M L S and there is a frequently asked question, what is an N M L S? And there's this misconception that N M L S is some type of a regulatory agency.
It's not, it's merely a platform. N M L S has no enforcement powers that they're not a regulatory agency and it's ultimately with the state in the government agency in California, in our case here California Department of Financial Protection Innovation or DFPI. Other states may have other names similar to that, but those are the regulatory bodies that actually does make enforcements. And N M L S is just merely a platform in order for you to utilize, to register or to apply for a certain license with that state. And so effective October 1st, 2021, which was five business five days ago and do December 31st, 2021, you have to register under the N M nmls. And just as a side note, make sure that you have two things ahead of time. Number one, that you have your 1 47 notice letter from the IRS or an SS four form that makes sure that the name of that letter matches your license.
That the name of the license that is filed with the DFPI. If you do not, make sure you get ahead of time, call the IRS and tell them that we do need to update or amend this notice letter. Otherwise, it's extremely difficult to register this thing. Have had a couple of clients where we actually did it on behalf of them and the wait time on the IRS call is extremely long as you could imagine. And so we have to suffer through that and I just want to make sure that you guys do get ahead on that. And as I noted here, all C F L license holders, even if a business purpose lender business or commercial lender needs to register under the N M L S and that's just the effect that they just the way that the California has decided to proceed here with the licenses.
So what happens if you fail to report? What happens if you do not file your annual report? That these are some of the aspects here that we just talked about. Oh, we are going to be talking about administrative hearing, audit fines, suspension ultimately revocation of license. So it's slightly different from the DFPI or the C F L license and the DR license. So let me just talk about the specifics of what happened. So if you do not file your annual report by March 15th fines, right? First it's going to be $100 for the first five business days they'll give you a little bit of leeway and timeline for you to file it with minimal penalty after the five business days has passed, it's going to be $500 each business day until $25,000 is hit. And that $25,000 is not a theoretical number. I've actually seen clients who actually had to pay that 25 full load of $25,000 and so please file that annual report.
And so ultimately what ends up happening is that if you do not file, even after the penalties and the fees have been assessed there is a high likelihood that your license will be revoked in that event. You know, will not be able to conduct any C F L C activities or any lending activities under the C F L license and you would actually have to request for a reinstatement. The reinstatement, you have to wait one full year before you actually request for that request for the reinstatement. And so it can really be a big pain. And so with that in mind, I want you to be cognizant of the fact that the annual report is not difficult, it's just work that you have to do to get ahead, make sure that you actually have these records up to date and organize so that the time when you are filing it causes a lot of less headache and of course paying the annual assessment fee. So Dennis, tell us a little bit about the DRE non-compliance here.
All right, so the process is a little bit different in how it happens under the DRE but typically what's what's going to happen is if you filed your initial notification, let's say for a threshold or a multi lender broker and then you fail to file your quarterly trust fund reports or not accountability report, then at that point you're going to get a notification from the DRE and then advising you that it's due. And then oftentimes they're going to assess penalties on that as well. That's also more than likely if you fail to file on time, it's going to trigger an audit. And then when the audit is triggered, they're going to come out to your business and they're going to start looking through everything, your loan files, reviewing your license, making sure the address that they have on record matches the address of where you're at making sure, looking at fictitious business name, all that stuff.
And really what happens is you're not on these requirements. It also could be triggered by let's say a consumer complaint, but typically you're not going to happen, they're not going to complain. It could also be triggered by a random audit by the B r E as well. And once they start looking into your business then they're going to start seeing, oh well they're a threshold broker. They never filed the initial notification when they were supposed to, okay? And they were supposed to, they did that last year and they still qualify this year. Oh, we've never gotten quarterly. Your annual trust account reports, these are technical violations typically you're not going to see it. It's going get fined. And if there's an accusation that ends up being filed by the DRE against you, you're also going to have to pay for administrative costs for the accusation.
