Minnesota Legislature
Office of the Revisor of Statutes
Minnesota Session Laws - 1998, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 343-S.F.No. 2966
An act relating to mortgages; enacting the Minnesota
Residential Mortgage Originator and Servicer Licensing
Act; establishing licensing and enforcement
mechanisms; amending Minnesota Statutes 1996, sections
47.206, subdivision 1; 82.17, subdivision 4; 82.18;
and 82.27, subdivision 1; proposing coding for new law
as Minnesota Statutes, chapter 58; repealing Minnesota
Statutes 1996, section 82.175.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
RESIDENTIAL MORTGAGE ORIGINATOR
AND SERVICER LICENSING
Section 1. [58.01] [CITATION.]
This chapter shall be cited as the "Minnesota Residential
Mortgage Originator and Servicer Licensing Act."
Sec. 2. [58.02] [DEFINITIONS.]
Subdivision 1. [SCOPE.] For purposes of this chapter, the
terms defined in this section have the meanings given to them.
Subd. 2. [ACT.] "Act" means the Minnesota Residential
Mortgage Originator and Servicer Licensing Act.
Subd. 3. [ADVANCE FEE.] "Advance fee" means a commission,
fee, charge, or compensation of any kind paid to a residential
mortgage originator before the closing of a loan, that is
intended in whole or in part as payment for the originator's
services in finding or attempting to find a loan for a
borrower. Advance fee does not include pass-through fees or
commitment or extended lock fees or other fees as determined by
the commissioner.
Subd. 4. [BORROWER.] "Borrower" means a person or persons
applying for a residential mortgage loan, a mortgagor, or the
person or persons on whose behalf the activities in subdivisions
12, 14, 22, and 23 are conducted.
Subd. 5. [CLOSING.] "Closing" means either or both of the
following: (1) the process whereby the real estate contract
between a buyer and a seller is consummated; or (2) the process
whereby the documents creating a security interest in real
property become effective between the borrower and the lender.
Subd. 6. [COMMISSIONER.] "Commissioner" means the
commissioner of commerce.
Subd. 7. [EMPLOYEE.] "Employee" means an individual who is
treated as an employee by the residential mortgage originator or
servicer for purposes of compliance with federal income tax laws.
Subd. 8. [ESCROW ACCOUNT.] "Escrow account" means a trust
account that is established and maintained to hold funds
received from a borrower, such as real estate taxes and
insurance premiums, incurred in connection with the servicing of
the mortgage.
Subd. 9. [EXEMPT PERSON.] "Exempt person" means a person
exempt from residential mortgage originator licensing
requirements, and a person exempt from residential mortgage
service licensing requirements.
Subd. 10. [FINANCIAL INSTITUTION.] "Financial institution"
means a bank, bank and trust, trust company with banking powers,
savings bank, savings association, or credit union, organized
under the laws of this state or the United States; a Minnesota
host state branch of an out-of-state state-chartered bank as
provided for in section 49.411; an industrial loan and thrift
under chapter 53; or a regulated lender under chapter 56. The
term "financial institution" also includes a subsidiary or
operating subsidiary of a financial institution or of a bank
holding company as defined in the federal Bank Holding Company
Act, United States Code, title 12, section 1841 et seq., if the
subsidiary or operating subsidiary can demonstrate to the
satisfaction of the commissioner that it is regulated and
subject to active and ongoing oversight and supervision by a
federal banking agency, as defined in the Federal Deposit
Insurance Act, United States Code, title 12, section 1811 et
seq., or the commissioner.
Subd. 11. [LENDER.] "Lender" means a person who makes
residential mortgage loans including a person who provides table
funding.
Subd. 12. [MAKING A RESIDENTIAL MORTGAGE LOAN.] "Making a
residential mortgage loan" means for compensation or gain, or
the expectation of compensation or gain, to advance funds or
make a commitment to advance funds in connection with a
residential mortgage.
Subd. 13. [MORTGAGE BROKER; BROKER.] "Mortgage broker" or
"broker" means a person who performs the activities described in
subdivisions 14 and 23.
Subd. 14. [MORTGAGE BROKERING; BROKERING.] "Mortgage
brokering" or "brokering" means helping to obtain from another
person, for a borrower, a residential mortgage loan or assisting
a borrower in obtaining a residential mortgage loan in return
for consideration to be paid by the borrower or lender or both.
Mortgage brokering or brokering includes, but is not limited to,
soliciting, placing, or negotiating a residential mortgage loan.
Subd. 15. [NET WORTH.] "Net worth" has the meaning given
it in section 58.07.
Subd. 16. [PERSON.] "Person" means a natural person, firm,
partnership, limited liability partnership, corporation,
association, limited liability company, or other form of
business organization and the officers, directors, employees, or
agents of that person.
Subd. 17. [PERSON IN CONTROL.] "Person in control" means
any member of senior management and other persons who possess,
directly or indirectly, the power to direct or cause the
direction of the management policies of an applicant or licensee
under this chapter, regardless of whether the person has any
ownership interest in the applicant or licensee. Control is
presumed to exist if a person, directly or indirectly, owns,
controls, or holds with power to vote ten percent or more of the
voting stock of an applicant or licensee or of a person who
owns, controls, or holds with power to vote ten percent or more
of the voting stock of an applicant or licensee.
Subd. 18. [RESIDENTIAL MORTGAGE LOAN.] "Residential
mortgage loan" means a loan made primarily for personal, family,
or household use and secured primarily by either a: (1)
mortgage on residential real property; or (2) certificates of
stock or other evidence of ownership interest in and proprietary
lease from corporations, partnerships, or other forms of
business organizations formed for the purpose of cooperative
ownership of residential real property.
Subd. 19. [RESIDENTIAL MORTGAGE ORIGINATOR.] "Residential
mortgage originator" means a person who, directly or indirectly,
for compensation or gain or in expectation of compensation or
gain, solicits or offers to solicit, or accepts or offers to
accept an application for a residential mortgage loan through
any medium or mode of communication from a borrower, or makes a
residential mortgage loan. "Residential mortgage originator"
includes a lender as defined in subdivision 11 and a broker as
defined in subdivision 13.
