Banking Interpretations

NYSBL 590(1) and 590(2) 

August 30, 2005

[                     ]

Re: Article 12-D of the Banking Law

Dear [               ]:

Your letter dated August 15, 2005 to the Superintendent of Banks, New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked the following questions: (i) Do purchase money mortgages involving the sale of vacant lots trigger the licensing requirement under Article 12-D of the Banking Law? (ii) Do purchase money mortgages received as part payment in connection with the sale of single family homes trigger the licensing requirement under Article 12-D? (iii) Whether loans secured by mortgages on commercial properties are regulated by the Department?

Article 12-D, Section 590 (2) (a) prohibits any:

[P]erson, partnership, association, corporation or other entity [from] engag[ing] in the business of making five or more mortgage loans in any one calendar year without first obtaining a license from the superintendent in accordance with the licensing procedure provided in this article and such regulations as may be promulgated by the banking board or prescribed by the superintendent.

According to your letter, your client [ ] sells vacant lots to individual consumers, which are used for the construction of single family homes, and receives as part payments purchase money mortgages. "Mortgage loans" triggering the licensing requirement under Section 590 (2) (a) of Article 12-D is defined in Section 590 (1) (a) of said Article as:

[A] loan to a natural person made primarily for personal, family or household use, primarily secured by either a mortgage on residential real property or certificates of stock or other evidence of ownership interests in, and proprietary leases from, corporations or partnerships formed for the purpose of cooperative ownership of residential real property.

And Section 590 (1) (b) defines "residential real property" as:

[R]eal property located in this state improved by one-to-four family dwelling used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons, but shall not refer to unimproved real property upon which such dwellings are to be constructed.

Because vacant lots, by definition, are not considered "residential real properties" purchase money mortgages taken in connection with the sale thereof are not considered "mortgage loans" for purposes of Article 12-D, and therefore, no licensing under Article 12-D is required in order to be involved in these transactions.

As to your second question, you indicated that your client occasionally resells single family homes and receives as part payment for the homes purchase money mortgages. In the event your client is involved in five or more of these transactions in any calendar year, then it will have to be licensed under Article 12-D of the Banking Law as these transactions fit squarely within the purviews of the Banking Law. Further, note that if your client is involved in any other mortgage transactions covered by Article 12-D, then those transactions will be aggregated with the purchase money mortgages in order to test for the "five or more" licensing trigger.

Finally, loans secured by mortgages on commercial properties are not regulated by the Banking Department.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel