Insights

On December 8, 2010, after an extended period of consideration and some formidable advocacy, the California Department of Corporations (the “DOC”) formally acknowledged that California-licensed manufactured housing salespersons are generally not required to be licensed as mortgage loan originators under the California Finance Lender Law (“CFLL”). After first acknowledging that the CFLL expressly excludes authority over and regulation of “bona fide” conditional sales contracts for the sale of personal property, the DOC noted that California Senate Bill 36 (“SB 36”), the bill under which California adopted the requirements of the federal SAFE Act, did not amend the CFLL to include such transactions, including the conditional sale of personal property manufactured homes.

The DOC’s publication also acknowledges that SB 36 amended California’s Health & Safety Code to exempt California-licensed manufactured housing dealers and salespersons from any California licensing requirements for mortgage loan originators “if the dealer or salesperson performs only administrative tasks on behalf of a person meeting the definition of a mortgage loan originator, and if the dealer or salesperson does not accept compensation from a lender, mortgage loan originator, or from any agent of any lender or mortgage loan originator.” (Emphasis added). The publication provides further guidance on this exemption explaining that: “the customary commission for the sale of a manufactured home that is not related to the financing of the transaction and that is paid by the housing manufacturer, dealer, or someone other than the lender, mortgage loan originator, or their agents, would not constitute ‘compensation’ paid by the lender, mortgage loan originator, or their agents.” The DOC expressly listed the following additional examples of circumstances where a sales commission would not constitute “compensation” for the purposes of inclusion under SB 36:

• The sales commission is not compensation for a loan origination or any other activity related to the financing of the purchase;
• The sales commission is the dealer’s or salesperson’s customary commission for the sale of a manufactured home, and is the same for a purchase made with cash or through other financing; and,
• Any administrative or clerical tasks related to the financing of the purchase are limited to those outlined in California’s Health & Safety Code § 18034(b) and are not compensated by the lender, mortgage loan originator, or their agents.

Although this guidance is not unwelcome, it doesn’t cover much new territory because manufactured housing dealers and salespersons do not appear to be advocating that they should be exempt from the mortgage loan originator licensing requirements if they act as a mortgage loan originator under SB 36. This issue is whether a manufactured housing dealer and salesperson is subject to those licensing requirements when they engage in manufactured home sales that do not involve a mortgage lender or mortgage loan originator. Under the scope of the federal SAFE Act, manufactured housing dealers and salespersons are arguably subject to the licensing requirements and the manufactured housing industry has advocated legislation, such as H.R. 5369 (the Manufactured Housing Licensing Clarification Act of 2010), to resolve the question. In California, the DOC answers that question with respect to the CFLL by stating that the mortgage loan originator licensing requirement does not apply to manufactured housing dealers and salespersons in such circumstances. However, SB 36 also requires mortgage loan originator licensing under California’s Residential Mortgage Lending Act (“RMLA”) and the Real Estate Law (“REL”). Although the DOC regulates the RMLA, the DOC publication does not address any RMLA exemption for manufactured housing dealers and salespersons. Further, the California Department of Real Estate (“DRE”) has not formally addressed the applicability of its REL mortgage loan originator “endorsement” requirement with respect to manufactured housing dealers and salespersons with respect to the conditional sale of personal property manufactured homes.

It is likely that the DOC and the DRE believe it unnecessary to formally address the exemption of manufactured housing dealers and salespersons under the RMLA and the REL as amended by SB 36 because the scope of these statutes applies only to real property transactions. However, it does give one pause when the DOC believed it necessary to expressly address the non-applicability of the CFLL to conditional sales of personal property where it is expressly provided in the statute. Notwithstanding such silence, at present and unlike many other jurisdictions, there does not appear to be any California statute that would require manufactured housing dealers and salespersons to obtain a mortgage loan originator license in connection with the conditional sale of personal property manufactured homes.

Dana Frederick Clarke is a partner in the California office of Hudson Cook, LLP. Dana can be reached at 714-263-0427 or by email at dclarke@hudco.com.