Subd. 20. [RESIDENTIAL MORTGAGE SERVICER;
SERVICER.] "Residential mortgage servicer" or "servicer" means a
person who engages in the activity of servicing a residential
mortgage as defined in subdivision 22.
Subd. 21. [RESIDENTIAL REAL PROPERTY; RESIDENTIAL REAL
ESTATE.] "Residential real property" or "residential real
estate" means real property improved or intended to be improved
by a structure designed principally for the occupancy of from
one to four families.
Subd. 22. [SERVICING; SERVICING A RESIDENTIAL MORTGAGE.]
"Servicing" or "servicing a residential mortgage loan" means
through any medium or mode of communication the collection or
remittance for, or the right or obligation to collect or remit
for a lender, mortgagee, note owner, noteholder, or for a
person's own account, of payments, interest, principal, and
escrow items such as insurance and taxes for property subject to
a residential mortgage loan.
Subd. 23. [SOLICITING, PLACING, OR NEGOTIATING A
RESIDENTIAL MORTGAGE LOAN.] "Soliciting, placing, or negotiating
a residential mortgage loan" means for compensation or gain or
expectation of compensation or gain, whether directly or
indirectly, accepting or offering to accept an application for a
residential mortgage loan, assisting, or offering to assist a
borrower in applying for a residential mortgage loan, or
negotiating or offering to negotiate the terms or conditions of
a residential mortgage loan with a lender on behalf of a
borrower.
Subd. 24. [TABLE FUNDING.] "Table funding" means a closing
or settlement at which a residential mortgage loan is funded by
a lender by way of a contemporaneous advance of residential
mortgage loan funds and an assignment of the residential
mortgage loan to the lender advancing the funds.
Subd. 25. [TRUST ACCOUNT.] "Trust account" means a
negotiable order of withdrawal account, demand deposit, or
checking account maintained for the purpose of segregating trust
funds from other funds. A "trust account" must not allow the
financial institution a right of set-off against the money owed
it by the account holder.
Subd. 26. [TRUST FUNDS.] "Trust funds" means funds
received by a residential mortgage originator or servicer in a
fiduciary capacity for later distribution, such as appraisal or
credit report fees, taxes, or insurance premiums. Trust funds
includes commitment, lock, extended lock, and advance fees.
Sec. 3. [58.03] [CLASSES OF LICENSE.]
The commissioner may issue the following classes of license
under this chapter:
(1) a residential mortgage originator license; and
(2) a residential mortgage servicer license.
Sec. 4. [58.04] [LICENSING REQUIREMENT.]
Subdivision 1. [RESIDENTIAL MORTGAGE ORIGINATOR LICENSING
REQUIREMENTS.] (a) Beginning August 1, 1999, no person shall act
as a residential mortgage originator, or make residential
mortgage loans without first obtaining a license from the
commissioner according to the licensing procedures provided in
this chapter.
(b) The following persons are exempt from the residential
mortgage originator licensing requirements:
(1) an employee of one mortgage originator licensee or one
person holding a certificate of exemption;
(2) a person engaged solely in commercial mortgage
activities;
(3) a person licensed as a real estate broker under chapter
82, and an individual licensee who is licensed to the broker if:
(i) the individual licensee acts only under the name,
authority, and supervision of the broker to whom the licensee is
licensed;
(ii) the broker obtains a certificate of exemption
according to section 58.05, subdivision 2;
(iii) the broker does not collect an advance fee for its
residential mortgage-related activities; and
(iv) the residential mortgage origination activities are
incidental to the real estate licensee's primary activities as a
real estate broker or salesperson;
(4) a person making no more than five residential mortgage
loans with its own funds, during any 12-month period;
(5) a financial institution as defined in section 58.02,
subdivision 10;
(6) an agency of the federal government, or of a state or
municipal government;
(7) an employee or employer pension plan making loans only
to its participants;
(8) a person acting in a fiduciary capacity, such as a
trustee or receiver, as a result of a specific order issued by a
court of competent jurisdiction; or
(9) a person exempted by order of the commissioner.
Subd. 2. [RESIDENTIAL MORTGAGE SERVICER LICENSING
REQUIREMENTS.] (a) Beginning August 1, 1999, no person shall
engage in activities or practices that fall within the
definition of "servicing a residential mortgage loan" under
section 58.02, subdivision 22, without first obtaining a license
from the commissioner according to the licensing procedures
provided in this chapter.
(b) The following persons are exempt from the residential
mortgage servicer licensing requirements:
(1) a person licensed as a residential mortgage originator;
(2) an employee of one licensee or one person holding a
certificate of exemption based on an exemption under this
subdivision;
(3) a person engaged solely in commercial mortgage
activities;
(4) a person servicing loans made with its own funds, if no
more than five such loans are made in any 12-month period;
(5) a financial institution as defined in section 58.02,
subdivision 10;
(6) an agency of the federal government, or of a state or
municipal government;
(7) an employee or employer pension plan making loans only
to its participants;
(8) a person acting in a fiduciary capacity, such as a
trustee or receiver, as a result of a specific order issued by a
court of competent jurisdiction; or
(9) a person exempted by order of the commissioner.
Subd. 3. [CONDUCTING BUSINESS UNDER LICENSE.] No person
required to be licensed under this chapter may, without a
license, do business under a name or title or circulate or use
advertising or make representations or give information to a
person, that indicates or reasonably implies activity within the
scope of this chapter.
Subd. 4. [APPLICABILITY TO BANKS AND CREDIT
UNIONS.] Except for section 58.13, this chapter does not apply
to a bank, savings bank, savings association, or credit union
subject to supervision by either a federal regulatory agency or
the commissioner.
Sec. 5. [58.05] [EXEMPTIONS FROM LICENSE.]
Subdivision 1. [EXEMPTION FROM LICENSURE.] An exempt
person as defined by section 58.04, subdivision 1, paragraph
(b), and subdivision 2, paragraph (b), is exempt from the
licensing requirements of this chapter, but is subject to all
other provisions of this chapter.
