Q: What type of mortgage loans do you specialize in?
A: We specialize in related-party loans. We facilitate mortgage loans between parties with pre-existing relationships, as such loans may be regulated or prohibited by federal law. Our typical transaction involves a parent making a mortgage loan to a child, an employer loaning to an employee, or a trustee loaning to a beneficiary.
Q: Do the Borrower and Lender have to be related by blood or marriage or have a formalized relationship?
A: Not strictly. The parties can simply be friends, but the relationship should support the conclusion that the main purpose of the loan is to assist the Borrower.
Q: Why do Borrowers and Lenders who already know each other need Laguna Mortgage Company?
A: Federal legislation has raised questions about whether a mortgage loan made by an individual may be regulated by the Consumer Financial Protection Bureau (“CFPB”) and may require such a lender to be licensed as a “loan originator”. This uncertainty is the entire reason for the related-party loan product, and virtually all of the referrals for this product come from legal counsel for either the Borrower or the Lender.
Q: Does the related-party loan program resolve the uncertainty about being subject to regulation?
A: While the CFPB does not acknowledge any 100% safe harbor, our program is the best solution available to minimize the current uncertainty. We act as a licensed “loan originator” in the transaction, and comply with the federal and state regulatory requirements.
Q: What are the characteristics of related-party loans?
A: In addition to the relationship of the parties, these loans tend to be fully-amortized, at market interest or below, and do not provide for escrowing of taxes or insurance. Further, the main motivation for making the loan is to assist the Borrower, not to make an investment or receive a specified monetary return.
Q: Are there any requirements for the Lender?
A: Yes. The Lender must not be a “creditor” as defined in the Truth-In-Lending Act (“TILA”) or the Real Estate Settlement Procedures Act (“RESPA”). This is important because lenders defined as “creditors” are subject to many regulations and requirements that do not apply to a person making a single mortgage loan.
Q: What does it mean when you say the Lender cannot be a “creditor” as defined in TILA or RESPA?
A: Generally, this means that the Lender does not regularly extend consumer credit, and does not advertise or otherwise make known that the Lender lends money to consumers. If a Lender has not made any other mortgage loans in the last 24 months, and has never advertised, then that Lender will qualify as not being a “creditor.”
Q: Do you underwrite our loan?
A: No. We assist in originating the mortgage loan on the terms that the Borrower and the Lender agree to between themselves.
Q: Do you prepare loan documents?
A: Yes. We prepare the operative loan documents, although we will use Lender’s counsel’s forms if desired. There are no requirements for the disclosures referenced in RESPA, TILA or other federal regulations on this kind of loan.
Q: Are you the Lender on the mortgage loan?
A: No. We act as a mortgage broker for loan origination purposes. The Lender will be named on the Note, Mortgage and other loan documents.
Q: Do you handle the loan funds?
A: No. The loan funds go directly from the Lender to the Closing Agent selected by the Borrower and Lender. We do not act as Closing Agent, and encourage Lender’s counsel to take that role.
Q: Do you take an application?
A: We do take a rudimentary application from the Borrower, and we pass that on to the Lender, but we do not verify any of the information that is contained on the application.
Q: Do you inquire into the Borrower’s ability to repay the mortgage loan?
A: No. That is the Lender’s responsibility, along with all other underwriting and verification duties.
Q: Do you get an appraisal for the Lender?
A: No. We will assist and help coordinate with the Closing Agent if the Lender desires to receive an appraisal. If the Lender clearly waives getting an appraisal, it is not required by us.
Q: Do you provide mortgagee title insurance?
A: No. While we always recommend that Lenders have title insurance to protect them, the mortgagee title insurance is provided by the Closing Agent and not by us. If a Lender clearly waives title insurance, it is not required by us.
Q: Why won’t this work for other private loans where the primary motivation is not to assist the Borrower?
A: We are trying to specialize in creating the safest harbor possible (there is no completely safe haven in the current regulatory environment) for the least controversial loans, in order to solve a problem we have identified with the existing regulatory framework. We are currently working on a possible product to offer to other private mortgage lenders who are not “creditors” under TILA or RESPA.
Q: What is the timeline for the related-party loan product?
A: This is a very streamlined process. Because there is no underwriting involved, if the Borrower, Lender and Closing Agent are able to be focused and efficiently exchange the necessary information, the entire transaction can be completed within a week or less.
Q: What is the cost?
A: There is a two-tier pricing structure: for loans of $300,000.00 or less, the loan origination costs total $1,135.00; over that loan amount, the total cost is $1,595.00..
Q: How do I get started?
A: You can start a file by filling in the initial information items under the "Submit Data" tab of this website. Before doing that, you may want to call John Perloff at (954) 395-2000, to make sure this program fits your situation.