SECONDARY MORTGAGE BROKERS; Licensure of secondary
mortgage brokers
An industrial loan corporation organized in another state
that seeks to engage in secondary mortgage transactions involving
real property located in Michigan must be licensed under the
secondary mortgage act, 1981 PA 125.
Opinion No. 6926
December 11, 1996
Patrick M. McQueen, Commissioner
Financial Institutions Bureau
Department of Consumer & Industry Services
P.O. Box 30224
Lansing, MI 48909
You have asked if an industrial loan corporation organized
in another state that seeks to engage in secondary mortgage
transactions involving real property located in Michigan must
be licensed under the secondary mortgage act, 1981 PA 125, MCL
493.51 et seq; MSA 26.568(1) et seq.
Your letter of request indicates you have received letters
of inquiry concerning industrial loan companies established
and operating under the laws of the states of California or
Utah claiming exempt entity status and seeking to engage in
second mortgage transactions involving real property located
in Michigan without first being licensed by the state under
the secondary mortgage act.
The secondary mortgage act regulates loans secured by second
mortgages on an interest in real property used as a dwelling.
Section 2 of that act contains the licensing requirement as
follows:
Except for a person licensed under the consumer financial
services act, a person shall not make or negotiate, or
offer to make or negotiate, a secondary mortgage loan in the
regular course of business unless that person or that
person's broker, agent, or other representative is licensed
as provided in this act. A person is acting in the regular
course of business if that person makes or negotiates more than
2 secondary mortgage loans in a calendar year. [Emphasis added.]
Section 1(b) of the secondary mortgage act, 1981 PA 125, defines
a "[l]icensee" as a "person licensed under this act." Section
1(c) of that act defines "[p]erson"as:
[A]n individual, corporation, partnership, association,
or other legal entity, but does not include a state or
national bank, a state or federal savings and loan association,
insurance company, or other financial institution subject to
another law of this state or of the United States regulating
the power of financial institutions to engage in secondary mortgage
loan transactions. [Emphasis added.]
Section 27(2) of the secondary mortgage act, 1981 PA 125, provides
the penalty for making loans without a license is "not more than
$5,000.00, or imprisoned for not more than 3 years, or both."
The Banking Code of 1969, 1969 PA 319, MCL 487.301 et
seq; MSA 23.710(1) et seq, codified the
laws relating to banks and industrial banks. Section 8 of 1969
PA 319 abolished the distinction between banks and industrial
banks and provides that no new industrial banks may be created
after August 10, 1969. Under section 8, existing industrial
banks may renew or extend their corporate lives but they shall
not receive deposits payable on demand or exercise trust powers
until they sell their assets to, consolidate with or convert
into a bank. Your office advises that presently there are no
domestic industrial banks operating in Michigan.
California industrial loan companies are distinguished from
banks and are distinctly established and regulated under California
law ("Industrial Loan Law," Cal Fin Code sections 18000-18538)
as are Utah industrial loan corporations under Utah law ("Industrial
Loan Corporations," Utah Code Ann, Title 7, Ch 8 section 3 et
seq). Nevertheless, these industrial loan companies
could claim that they are effectively banks under the laws of
their respective states and should, therefore, be exempt from
licensure. However, any such claims are not dispositive because
the exception to licensure in Michigan, delineated in section
1(c) of the secondary mortgage act, 1981 PA 125, applies only
to financial institutions subject to other laws of Michigan
or of the United States regulating the power of the financial
institution to engage in secondary mortgage loan transaction
in Michigan.
Research reveals no other Michigan statute regulating these
California or Utah industrial loan companies seeking to engage
in secondary mortgage loan transactions in Michigan. While 12
USC 3401 et seq regulates industrial loan corporations
as to the privacy of their financial records pertaining to their
customers, research reveals no laws of the United State regulating
industrial loan companies when they seek to engage in secondary
mortgage loan transactions in Michigan.
An industrial loan corporation organized and operating in
another state, seeking to engage in secondary mortgage transactions
involving lands on which a dwelling is located in this state
must, therefore, be licensed by this state because it is not
subject to another law of this state or of the United States
"regulating the power of the financial institution to engage
in secondary mortgage loan transactions" as set forth in section
1(c) of the secondary mortgage act, 1981 PA 125.
It is my opinion, therefore, that an industrial loan corporation
organized in another state that seeks to engage in secondary
mortgage transactions involving real property located in Michigan
must be licensed under the secondary mortgage act, 1981 PA 125.
FRANK J. KELLEY
Attorney General
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