You're going to have to pay the audit fees for when the DRE reps or agents come out and audit your practices. And then you go through the process of an accusation, oftentimes you, you'd be able to work something out with the DRE, especially on these technical violations you know, remedy it by making sure that you catch up on the reports that were supposed to be filed. And then you obviously make sure moving forward that you continue to timely file when what needs to be filed. But oftentimes there's still going to be some fines that are involved because again, these are technical violations. Once it's done, it's done. Once it's late, it's late and you really can't unring that belt. And so regardless, you're, you're going to get hit with fines if you're a serial offender or it's being viewed and that you're doing these things in such a way that you're intentionally trying to mislead or deceive the public.
Then there you're starting with that in situations where potentially you're going to have your lending activity suspended, your license suspended by the DRE and ultimately revoked you know, just can't opt to never report and expect to keep your license in place. They'll give you a little leeway, you mess up at first and you didn't realize it, whatever, you'll still get fined, you're still paying money but you're keeping your license. If you're continuing to do this and they're citing you for it, chances are at some point they're going to get tired of it and they're going to escalate things and then oftentimes they're going to find other issues and take out bridges with other things that are happening within your lending practice and reporting practice. And so if it escalates to that point there is a shot that you're going to have your license suspended or revoked.
But again, if you miss it, you're like, oh man, I just hit the threshold last month two months ago and I didn't realize I wasn't supposed to, that I had to file something. You're not going to lose your license that that's not what they're looking for. And that's not how it happens. But chances are you're going to get filed and you're going to have to pay a, but if you're able to avoid the audit right now, then that's great. But also we've had clients that have mentioned that, and again, this is speculation I don't know this a hundred percent for as a fact, but people that end up filing late, although the DRE won't know when that initial transaction may occur, when you hit that threshold oftentimes we'll trigger an audit themselves if you're late in filing something and then you're kind of in their queue for audits. And sometimes I've had clients that get them annually or every other year which is not that common. And it all starts off from a standpoint of them failing to adequately report and comply with these pretty basic requirements. Again, it's not overwhelming, it's not overly difficult to meet that baseline of what they're asking for. So yeah, so just report, let's not find out what happens if you don't report. Let, let's make it easy on ourselves and mention, just make sure that you do it, you can apply.
All right, sounds good. Okay, so we have a couple of questions here. Lemme pull it up Dennis. Let's see. Regarding business activity report, business activity report, do we include activity outside of California? Do we include loans originated with correspondent lending relationship? Do we include loans broken to us?
Okay, so activity outside of California. If you are in any way referencing or relying on your broker's license here in California whether it be as an explanation for an exception to then yeah, you're going to want to identify that activity outside of California. If you're making a loan in a state where a license isn't required and you're fine with the laws and everything else and you don't reference California the state of California and the D really don't have any interest in regulating that loan. The state regulator where you may do, let's say you're going to Illinois, for instance, regulator in Illinois is going to be interested in you making a loan or brokering a loan in their state.
And if it's secured by, secured by property in that state so is it depends question obviously. Again, if are relying on it or if you're brokering, let's say a multi lender loan and you want to try and rely on your broker's license as an exception for securities purposes that won't work. And so you actually would have to file under a corporates code, gets us into a whole corporation scope, gets us into a whole different conversation. But again, what are you doing with Sloan and what's the purpose of the out-of-state loan and what is your activity with respect to that? And then depending on where that falls or you can always I guess go for the sync approach and just say, okay, I'm just going to report all activity outside of California. If you're worried about and don't want to ask that question, you could always opt for that direction.
There's not any harm in over reporting on that side other than the fact that potentially if they're looking at your out-of-state transactions and somehow look at it you may have securities questions which Tae and his team can address in a different webinar or in another email or phone call. So moving into the next one, do we include loans originated with correspondent lending relationships? Yes. You include both when you're acting as a broker as well as if you're acting as a lender. So that also is the next one. Do we include loans broker to us? If you are acting under your DRE license and you're holding it out there, then you do need to record those. So if you have further questions, want to get more on you on silent, we can kind of take this offline. But if there are about three or four other questions that probably should be moving into,
Okay we have here, does the CFL license only apply to lenders who originate or does it also apply to lenders who buy notes that were previously originated by banks or other lenders, et cetera? I think that's more of your question Dennis. I don't know if you want to answer that.
Sorry, I have to read, hadn't looked at the section initially. Well, I guess I'm trying, are you saying the recording requirements if you're purchasing
Loans? No, I think that's just a general compliance general c f lending. So my understanding is that the CFL license applies to those who also purchased notes but when it comes down to the origination by the banks or other lenders, but I could be wrong Dennis so that's not my expertise area of expertise.
So you know are looking at situations where there's a lot, it's difficult to answer this question and I can pick and interpret what I think it means or what I want it to mean. But I don't know if I'm going to answer your question. So for me, I would prefer to take this kind of offline cause I don't want move this in a direction. Generally speaking, if you're looking to purchase loans that are originated by a CFL then it either needs to be a broker transaction by a DRE broker or you're selling CFL to CFL. I dunno if that was the question I was asked, but again, I'm not completely clear on what the question is.
Okay so please email us if you have any other specific questions right underneath below we have our email address t.kim gsp.com or D bardowski gsi.com. Okay, so next question here. We have moved to a new office, but we have not yet transitioned to the N M L S and the only change of address instruction I found online. Online direct us to upload the change of address form to nmls. Is there a way to submit this into the DFPI now rather than N M L S? So there is a form where you can actually mail it to the D fpi. Now whether that needs to be in the form of an upload to nmls that's probably going to be a little bit premature at that point my recommendation is to mail it out nevertheless, because of the effectiveness of your change of address and then mail it to the Los Angeles address, that should be fine. This is a continuing I believe this is a C L E or a continuing education requirement if the gentleman is in the or the person is involved in the strictly commercial or B2B licensing. As far as the C F L license goes, I am not aware of any continuing education that is required under the CFL if you're strictly in the business business of commercial lending.
Next here, can you on the requirements of a DBA registering for NMLS as a DRE broker DBA ratio?
I think that's probably more me. So yeah, I look at this as kind of being two different questions. One is with respect to what do you need to use a fictitious business name or DBA if you're a licensed broker under the and you regulated by the DRE. And then the second part of the question is whether, what are the registration requirements for LS if you are a DRE broker? So we'll start with the first part as far as the dba. So the way that a fictitious business name is created is you actually, for a broker, there are two things that need to get done in order to have it approved and one is you actually have to file a registration. The DBA in the county where you're operating the business. So it's a fictitious business name statement that gets filed with the county but your fictitious business name also has to be approved by the DRE.
So you need to submit an application for that DBA with the DRE and your DBA can't be deceptive. It can't be similar to other business names. And so if you propose a DBA that sounds a lot like somebody else even though you may be able to register and file a fictitious business name statement, let's say at the county level the DRE there, there's a chance that good likelihood that the DRE is not going to approve that because it's, its deceptive, it, it's misleading to the public. And if anything that you do know, when you're looking at any regulator, it's really with the perspective of, okay, well how's the public going to perceive this A normal consumer? If they're looking at the same, are they going to understand that you are different than X unless X gives you permission. If you are somehow affiliated with X and X says I'm cool with it, and then that could be okay. But again, it's going to depend on the level of how the DRE feels, whether or not it's misleading to the general public. Second part of your question is registering for the NMLS as a DRE broker.
That is, if you are going to be brokering residential home loans, then you will need to register for get your mlo and that would be registering through the NMLS system. But in general, if you brokering business purpose loans you don't have to register for nmls. The you're it's only really going to apply if you're subject to n O requirements. And if you're originating loans that are secured, consumer loans that are secured by the consumer's residents then at that point then you're going to have to register for nmls. But again, business purpose loans, commercial loans are not going to be subject to the NMLS registration requirements.
Next question, does your law firm provide compliance monitoring services to assisted brokers to be on track with the California Real Estate Department compliance requirements? This would be extremely helpful with meeting these timelines.