Subd. 2. [ELIGIBILITY FOR EXEMPTION.] To qualify as an
exempt person, a person, except an employee exempt under section
58.04, subdivision 1, paragraph (b), clause (1), or subdivision
2, paragraph (b), clause (2), or an individual real estate
licensee exempt under section 58.04, subdivision 1, paragraph
(b), clause (3), must obtain a certificate of exemption from the
commissioner. A certificate of exemption will be issued upon
the person's filing, on a form provided by the commissioner, a
statement indicating the basis on which the exemption is claimed
and, if applicable, the name and address of the state or federal
regulatory agency or body to which complaints regarding the
person's residential mortgage originating or servicing
activities may be directed.
Sec. 6. [58.06] [APPLICATION REQUIREMENTS FOR RESIDENTIAL
MORTGAGE ORIGINATORS AND SERVICERS.]
Subdivision 1. [LICENSE APPLICATION FORM.] Application for
a residential mortgage originator or a residential mortgage
servicer license must be in writing, under oath, and on a form
obtained from and prescribed by the commissioner.
Subd. 2. [APPLICATION CONTENTS.] The application must
contain the name and complete business address or addresses of
the license applicant. If the license applicant is a
partnership, limited liability partnership, association, limited
liability company, corporation, or other form of business
organization, the application must contain the names and
complete business addresses of each partner, member, director,
and principal officer. The application must also include a
description of the activities of the license applicant, in the
detail and for the periods the commissioner may require. The
application must also include all of the following:
(a) an affirmation under oath that the applicant:
(1) will maintain competent staff and adequate staffing
levels, through direct employees or otherwise, to meet the
requirements of this chapter;
(2) will advise the commissioner of any material changes to
the information submitted in the most recent application within
ten days of the change;
(3) will advise the commissioner in writing immediately of
any bankruptcy petitions filed against or by the applicant or
licensee;
(4) is financially solvent and in compliance with net worth
requirements;
(5) complies with federal and state tax laws;
(6) complies with sections 345.31 to 345.60, the Minnesota
unclaimed property law; and
(7) is, or that a person in control of the license
applicant is, at least 18 years of age;
(b) information as to the mortgage lending, servicing, or
brokering experience of the applicant and persons in control of
the applicant;
(c) information as to criminal convictions, excluding
traffic violations, of persons in control of the license
applicant;
(d) whether a court of competent jurisdiction has found
that the applicant or persons in control of the applicant have
engaged in conduct evidencing gross negligence, fraud,
misrepresentation, or deceit in performing an act for which a
license is required under this chapter;
(e) whether the applicant or persons in control of the
applicant have been the subject of: an order of suspension or
revocation, cease and desist order, or injunctive order, or
order barring involvement in an industry or profession issued by
this or another state or federal regulatory agency or by the
Secretary of Housing and Urban Development within the ten-year
period immediately preceding submission of the application; and
(f) other information required by the commissioner.
Sec. 7. [58.07] [NET WORTH FOR ORIGINATORS AND SERVICERS.]
Subdivision 1. [REQUIREMENT.] A licensee who is issued a
residential mortgage originator license shall maintain a minimum
net worth of $25,000. A licensee who is issued a residential
mortgage servicer's license shall maintain a minimum net worth
of $250,000.
Subd. 2. [COMPUTATION.] Net worth must be computed
according to generally accepted accounting principles and must
reflect any adjustment to net worth required by the Government
National Mortgage Association.
Subd. 3. [CERTIFIED FINANCIALS.] The commissioner may
require the submission of financial data audited by an
independent certified public accountant when it is considered
necessary for an investigation or examination.
Sec. 8. [58.08] [BONDS; LETTERS OF CREDIT.]
Subdivision 1. [REQUIREMENT OF RESIDENTIAL MORTGAGE
ORIGINATORS.] A residential mortgage originator licensee shall
continuously maintain a surety bond or irrevocable letter of
credit in an amount not less than $50,000 in a form approved by
the commissioner, issued by an insurance company or bank
authorized to do so in this state. The bond must be available
for the recovery of expenses, fines, and fees levied by the
commissioner under this chapter, and for losses or damages
incurred by borrowers as the result of a licensee's
noncompliance with the requirements of this chapter, sections
325D.43 to 325D.48, and 325F.67 to 325F.69, or breach of
contract.
The bond or irrevocable letter of credit must be submitted
with the originator's license application, and evidence of
continued coverage must be submitted with each renewal. Any
change in the bond or letter of credit must be submitted for
approval by the commissioner, within ten days of its execution.
Subd. 2. [REQUIREMENT OF RESIDENTIAL MORTGAGE
SERVICERS.] A residential mortgage servicer licensee shall
continuously maintain a surety bond or irrevocable letter of
credit in an amount not less than $100,000 in a form approved by
the commissioner, issued by an insurance company or bank
authorized to do so in this state. The bond must be available
for the recovery of expenses, fines, and fees levied by the
commissioner under this chapter, and for losses or damages
incurred by borrowers or other aggrieved parties as the result
of a licensee's noncompliance with the requirements of this
chapter, sections 325D.43 to 325D.48, and 325F.67 to 325F.69, or
breach of contract relating to activities regulated by this
chapter.
The bond or irrevocable letter of credit must be submitted
with the servicer's license application and evidence of
continued coverage must be submitted with each renewal. Any
change in the bond or letter of credit must be submitted for
approval by the commissioner, within ten days of its execution.
Subd. 3. [EXEMPTION.] Subdivisions 1 and 2 do not apply to
mortgage originators or mortgage servicers who are approved as
seller/servicers by the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation.
Sec. 9. [58.09] [TERM OF LICENSE.]
Initial licenses for residential mortgage originators and
residential mortgage servicers issued under this chapter expire
on July 31, 2001, and are renewable on August 1, 2001, and on
August 1 of each odd-numbered year after that date. A new
licensee whose license expires less than 12 months from the date
of issuance shall pay a fee equal to one-half the applicable
initial license fee set forth in section 58.10, subdivision 1,
clause (1) or (3).
