Private lenders operating in Florida have long relied on a foundational distinction in mortgage licensing law: the business purpose exception. That exception has historically shielded commercial real estate transactions from the residential mortgage licensing requirements that govern consumer loans. Proposed legislation in Florida’s Senate sought to eliminate that protection entirely—and the consequences for the private lending industry would have been substantial.
The Foundation: Federal Law and State Licensing Requirements
In 2008, Congress enacted the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE Act), establishing a national framework requiring state regulators to oversee mortgage loan originators making consumer loans secured by one-to-four unit residential properties (“Dwellings”). The SAFE Act gave states discretion to impose stricter requirements if they chose.
Most states—approximately forty—have not extended licensing requirements to cover business purpose loans secured by Dwellings. A smaller group of states, predominantly in the western United States, require a mortgage lender license even for business purpose transactions secured by residential real estate. Utah, for example, extended its licensing requirements to cover business purpose loans on Dwellings in a bill passed before this Florida debate arose.
Failed Prior Attempts in Florida
The 2019 effort was not Florida’s first legislative attempt to close the business purpose exemption. During the 2018 Florida Senate session, two companion bills introduced by Sen. Rene Garcia and Rep. Jeanette Nunes attempted to remove the residential property-type exemption for business purpose lenders. Industry pushback ultimately led the legislature to substantially revise both bills. The final enacted version addressed regulatory conduct and penalties without modifying licensing requirements based on property type.
A virtually identical bill had also been introduced in 2017 but was vetoed by then-Governor Rick Scott, who stated in his veto letter that the legislation “would make Florida one of the most restrictive states in the nation in the residential mortgage lending arena.”
Senate Bill 1632: The 2019 Proposal
On March 1, 2019, Sen. Annette Taddeo introduced Florida Senate Bill 1632. After filing, the bill was introduced in the Florida Senate on March 13, 2019.
The bill proposed a substantive revision to the existing statutory definition of “mortgage loan” under Florida law. Under the existing definition at the time of introduction, a mortgage loan was defined as a “residential loan primarily for personal, family, or household use which is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling.”
SB 1632 proposed removing the phrase “primarily for personal, family, or household use” from that definition. This seemingly minor textual change carried enormous practical consequences: without that limiting language, every loan secured by a dwelling—regardless of its stated purpose—would fall under Florida’s mortgage lender licensing regime.
What Licensing Would Have Required
If SB 1632 had passed and been signed into law, lenders making business purpose loans secured by Florida residential properties would have been required to obtain a Florida mortgage lender license. The licensing requirements are not trivial.
Among the most significant requirements: applicants must produce audited financial statements demonstrating a net worth of at least $63,000. Control persons of the lending entity would be required to submit to FBI and Florida State background checks, provide fingerprints, and furnish personal credit reports, along with other administrative requirements.
The audited financials requirement alone represents a prohibitive cost for many smaller private lenders. Hiring a CPA firm to produce audited statements is expensive and time-consuming, particularly for lenders operating on lean margins or with limited back-office infrastructure. Critics of the bill argued that this requirement would push smaller lenders out of the Florida market entirely.
The Internal Contradiction in the Bill’s Stated Purpose
SB 1632 contained a remarkable internal inconsistency. The bill’s own legislative findings stated that “Florida borrowers who apply for and receive business purpose loans…are afforded limited consumer protection.” This framing presupposes that business borrowers need consumer-style protections—a position that conflicts with a foundational principle of commercial lending.
Business borrowers operating through corporations, LLCs, or other commercial entities are by definition not consumers. Federal consumer protection statutes such as the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) explicitly exempt business purpose transactions. Treating sophisticated commercial borrowers as though they require the same regulatory protections as individual residential consumers inverts the intended purpose of those protections and imposes regulatory costs without a corresponding consumer benefit.
The Practical Impact on Florida’s Private Lending Market
Florida does not require foreign registration for mortgage lenders, which is a deliberate policy choice to attract out-of-state and international lending capital into the state’s real estate markets. SB 1632 would have required those same lenders to obtain an expensive mortgage lender license—a structurally contradictory result. Capital that would otherwise flow into Florida real estate would instead be directed to neighboring states including Alabama, Georgia, Tennessee, and North and South Carolina, all of which maintain business purpose exemptions from licensing requirements.
Florida’s fix-and-flip market was experiencing significant growth at the time. Reducing available credit by increasing barriers to entry would predictably reduce the number of lenders willing to operate in the state, concentrate market power among the few lenders capable of meeting the new requirements, and drive up the cost of credit for real estate investors.
Industry Response
The American Association of Private Lenders (AAPL) and its general counsel at the time took the position that the legislation posed a serious threat to Florida’s private lending community. Geraci LLP shares that assessment. Legislation that reduces market competition does not protect borrowers—it harms them by eliminating alternatives and driving up the cost of available credit.
Former Governor Scott’s 2017 veto letter remains instructive: restricting business purpose lending to only those lenders who can navigate a costly licensing process does not produce better outcomes for Florida residents or the broader economy. It produces fewer lenders, less competition, and higher rates.
Staying Current on Multi-State Licensing
For private lenders operating in Florida and other states, understanding the regulatory environment in each jurisdiction is essential. Licensing requirements vary significantly, and proposed legislation—even when it fails—signals where regulators and legislators are directing their attention.
Geraci LLP’s lending compliance team monitors state-level regulatory developments across all fifty states and can advise lenders on how to structure their operations to maintain compliance as the regulatory landscape evolves. Contact us at (949) 403-3488 or 90 Discovery, Irvine, CA 92618.
