There have been a number of recent changes to the mortgage lending laws. Under current law in Colorado, certain private loans secured by residential real estate may be subject to compliance with strict licensing and other requirements.  Failure to comply could potentially result in misdemeanor charges and/or fines.

These new obstacles stem from provisions of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), and the Colorado Mortgage Loan Originator Licensing and Mortgage Company Registration Act (“CMLO Act”). 

If a client extends credit secured by residential real estate more than five times in one year, they may be a “creditor” and may be subject to strict requirements of the Consumer Financial Protection Bureau (“CFPB”).   Many clients will not fall under this category.   However, even if it is the first and only loan transaction in a given year, the client may be subject to licensing and other requirements unless the transaction falls under one of Colorado’s exemptions.   The easiest of these exemptions might be the “attorney exemption.” C.R.S. § 12-61-904(d).   As long as an attorney (or, even better, separate counsel for both sides) negotiates the terms between parent and child and they do not discuss the loan directly, the loan should not be subject to these additional requirements.

Governor Hickenlooper signed the Mortgage Loan Originators SAFE Act (House Bill 16-1306) into law on April 21, 2016, creating an exemption for loans originated by a parent to his or her child.   Although the legislature has found a way to exempt this particular type of loan, it is important for fiduciaries involved in, or assisting with, any other types of private loans and real estate transactions to be aware of these issues before running afoul of the new rules.