Sec. 10. [58.10] [FEES.]
Subdivision 1. [AMOUNTS.] The following fees must be paid
to the commissioner:
(1) for an initial residential mortgage originator license,
$800;
(2) for a renewal license, $400;
(3) for an initial residential mortgage servicer's license,
$1,000;
(4) for a renewal license, $500;
(5) license service fees as set forth in chapter 45; and
(6) for a certificate of exemption, $100.
Subd. 2. [FORFEITURE.] All fees are nonrefundable except
that an overpayment of a fee must be refunded upon proper
application.
Sec. 11. [58.11] [LICENSE RENEWAL.]
Subdivision 1. [TERM.] Licenses are renewable on August 1,
2001, and on August 1 of each odd-numbered year after that date.
Subd. 2. [TIMELY RENEWAL.] (a) A person whose application
is properly and timely filed who has not received notice of
denial of renewal is considered approved for renewal and the
person may continue to transact business as a residential
mortgage originator or servicer whether or not the renewed
license has been received on or before August 1 of the renewal
year. Application for renewal of a license is considered timely
filed if received by the commissioner by, or mailed with proper
postage and postmarked by, July 15 of the renewal year. An
application for renewal is considered properly filed if made
upon forms duly executed and sworn to, accompanied by fees
prescribed by this chapter, and containing any information that
the commissioner requires.
(b) A person who fails to make a timely application for
renewal of a license and who has not received the renewal
license as of August 1 of the renewal year is unlicensed until
the renewal license has been issued by the commissioner and is
received by the person.
Subd. 3. [CONTENTS OF RENEWAL APPLICATION.] Application
for the renewal of an existing license must contain the
information specified in section 58.06, subdivision 2; however,
only the requested information having changed from the most
recent prior application need be submitted.
Subd. 4. [CANCELLATION.] A licensee ceasing an activity or
activities regulated by this chapter and desiring to no longer
be licensed shall so inform the commissioner in writing and, at
the same time, surrender the license and all other symbols or
indicia of licensure. The licensee shall include a plan for the
withdrawal from regulated business, including a timetable for
the disposition of the business.
Sec. 12. [58.12] [DENIAL, SUSPENSION, REVOCATION OF
LICENSES.]
Subdivision 1. [POWERS OF COMMISSIONER.] (a) The
commissioner may by order take any or all of the following
actions:
(1) bar a person from engaging in residential mortgage
origination or servicing;
(2) deny, suspend, or revoke a residential mortgage
originator or a servicer license;
(3) censure a licensee;
(4) impose a civil penalty as provided for in section
45.027, subdivision 6; or
(5) revoke an exemption or certificate of exemption.
(b) In order to take the action in paragraph (a), the
commissioner must find:
(1) that the order is in the public interest; and
(2) that the residential mortgage originator, servicer,
applicant, or other person, an officer, director, partner,
employee, or agent or any person occupying a similar status or
performing similar functions, or a person in control of the
originator, servicer, applicant, or other person has:
(i) violated any provision of this chapter or rule or order
under this chapter;
(ii) filed an application for a license that is incomplete
in any material respect or contains a statement that, in light
of the circumstances under which it is made, is false or
misleading with respect to a material fact;
(iii) failed to maintain compliance with the affirmations
made under section 58.06, subdivision 2;
(iv) violated a standard of conduct or engaged in a
fraudulent, coercive, deceptive, or dishonest act or practice,
whether or not the act or practice involves the residential
mortgage lending business;
(v) engaged in an act or practice, whether or not the act
or practice involves the business of making a residential
mortgage loan, that demonstrates untrustworthiness, financial
irresponsibility, or incompetence;
(vi) pled guilty, with or without explicitly admitting
guilt, pled nolo contendere, or been convicted of a felony,
gross misdemeanor, or a misdemeanor involving moral turpitude;
(vii) paid a civil penalty or been the subject of
disciplinary action by the commissioner, or an order of
suspension or revocation, cease and desist order or injunction
order or order barring involvement in an industry or profession
issued by this or any other state or federal regulatory agency
or by the Secretary of Housing and Urban Development;
(viii) been found by a court of competent jurisdiction to
have engaged in conduct evidencing gross negligence, fraud,
misrepresentation, or deceit;
(ix) refused to cooperate with an investigation or
examination by the commissioner;
(x) failed to pay any fee or assessment imposed by the
commissioner; or
(xi) failed to comply with state and federal tax
obligations.
Subd. 2. [ORDERS OF THE COMMISSIONER.] To begin a
proceeding under this section, the commissioner shall issue an
order requiring the subject of the proceeding to show cause why
action should not be taken against the person according to this
section. The order must be calculated to give reasonable notice
of the time and place for the hearing and must state the reasons
for entry of the order. The commissioner may by order summarily
suspend a license or exemption or summarily bar a person from
engaging in residential mortgage origination or servicing,
pending a final determination of an order to show cause. If a
license or exemption is summarily suspended or if the person is
summarily barred from any involvement in the residential
mortgage loan business, pending final determination of an order
to show cause, a hearing on the merits must be held within 30
days of the issuance of the order of summary suspension or bar.
All hearings must be conducted under chapter 14. After the
hearing, the commissioner shall enter an order disposing of the
matter as the facts require. If the subject of the order fails
to appear at a hearing after having been duly notified of it,
the person is considered in default, and the proceeding may be
determined against the subject of the order upon consideration
of the order to show cause, the allegations of which may be
considered to be true.
Subd. 3. [ACTIONS AGAINST LAPSED LICENSE.] If a license or
certificate of exemption lapses, is surrendered, withdrawn,
terminated, or otherwise becomes ineffective, the commissioner
may institute a proceeding under this subdivision within two
years after the license or certificate of exemption was last
effective and enter a revocation or suspension order as of the
last date on which the license or certificate of exemption was
in effect, and may impose a civil penalty as provided for in
this section or section 45.027, subdivision 6.
Sec. 13. [58.13] [STANDARDS OF CONDUCT.]
