May a real estate licensee also serve as a loan officer?

There is no prohibition under the Act against a licensee also serving as a loan officer. Obviously, the licensee would need to check with both the sponsoring real estate broker and the lending institution to make certain both policies would allow for this. In addition, if a licensee were to serve as an agent and a loan officer in the same transaction, receiving compensation in both capacities, the licensee would have a duty to disclose this under Section 10-10(b) of the Act.

If there is any common ownership between the real estate company and the lending institution, then there are required disclosures under the federal Real Estate Settlement Procedures Act (commonly known as RESPA). In this situation, the broker who holds ownership in both entities should consult counsel to be certain the appropriate disclosures are made.

Any broker who allows her sponsored licensees to also serve as lenders, should establish policy within the office as to when this would be appropriate. For instance, the real estate broker might have a policy that the agent not serve as the listing agent and the loan officer for the buyer in a transaction. This fact situation might bring up issues of dual agency under the Act because the listing agent/lender would gain access to the buyer’s financial information. The buyer’s financial information would typically be considered confidential to the buyer.

Another caveat regarding RESPA issues: RESPA prohibits the payment of “naked” referral fees. This means, if the real estate agent is serving in the lender capacity and receiving compensation from the lender, in order to be in compliance with RESPA, he must be compensated for the work performed. The compensation must be commensurate with the amount of work performed and must not be payment for the mere act of referring a loan client to the real estate company.

Another statute that might apply is the Illinois Residential Mortgage Licensing Act. The broker seeking to allow real estate agents to wear lender hats should have his attorney check for compliance with the Illinois Real Estate License Act, RESPA and the Illinois Residential Mortgage Licensing Act. Before seeking to provide “one-stop shopping,” it is highly advisable that the broker seek the advice of counsel before going forward. It is also advisable to have sound written office policies in place.  

 

Sometimes it would be helpful in my company’s advertising to include information about a loan program from a lender or lenders. May I do this, and if so, what must be included in my ad?

First, if you are advertising terms of credit, even if you are not providing the credit, you must meet certain disclosure requirements under the Federal Truth in Lending Act (sometimes you might also hear references to Regulation Z or simply “Reg Z”).* Real estate brokers and agents must comply with Reg Z if they are advertising terms of credit. So, if a lender has a specific loan program that would apply to one of your listings and you think it would be helpful in marketing the property, make sure you comply with Reg Z requirements.

For instance, if you are advertising terms of a certain mortgage program and you want to include the monthly payment, you must include additional information in order to meet Reg Z requirements. The goal of Truth in Lending is to give a true picture about loan terms. Examples of “triggering terms,” or terms that require additional disclosures, are the amount of any downpayment, any payment amount, number of payments or the period of repayment, and the amount of any finance charge.

You need to remember that if you use any of the “triggering” terms in an ad, then the rest of the terms must be included to provide a true picture of the cost of the credit.  In other words, if a “triggering term” is used, the ad must also include 1) the amount or percentage of downpayment; 2) the terms of repayment; and 3) the annual percentage rate or APR.

With regard to the amount of any finance charge, it should be described as the annual percentage rate, or APR. Reg Z does say that using the abbreviation APR is sufficient disclosure. It is important to remember that in a real estate transaction, the APR may be different than the simple interest rate in that there may be other costs of the credit. Examples of additional costs include “points” to be paid or credit insurance premiums to be paid. The FTC’s manual suggests that you could include the simple interest rate in addition to the APR, but it may not be more predominantly displayed in the ad than the APR.

I am often asked if Reg Z applies when a broker advertises “no downpayment.” The manual indicates that general statements such as “no downpayment” are so general in nature that they would not trigger additional disclosures. According to the manual, some examples of statements that would be considered too general to “trigger” additional disclosures would be:

• “No downpayment”

• “Easy monthly payments”

• “Loans available at 5% below our standard APR”

• “Low downpayment accepted”

• “Pay weekly”

• “Terms to fit your budget”

• “Financing available.”

The point is made in the manual that “the more specific the statement, the more likely it is to trigger additional disclosures.”

It is also helpful to know that if you are selling property that you own and that you will be financing, you do not have to comply with Reg Z unless you sell more than five homes financed by you in any one year. Keep in mind that, under the Illinois License Act of 2000 (the Act), any advertising that you do may not be in any way false, deceptive or misleading. As a result, when reviewing your ad copy for placement in any medium of advertising from the newspaper to the Internet, ask yourself if the ad is clear and truthful to a reasonable reader.

The FTC’s manual is very helpful in that it gives some fairly specific examples of more complicated financing situations and what would be required for an ad to be acceptable by Truth in Lending standards. I would suggest you visit the site for more specific discussion on those issues, and consult your own attorney for specific advice on ad content and Reg Z issues.

*In researching the answer to this question, I used the Federal Trade Commission’s (FTC’s) online manual at www.ftc.gov (search for the manual).