This legislation addresses the challenges of borrowers using hard money lending for real estate flipping, while ensuring that lenders maintain fair and transparent practices. I have observed the potential for fraudulent behavior and have decided to approach the Connecticut Legislature to end broken behaviors. It provides a regulatory framework that safeguards borrowers' interests, promotes transparency, and encourages responsible lending and borrowing in the real estate market.
Hard Money Lending Regulation Act (HMLRA)
- Hard Money Loan: A short-term, high-interest loan secured by real property, typically used by real estate investors to purchase and renovate properties.
- Borrower: An individual or entity that has taken out a hard money loan to purchase and/or rehabilitate real property.
- Lender: Any individual or entity that extends hard money loans to borrowers for real estate investment or flipping.
- Real Estate Flipping: The practice of purchasing real property, renovating or improving it, and then selling it for a profit, typically within a short period.
Section 2: Licensing and Registration of Lenders
- Transparency Requirements: Underwriting criteria must be shared with the borrower at the same time the term sheet is provided.
Section 3: Interest Rates and Fees
- Cap on Interest Rates: Cannot exceed 10% or 5% over the federal reserve interest rate, whichever is lower.
- Fee Limitations: Define a limit on the number and amount of any individual fees charged by hard money lenders that can adjust with inflation and other reasonable market conditions.
Section 4: Borrower Protections
- Fair Appraisals: Appraisals should be reusable across lenders, even if the lender's underwriting process requires them to order them.
- Mandatory Mediation/Arbitration: Before initiating foreclosure or any litigation, the borrower and lender must participate in mediation or arbitration to resolve any disputes or concerns regarding the loan or its terms.
- Consumer Protection Agency: A dedicated government agency or consumer protection office will monitor hard money lending practices, investigate complaints, and enforce compliance with all relevant laws.
Section 8: Education and Outreach
- Borrower Education Programs: Lenders must provide borrowers with access to educational materials on how hard money loans work, risks involved in real estate flipping, and strategies to avoid default.
- State-Sponsored Workshops: State agencies should host annual workshops for borrowers and potential investors on navigating hard money loans and the risks associated with real estate flipping.
Section 9: Reporting and Oversight
- Quarterly Reporting: Lenders must submit quarterly reports to the state’s regulatory body detailing the number of loans issued, the average interest rate, loan terms, and any issues encountered with borrowers.
- Regulatory Oversight: The regulatory body will be able to review lending practices, audit loans, and impose fines or sanctions on lenders who fail to comply with established rules.
Section 10: Penalties for Non-Compliance
- Fines and Sanctions: Lenders who violate the terms of this Act may face fines of up to $100,000 per violation and the suspension or revocation of their lending license.
- Borrower Remedies: Borrowers harmed due to violations of this Act may be entitled to financial compensation, including repayment of excessive fees, interest, or penalties, along with potential damages.
Executive Architect | Application Modernization | Enterprise Architecture | Financial Transformation | Fractional CTO
3 天前ADAM S. COHEN, Maxwell Deibel To expand my case study, I am willing to understand the underwriting practices of any hard money lenders that provide a similar experience to the private money via family office experience that was outlined in the study. I am willing to dig deeper if you could share a few names. https://www.dhirubhai.net/pulse/case-study-hard-money-loans-james-mcgovern-lfj6e/
Public Figure | Direct Lender | Hard Money | Real Estate Investment
3 天前James, I just messaged you to your inbox. Please respond when you can.
Public Figure | Direct Lender | Hard Money | Real Estate Investment
3 天前I feel James has good intentions but lacks the experience and understanding from the lender prospective. A bill such as this would only cause investors to withdraw their funds for lending and then they will just buy investment properties for themselves. It would take opportunity from small investors looking to get their foot on the real estate ladder. So wealthier individuals will ultimately control the real estate market and small investors will have no opportunity. Sounds like your following the WEF playbook by sabotaging the market disguised as good intentions.
Global Trade, Animation Dev, Event Dev Founder of [email protected]
3 天前Thank you for introducing the bill. I hope it passes and other states adopt the same monitoring and regulation against fraud and hard money lenders predatory lending practices.
Layla Capital | Direct Lender | Specializing in Bridge Loans
3 天前Capping interest rates at 10% would suck so much liquidity out of the system - it would have terrible consequences for RE investors and lenders alike. The government's job isn't to price risk or protect the unintelligent from making poor decisions. Let free markets be free.