Subdivision 1. [GENERALLY.] No person acting as a
residential mortgage originator or servicer, including a person
required to be licensed under this chapter, and no person exempt
from the licensing requirements of this chapter under section
58.04, shall:
(1) fail to maintain a trust account to hold trust funds
received in connection with a residential mortgage loan;
(2) fail to deposit all trust funds into a trust account
within three business days of receipt; commingle trust funds
with funds belonging to the licensee or exempt person; or use
trust account funds for any purpose other than that for which
they are received;
(3) unreasonably delay the processing of a residential
mortgage loan application, or the closing of a residential
mortgage loan. For purposes of this clause, evidence of
unreasonable delay includes but is not limited to those factors
identified in section 47.206, subdivision 7, clause (d);
(4) fail to disburse funds according to its contractual or
statutory obligations;
(5) fail to perform in conformance with its written
agreements with borrowers, investors, other licensees, or exempt
persons;
(6) charge a fee for a product or service where the product
or service is not actually provided, or misrepresent the amount
charged by or paid to a third party for a product or service;
(7) fail to comply with sections 345.31 to 345.60, the
Minnesota unclaimed property law;
(8) violate any provision of any other applicable state or
federal law regulating residential mortgage loans including,
without limitation, sections 47.20 to 47.208;
(9) make or cause to be made, directly or indirectly, any
false, deceptive, or misleading statement or representation in
connection with a residential loan transaction including,
without limitation, a false, deceptive, or misleading statement
or representation regarding the borrower's ability to qualify
for any mortgage product;
(10) conduct residential mortgage loan business under any
name other than that under which the license or certificate of
exemption was issued;
(11) compensate, whether directly or indirectly, coerce or
intimidate an appraiser for the purpose of influencing the
independent judgment of the appraiser with respect to the value
of real estate that is to be covered by a residential mortgage
or is being offered as security according to an application for
a residential mortgage loan;
(12) issue any document indicating conditional
qualification or conditional approval for a residential mortgage
loan, unless the document also clearly indicates that final
qualification or approval is not guaranteed, and may be subject
to additional review;
(13) make or assist in making any residential mortgage loan
with the intent that the loan will not be repaid and that the
residential mortgage originator will obtain title to the
property through foreclosure;
(14) provide or offer to provide for a borrower, any
brokering or lending services under an arrangement with a person
other than a licensee or exempt person, provided that a person
may rely upon a written representation by the residential
mortgage originator that it is in compliance with the licensing
requirements of this chapter;
(15) claim to represent a licensee or exempt person, unless
the person is an employee of the licensee or exempt person or
unless the person has entered into a written agency agreement
with the licensee or exempt person;
(16) fail to comply with the recordkeeping and notification
requirements identified in section 58.14 or fail to abide by the
affirmations made on the application for licensure;
(17) represent that the licensee or exempt person is acting
as the borrower's agent after providing the non-agency
disclosure required by section 58.15, unless the disclosure is
retracted and the licensee or exempt person complies with all of
the requirements of section 58.16;
(18) make, provide, or arrange for a residential mortgage
loan that is of a lower investment grade if the borrower's
credit score or, if the originator does not utilize credit
scoring or if a credit score is unavailable, then comparable
underwriting data, indicates that the borrower may qualify for a
residential mortgage loan, available from or through the
originator, that is of a higher investment grade, unless the
borrower is informed that the borrower may qualify for a higher
investment grade loan with a lower interest rate and/or lower
discount points, and consents in writing to receipt of the lower
investment grade loan.
For purposes of this section, "investment grade" refers to
a system of categorizing residential mortgage loans in which the
loans are: (i) commonly referred to as "prime" or "subprime;"
(ii) commonly designated by an alphabetical character with "A"
being the highest investment grade; and (iii) are distinguished
by interest rate or discount points or both charged to the
borrower, which vary according to the degree of perceived risk
of default based on factors such as the borrower's credit,
including credit score and credit patterns, income and
employment history, debt ratio, loan-to-value ratio, and prior
bankruptcy or foreclosure;
(19) make, publish, disseminate, circulate, place before
the public, or cause to be made, directly or indirectly, any
advertisement or marketing materials of any type, or any
statement or representation relating to the business of
residential mortgage loans that is false, deceptive, or
misleading;
(20) advertise loan types or terms that are not available
from or through the licensee or exempt person on the date
advertised, or on the date specified in the advertisement. For
purposes of this clause, advertisement includes, but is not
limited to, a list of sample mortgage terms, including interest
rates, discount points, and closing costs provided by licensees
or exempt persons to a print or electronic medium that presents
the information to the public; and
(21) use or employ phrases, pictures, return addresses,
geographic designations, or other means that create the
impression, directly or indirectly, that a licensee or other
person is a governmental agency, or is associated with,
sponsored by, or in any manner connected to, related to, or
endorsed by a governmental agency, if that is not the case.
Subd. 2. [STATEMENTS, REPRESENTATIONS, OR ADVERTISING.] A
statement, representation, or advertisement is deceptive or
misleading if it has the capacity or tendency to deceive or
mislead a borrower or potential borrower. The commissioner
shall consider the following factors in deciding whether a
statement, representation, or advertisement is deceptive or
misleading: the overall impression that the statement,
representation, or advertisement reasonably creates; the
particular type of audience to which it is directed; and whether
it may be reasonably comprehended by the segment of the public
to which it is directed.
Sec. 14. [58.14] [RECORDKEEPING AND NOTIFICATION
REQUIREMENTS.]
Subdivision 1. [CHANGE IN LICENSING DATA.] A licensee must
advise the commissioner of any material changes to the
information submitted in the most recent license application
within ten days of the change.
Subd. 2. [NOTICE OF BANKRUPTCY PETITIONS.] A licensee or
person who has been issued a certificate of exemption must
advise the commissioner in writing immediately of any bankruptcy
petitions filed against or by the licensee.