We don't, but we probably should at least <laugh>, I dunno, maybe on the CFL side maybe he's doing this and his team's doing it but that is not a practice that we're following right now. I do think that it would be, if we could figure out a way to efficiently do it, it would be awesome. Part of the problem is for us on the DRE side is you're looking at, okay, well we could identify and notify our clients file a business activity report. But then when it comes to the initial statement for that, you met the criteria for being a threshold broker or multi lender broker, that initial requirement, we wouldn't really be able to go, Hey, here, here's how you track. But I do think that would be a pretty cool idea and something maybe like a portal where they can just put it in and then follow it along and understand, okay, well my quarterly trust account report or not accountability report is due so I have that advanced notice and get it done. But again, that is not something that we are affirmatively doing at this point. Are you doing any of that take? I can't hear.
Sorry, I'm typing the answers for the other questions at the same time. My apologies. But yes, we do do that from a reporting perspective, you have a C F L license, you have actually apply for the C F L license with us. We actually send you notifications that the annual report is due. That's around October. I think you'll get your first notice and then November and then thereafter the last notice comes in December. And I think that's pretty much it. We do send out three notices we have here. Another question, do we need to report a assignment of loans between affiliated funds in bar? I don't know if that bar is that that's an acronym for something else or if that has to do with the DRE reporting or C F L reporting. Generally speaking, at least on the CFL side, that's really a matter of how you guys have presented to the DFPI in the past matters for any type of a c ffl annual reporting. I have seen a consolidated financial standards and consolidated reporting where you actually put it all into one book at the parent level whoever that actually has the CFL license. And they seem to generally understand as to the affiliated fund transactions to be. Okay. And so I really don't have much of an issue with that, Dennis. As far as DR goes, I don't know if that's reported.
So it's going to be, yeah, I guess it's going to depend. You really don't see too many funds that are licensed typically, at least in our experience, they're usually C licensed or they're not licensed at all. So I guess the questions going to be is if you are assigning loans between DRE regulated funds that are broker funds, then yeah, you are going to need to report the origination or the resale. But again, it's going to depend on what the role of a beach licensee is because if ultimately, let's say the asset me of the funds is not licensed, then that unlicensed entity doesn't have to report anything. But if you are let's say A DRE broker, you originated it under the DRE license and then you assign it. But yeah, that's still selling that. You're still transferring it. So it's still best practice to report that. But again, it's going to depend on what licenses are in play in the situation and which direction things are going.
Okay. All right. Here's a very interesting question. We have had a CFO for decades, but our licensing name is slightly different than the entity's name on our tax return. What has a hyphen and the other does not. The NMLS is adamant that we contact the IRS to get this resolved. And I'm telling you, I'm not joking when I'm saying these things. Right. Do you have any idea why the NMLS is so unflexible and how to possibly get around this? I honestly have no idea why the NMLS is so unflexible. My understanding it has to do with just the whole license application process. Make sure that the NMLS matches exactly the that of the applicant and the license holder. And because at the end of the day, when it comes down to the name, it needs to exactly match that at the time of applications. But other than that, I just really do not know why they're so inflexible, how to possibly get around this.
I also, unfortunately, do not really have a good answer for you. Call the IRS and make sure that you do get that change to add that hyphen in. And just getting that ahead of time and just having probably a staff member or someone who actually can navigate through the IRS, you know, system would probably best to do this. So anyways let me know if you have any further questions on this. I think there's probably an idea or two that I can kind of send to you when you're doing this. But anyways, that is, thank you so much again for coming in. Let me know if you have any other questions. You know guys have our contact information and we really appreciate your time. Thank you so much and have a great day.
Yeah, thank you. Have a wonderful day everyone. Take care.
Leverage: A Tactical Guide to Lender Finance
Geraci’s industry experts will discuss the ins and outs associated with leverage, lender finance, warehouse lines of credit, and credit facilities. We’ll talk about how
AB-1837: Overhauling SB-1079 Foreclosures in 2023 to Address Fraudulent “Eligible Bidders”
In 2021, SB-1079 went into effect bringing drastic changes to CA’s nonjudicial foreclosure process in an attempt to encourage individual home ownership and affordable housing
Options After Default: California Foreclosure, Default Interest, Loss Mitigation, and Recourse
Lenders should always be prepared to manage loans that don’t pan out the way they are supposed to, and lenders must be tactical when understanding