Our firm has encountered thousands of illegal net branch
arrangements over the years. In most scenarios, it is the branch manager
that is punished most severely when confronted by state finance regulators.
Illegal net branch managers potentially face large monetary sanctions, cease
and desist orders, denial of license applications, permanent exclusion from
the finance industry, and/or potential misdemeanor or felony criminal
prosecution.
REMEMBER -- BRANCH MANAGERS ARE EMPLOYEES, NOT BUSINESS OWNERS!
If any of the following conditions exist, you should seek immediate legal
counsel:
-
The branch manager operates his/her own unlicensed corporation
or limited liability company in connection with the branch
activities of another company.
-
The branch manager operates a mortgage business in one or more
states with his/her own unlicensed company.
-
The branch manager operates a company that “works through” or is
“affiliated with” a licensed mortgage company or depository
institution -- which claims that the branch manager’s company
does not need to be licensed in a particular state because the
branch manager’s company is “covered” by that other company’s
licensing.
-
The branch manager operates his/her own unlicensed corporation
or limited liability company that receives ANY income derived
from mortgage-related activities.
-
The branch manager and/or branch employees receive ANY
compensation from the branch manager’s own unlicensed company.
-
The branch manager and/or branch employees are compensated on a
1099 basis for mortgage-related activities. NOTE: State
licensing law and IRS rules must both be reviewed to make a
correct determination.
-
Expenses of the branch are paid by the branch manager or by a
company owned by the branch manager, and the employer/licensee
does not provide full reimbursement for these expenses.
-
Branch managers and/or branch employees receive a small W2
compensation for each mortgage deal and the rest is paid on a
1099 basis as a "marketing fee", and/or paid to a "marketing
company" owned by the branch manager.
-
Branch managers and branch employees are not direct W2 employees
of the licensee, and/or do not receive 100% of their income
directly from that licensee.
-
The branch lease and/or telephone numbers is/are not in the name
of the licensee.
This list is not exhaustive of all net branch "red flag" scenarios. If any
of these conditions are true, or if you suspect that your mortgage company
or branch office may be conducting illegal net branch operations, you should
immediately seek legal counsel.
Sample Laws Prohibiting Net Branching:
Georgia
Michigan
Rhode Island
FHA
Back to Resources Page
|