Subd. 3. [DOCUMENTATION AND RESOLUTION OF COMPLAINTS.] A
licensee or exempt person must investigate and attempt to
resolve complaints made regarding acts or practices subject to
the provisions of this chapter. If a complaint is received in
writing, the licensee or exempt person must maintain a file
containing all materials relating to the complaint and
subsequent investigation for a period of 26 months.
Subd. 4. [TRUST ACCOUNT RECORDS FOR MORTGAGE ORIGINATORS.]
A residential mortgage originator shall keep and maintain for 26
months a record of all trust funds, sufficient to identify the
transaction, date and source of receipt, and date and
identification of disbursement.
Subd. 5. [RECORD RETENTION.] A licensee or exempt person
must keep and maintain for 26 months the business records
regarding residential mortgage loans applied for, originated, or
serviced in the course of its business.
Sec. 15. [58.15] [DISCLOSURE REQUIREMENTS FOR RESIDENTIAL
MORTGAGE ORIGINATORS.]
Subdivision 1. [NON-AGENCY DISCLOSURE.] If a residential
mortgage originator or exempt person does not contract or offer
to contract to act as an agent of a borrower, or accept an
advance fee, it must, within 72 hours of accepting an
application for a residential mortgage loan, provide the
borrower with a written disclosure as provided in subdivision 2.
Subd. 2. [FORM AND CONTENT REQUIREMENTS.] The disclosure
must be a separate document, 8-1/2 inches by 11 inches, must be
signed by the borrower and must contain the following statement
in 14-point boldface print:
[ORIGINATOR] IS NOT ACTING AS YOUR AGENT IN CONNECTION WITH
OBTAINING A RESIDENTIAL MORTGAGE LOAN. WHILE WE SEEK TO
ASSIST YOU IN MEETING YOUR FINANCIAL NEEDS, WE CANNOT
GUARANTEE THE LOWEST OR BEST TERMS AVAILABLE IN THE MARKET.
Subd. 3. [ELECTRONIC APPLICATION DISCLOSURE REQUIREMENT.]
In case of an electronic residential mortgage application, the
disclosure requirements of this section may be satisfied by
providing the disclosure statement as a separate screen if the
disclosure must be acknowledged by the borrower before an
application is accepted.
Subd. 4. [EXEMPTION FROM DISCLOSURE REQUIREMENT.] If the
Department of Housing and Urban Development adopts and
implements a disclosure requirement for persons offering
mortgage origination services that the commissioner determines
to be substantially similar to the disclosure required in
subdivision 2, licensees and exempt persons complying with the
HUD disclosure shall be considered to have complied with the
requirements of subdivisions 1 and 2.
Sec. 16. [58.16] [RESIDENTIAL MORTGAGE ORIGINATORS;
STANDARDS OF CONDUCT FOR AGENCY OR ADVANCE FEE TRANSACTIONS.]
Subdivision 1. [COMPLIANCE.] Residential mortgage
originators who solicit or receive an advance fee in exchange
for assisting a borrower located in this state in obtaining a
loan secured by a lien on residential real estate, or who offer
to act as an agent of the borrower located in this state in
obtaining a loan secured by a lien on residential real estate
shall be considered to have created a fiduciary relationship
with the borrower and shall comply with the requirements of
subdivisions 2 to 7.
Subd. 2. [CONTRACT PROVISIONS.] A residential mortgage
originator who engages in the activities described in
subdivision 1 shall enter into a written contract with each
borrower and shall provide a copy of the written contract to
each borrower at or before the time of receipt of any fee or
valuable consideration paid for mortgage origination services.
The written contract must:
(1) specifically describe the services to be provided by
the residential mortgage originator and if the originator
collects an advance fee, the dates by which the services will be
performed;
(2) specifically identify whether the residential mortgage
originator may receive compensation from sources other than the
borrower in connection with the loan transaction;
(3) state the total amount of commission or compensation
that the borrower agrees to pay for the residential mortgage
originator's services, or the basis on which the compensation
will be computed;
(4) state the maximum rate of interest to be charged on any
residential mortgage loan obtained;
(5) contain a statement that notifies the borrower of the
right to cancel the contract according to subdivision 3; and
(6) disclose, with respect to the 12-month period ending
ten business days before the date of the contract in question,
the percentage of the mortgage originator's customers for whom
loans have actually been funded as a result of the residential
mortgage originator's services.
(c) If an advance fee is solicited or received the contract
must also:
(1) identify the trust account into which the fees or
consideration will be deposited;
(2) set forth the circumstances under which the residential
mortgage originator will be entitled to disbursement from the
trust account; and
(3) set forth the circumstances under which the borrower
will be entitled to a refund of all or part of the fee.
Subd. 3. [CANCELLATION.] A borrower who pays an advance
fee, or who enters into a contract for residential mortgage
services as set forth in subdivisions 1 and 2, has an
unconditional right to rescind the contract for residential
mortgage origination services at any time until midnight of the
third business day after the day on which the contract is
signed. Cancellation is evidenced by the borrower giving
written notice of cancellation to the residential mortgage
originator at the address stated in the contract. Notice of
cancellation, if given by mail, is effective upon deposit in a
mailbox properly addressed to the originator with postage
prepaid. Notice of cancellation need not take a particular form
and is sufficient if it indicates by any form of written
expression the intention of the borrower not be bound by the
contract. No act of a borrower or a residential mortgage
originator is effective to waive the right to rescind as
provided in this subdivision.
Subd. 4. [TRUST ACCOUNT.] The residential mortgage
originator shall deposit in a trust account within three
business days all fees received before the time a loan is
actually funded. The trust account must be in a financial
institution located within the state of Minnesota.
Subd. 5. [RECORDS.] The residential mortgage originator
shall maintain a separate record of all fees received for
services performed or to be performed as a residential mortgage
originator. Each record must set forth the date the funds are
received; the person from whom the funds are received; the
amount received; the date of deposit in the escrow account, the
account number, the date the funds are disbursed and the check
number of the disbursement, and a description of each
disbursement and the justification for the disbursement.
Subd. 6. [MONTHLY STATEMENT.] The residential mortgage
originator shall provide to each borrower at least monthly a
detailed written accounting of all disbursements of the
borrower's funds from the trust account.
Subd. 7. [DISCLOSURE OF LENDERS.] The residential mortgage
originator shall provide to each borrower at the expiration of
the contract a list of the lenders or loan sources to whom loan
applications were submitted on behalf of the borrower.
Sec. 17. [58.17] [SCOPE OF CHAPTER.]
Subdivision 1. [RESIDENTIAL MORTGAGE ORIGINATOR SERVICES.]
This chapter applies when an offer of residential mortgage
origination services is made to a borrower in this state or when
the residential mortgage originator is located in this state.
Subd. 2. [RESIDENTIAL MORTGAGE SERVICING.] The provisions
of this chapter regarding residential mortgage servicing apply
when the borrower is a resident of this state.
Subd. 3. [OFFER.] For purposes of this section, an "offer"
means any advertisement or solicitation of any type, including
an advertisement or solicitation in newspapers and magazines, by
mail, by telephone, on television, on radio, or via the internet
or any other electronic medium of any kind, for residential
mortgage originator services. The term "offer" excludes an
advertisement or solicitation that specifically states that the
services are not available to Minnesota residents.
Sec. 18. [REPEALER.]
Minnesota Statutes 1996, section 82.175, is repealed.
Sec. 19. [EFFECTIVE DATES.]
Sections 1 to 11 and 17 are effective July 1, 1998.
Sections 12 to 16 are effective July 1, 1999.
ARTICLE 2
CONFORMING CHANGES
Section 1. Minnesota Statutes 1996, section 47.206,
subdivision 1, is amended to read:
Subdivision 1. [DEFINITIONS.] For the purposes of this
section, the terms defined in this subdivision have the meanings
given them.
(a) "Lender" means a person or entity referred to in
section 47.20, subdivision 1, a credit union, or a person making
a conventional loan as defined under section 47.20, subdivision
2, clause (3), or cooperative apartment loan as defined under
section 47.20, subdivision 2, clause (4), except that
conventional loans or cooperative apartment loans include any
loan or advance of credit in an original principal balance of
less than $200,000. "Lender" also means a mortgage broker as
defined in paragraph (e).
(b) "Loan" means loans and advances of credit authorized
under section 47.20, subdivision 1, clauses (1) to (4), and
conventional loans as defined under section 47.20, subdivision
2, clause (3), or cooperative apartment loans as defined under
section 47.20, subdivision 2, clause (4), except that
conventional loans or cooperative apartment loans also include
all loans and advances of credit in an original principal
balance of less than $200,000. "Loan" does not include a loan
or advance of credit secured by a mortgage upon real property
containing more than one residential unit or secured by a
security interest in shares of more than one residential unit in
a building owned or leased by a cooperative apartment
corporation.
(c) "Borrower" means a natural person who has submitted an
application for a loan to a lender.
(d) "Interest rate or discount point agreement" or
"agreement" means a contract between a lender and a borrower
under which the lender agrees, subject to the lender's
underwriting and approval requirements, to make a loan at a
specified interest rate or number of discount points, or both,
and the borrower agrees to make a loan on those terms. The term
also includes an offer by a lender that is accepted by a
borrower under which the lender promises to guarantee or lock in
an interest rate or number of discount points, or both, for a
specific period of time.
(e) "Mortgage broker" includes:
(1) a person who negotiates mortgage loans as described in
section 82.17, subdivision 4, clause (b), if the person does not
qualify for the exception set forth in section 82.18, clause
(o); performs or offers to perform the activities of "mortgage
brokering" or "soliciting, placing, or negotiating a residential
mortgage loan" as defined by chapter 58; or
(2) the employees of the a person; or
(3) any person or firm which holds itself out to the public
as a mortgage broker, regardless of whether the person or firm
holds a limited broker's license pursuant to section 82.20,
subdivision 13 described in clause (1).
Sec. 2. Minnesota Statutes 1996, section 82.17,
subdivision 4, is amended to read:
Subd. 4. "Real estate broker" or "broker" means any person
who:
(a) for another and for commission, fee, or other valuable
consideration or with the intention or expectation of receiving
the same directly or indirectly lists, sells, exchanges, buys or
rents, manages, or offers or attempts to negotiate a sale,
option, exchange, purchase or rental of an interest or estate in
real estate, or advertises or holds out as engaged in these
activities;
(b) for another and for commission, fee, or other valuable
consideration or with the intention or expectation of receiving
the same directly or indirectly negotiates or offers or attempts
to negotiate a loan, secured or to be secured by a mortgage or
other encumbrance on real estate, which is not a residential
mortgage loan as defined by section 58.02, subdivision 18;
(c) for another and for commission, fee, or other valuable
consideration or with the intention or expectation of receiving
the same directly or indirectly lists, sells, exchanges, buys,
rents, manages, offers or attempts to negotiate a sale, option,
exchange, purchase or rental of any business opportunity or
business, or its good will, inventory, or fixtures, or any
interest therein;
(d) for another and for commission, fee, or other valuable
consideration or with the intention or expectation of receiving
the same directly or indirectly offers, sells or attempts to
negotiate the sale of property that is subject to the
registration requirements of chapter 83, concerning subdivided
land;
(e) for another and for commission, fee, or other valuable
consideration or with the intention or expectation of receiving
the same, promotes the sale of real estate by advertising it in
a publication issued primarily for this purpose, if the person:
(1) negotiates on behalf of any party to a transaction;
(2) disseminates any information regarding the property to
any party or potential party to a transaction subsequent to the
publication of the advertisement, except that in response to an
initial inquiry from a potential purchaser, the person may
forward additional written information regarding the property
which has been prepared prior to the publication by the seller
or broker or a representative of either;
(3) counsels, advises, or offers suggestions to the seller
or a representative of the seller with regard to the marketing,
offer, sale, or lease of the real estate, whether prior to or
subsequent to the publication of the advertisement;
(4) counsels, advises, or offers suggestions to a potential
buyer or a representative of the seller with regard to the
purchase or rental of any advertised real estate; or
(5) engages in any other activity otherwise subject to
licensure under this chapter;
(f) engages wholly or in part in the business of selling
real estate to the extent that a pattern of real estate sales is
established, whether or not the real estate is owned by the
person. A person shall be presumed to be engaged in the
business of selling real estate if the person engages as
principal in five or more transactions during any 12-month
period, unless the person is represented by a licensed real
estate broker or salesperson;.
(g) offers or makes more than five loans secured by real
estate during any 12-month period and who is not a bank, savings
bank, mutual savings bank, or savings association organized
under the laws of this state or the United States, trust
company, trust company acting as a fiduciary, or other financial
institution subject to the supervision of the commissioner of
commerce, or mortgagee or lender approved or certified by the
secretary of housing and urban development or approved or
certified by the administrator of veterans affairs, or approved
or certified by the administrator of the Farmers Home
Administration, or approved or certified by the Federal Home
Loan Mortgage Corporation, or approved or certified by the
Federal National Mortgage Association.
Sec. 3. Minnesota Statutes 1996, section 82.18, is amended
to read:
82.18 [EXCEPTIONS.]
Unless a person is licensed or otherwise required to be
licensed under this chapter, the term real estate broker does
not include:
(a) a licensed practicing attorney if the attorney complies
in all respects with the trust account provisions of this
chapter;
(b) a receiver, trustee, administrator, guardian, executor,
or other person appointed by or acting under the judgment or
order of any court;
(c) any person owning and operating a cemetery and selling
lots therein solely for use as burial plots;
(d) any custodian, janitor, or employee of the owner or
manager of a residential building who leases residential units
in the building;
(e) any bank, trust company, savings association,
industrial loan and thrift company, regulated lender under
chapter 56, public utility, or land mortgage or farm loan
association organized under the laws of this state or the United
States, when engaged in the transaction of business within the
scope of its corporate powers as provided by law;
(f) public officers while performing their official duties;
(g) employees of persons enumerated in clauses (b), (e),
and (f), when engaged in the specific performance of their
duties;
(h) any person who acts as an auctioneer bonded in
conformity with section 330.02, when that person is engaged in
the specific performance of duties as an auctioneer, and when
that person has been employed to auction real estate by a person
licensed under this chapter or when the auctioneer has engaged a
licensed attorney to supervise the real estate transaction;
(i) any person who acquires real estate for the purpose of
engaging in and does engage in, or who is engaged in the
business of constructing residential, commercial or industrial
buildings for the purpose of resale if no more than 25 such
transactions occur in any 12-month period and the person
complies with section 82.24;
(j) any person who is licensed as a securities
broker-dealer or is licensed as a securities agent representing
a broker-dealer pursuant to chapter 80A and who offers to sell
or sells an interest or estate in real estate which is a
security as defined in section 80A.14, subdivision 18, and is
registered or exempt from registration or part of a transaction
exempt from registration pursuant to chapter 80A, when acting
solely as an incident to the sale of these securities;
(k) any person who offers to sell or sells a business
opportunity which is a franchise registered pursuant to chapter
80C, when acting solely to sell the franchise;
(l) any person who contracts with or solicits on behalf of
a provider a contract with a resident or prospective resident to
provide continuing care in a facility, pursuant to the
Continuing Care Facility Disclosure and Rehabilitation Act
(chapter 80D), when acting solely as incident to the contract;
(m) any broker-dealer or agent of a broker-dealer when
participating in a transaction in which all or part of a
business opportunity or business, including any interest
therein, is conveyed or acquired pursuant to an asset purchase,
merger, exchange of securities, or other business combination,
if the agent or broker-dealer is licensed pursuant to chapter
80A;
(n) an accountant acting incident to the practice of the
accounting profession if the accountant complies in all respects
with the trust account provisions of this chapter;.
(o) a person who negotiates mortgage loans as described in
section 82.17, subdivision 4, clause (b), if the person is the
actual lender on at least 80 percent of all mortgage lending and
brokering transactions conducted by the person and if the person
is also a lender: (1) approved or certified by the secretary of
housing and urban development; (2) approved or certified by the
administrator of Veterans Affairs; (3) approved or certified by
the Administrator of the Farmers Home Administration; (4)
approved or certified by the Federal Home Loan Mortgage
Corporation; or (5) approved or certified by the Federal
National Mortgage Association.
Sec. 4. Minnesota Statutes 1996, section 82.27,
subdivision 1, is amended to read:
Subdivision 1. The commissioner may by order deny, suspend
or revoke any license or may censure a licensee if the
commissioner finds (1) that the order is in the public interest,
and (2) that the applicant or licensee or, in the case of a
broker, any officer, director, partner, employee or agent or any
person occupying a similar status or performing similar
functions, or any person directly or indirectly controlling the
broker or closing agent or controlled by the broker or closing
agent:
(a) has filed an application for a license which is
incomplete in any material respect or contains any statement
which, in light of the circumstances under which it is made, is
false or misleading with respect to any material fact;
(b) has engaged in a fraudulent, deceptive, or dishonest
practice;
(c) is permanently or temporarily enjoined by any court of
competent jurisdiction from engaging in or continuing any
conduct or practice involving any aspect of the real estate
business;
(d) has failed to reasonably supervise brokers,
salespersons, or closing agents so as to cause injury or harm to
the public;
(e) has violated or failed to comply with any provision of
this chapter or any rule or order under this chapter;
(f) has, in the conduct of the licensee's affairs under the
license, been shown to be incompetent, untrustworthy, or
financially irresponsible; or
(g) has acted on behalf of any party to a transaction,
where the licensee has a conflict of interest that may affect
the licensee's ability to represent that party, without the
knowledge and consent of the party; or
(h) has, while performing residential mortgage activities
regulated under chapter 58 violated any provision of chapter 58.
Sec. 5. [EFFECTIVE DATE.]
Sections 1 to 4 are effective August 1, 1999.
Presented to the governor March 27, 1998
Signed by the governor March 31, 1998, 10:58 a.m.
Official Publication of the State of Minnesota
Revisor of Statutes