Under the NC Mortgage Lending Act, can a 501(c)(3) nonprofit community development corporation broker mortgage loans without a state license?

Plain-English summary

Senator Ellie Kinnaird wrote to the Attorney General on behalf of EmPOWERment, a 501(c)(3) community development corporation that helps disadvantaged residents of Orange and Chatham Counties buy homes by making mortgage loans to them. EmPOWERment had applied for and received an exemption from the NC Mortgage Lending Act under G.S. § 53-243.15. The Office of the Commissioner of Banks then told EmPOWERment it could not engage in mortgage brokering without additional licensing, even with the exemption. Senator Kinnaird asked whether the Commissioner's reading conflicted with the statute.

Senior Deputy AG M. Ann Reed and Special Deputy AG L. McNeil Chestnut sided largely with the Commissioner of Banks. The AG concluded that the General Assembly drew a sharp line between two kinds of exemptions in the Mortgage Lending Act:

General exemptions apply to government-sponsored entities and to financial institutions already subject to regulatory oversight (banks, thrifts, credit unions, the NC Housing Finance Agency, insurance companies, the NC Agriculture Finance Authority). Those entities are exempt across the board.

Limited exemptions apply to everyone else who fits a carve-out, including small seller-financed transactions, licensed real estate agents (in narrow circumstances), clerical employees of a licensee, and qualified 501(c)(3) nonprofit corporations.

The 501(c)(3) exemption in G.S. § 53-243.01(8)(h) is written narrowly. It exempts a qualifying nonprofit that "makes mortgage loans to promote home ownership or home improvements for the disadvantaged, provided that such corporation is not primarily in the business of soliciting or brokering mortgage loans." The AG read the proviso as a hard ceiling: the nonprofit may incidentally solicit or broker loans, but the moment brokering becomes its primary business activity, the exemption falls away. "Primarily" gets its ordinary meaning, chiefly or mainly.

The AG also addressed the employee question separately. Even when the nonprofit corporation itself is exempt, individual employees who accept applications, solicit borrowers, or negotiate loan terms are themselves engaged in mortgage brokering as defined in G.S. § 53-243.01(1), and they are not covered by the corporate exemption. Those individuals must satisfy the licensing requirements of G.S. § 53-243.02.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The North Carolina Mortgage Lending Act was substantially restructured in 2009 and again in later sessions; the renumbered statutes governing this area are now found in Chapter 53, Article 19B of the General Statutes (the Secure and Fair Enforcement Mortgage Licensing Act), and the federal SAFE Act of 2008 layered additional federal licensing requirements on top of state law.

Background and statutory framework

The North Carolina Mortgage Lending Act, codified at that time at G.S. § 53-243.01 et seq., made it unlawful for any "person" (defined broadly to include business entities, see G.S. § 53-243.01(16)) to act as a mortgage broker or banker without first being licensed by the Commissioner of Banks. The statute carved out nine categories of exempt persons in subsection (8)(a) through (i).

The AG's analysis hinges on a structural reading of those nine exemptions. The general exemptions cover institutions that are already heavily regulated by federal or state financial regulators; the General Assembly trusted those entities not to need the additional check of mortgage broker licensure. The limited exemptions cover everyone else who fits a narrow purpose, including charitable lending to the disadvantaged.

Key definitional points the AG relied on:

• Making mortgage loans means "to close a mortgage loan, to advance funds, to offer to advance funds, or to make a commitment to advance funds to a borrower under a mortgage loan." G.S. § 53-243.01(11).
• Acting as a mortgage broker is defined separately in G.S. § 53-243.01(1) and includes soliciting borrowers, accepting applications, and negotiating loan terms.

The 501(c)(3) exemption permitted "mortgage lending" (i.e., making loans). The General Assembly did not extend the exemption to mortgage brokering, except incidentally.

Common questions

Q: Could a community development corporation get a single state-issued exemption letter and then operate as a full-service mortgage broker for low-income borrowers?

A: No, under this opinion. The exemption letter only blessed mortgage lending to the disadvantaged. Mortgage brokering required separate state licensure for the corporation if brokering became the primary activity, and for any individual employees engaging in broker functions.

Q: What counted as "primarily" in the business of brokering?

A: The AG declined to draw a numeric line. The opinion treated "primarily" as the ordinary dictionary sense of "chiefly or mainly," citing The American Heritage College Dictionary. A nonprofit whose paid-staff time, revenue, or transaction count was mostly devoted to brokering rather than to direct lending would risk losing the exemption.

Q: If the corporation was exempt, why did its individual employees still need licenses?

A: Because the licensing requirement in G.S. § 53-243.02 applied to any "person" acting as a mortgage broker, and the AG read the corporate exemption as covering only the corporation itself, not personal acts of its employees. Acts like soliciting borrowers, accepting applications, or negotiating loan terms triggered individual licensure regardless of whether the employer was exempt.

Q: Was there any reported case law construing this exemption?

A: No. The AG noted there had been no reported decisions construing the Mortgage Lending Act at the time of the opinion, so the AG analyzed the statute using ordinary principles of statutory construction starting with legislative intent.

Citations

Statutes:
- G.S. § 53-243.01(8)(h) (nonprofit 501(c)(3) exemption)
- G.S. § 53-243.01(8)(a)-(i) (general exemptions structure)
- G.S. § 53-243.01(1) (mortgage broker definition)
- G.S. § 53-243.01(11) (making mortgage loans definition)
- G.S. § 53-243.01(16) (person definition)
- G.S. § 53-243.02; § 53-243.02(a) (licensure requirement)
- G.S. § 53-243.15 (exemption application procedure)
- Internal Revenue Code § 501(c)(3)

Cases:
- Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 388 S.E.2d 134 (1990) (legislative intent as controlling factor)
- Biltmore Square Associates v. City of Asheville, 129 N.C. App. 101, 497 S.E.2d 121 (1998) (plain-meaning rule)
- Robbins v. Charlotte, 241 N.C. 197, 84 S.E.2d 814 (1954) (function of a statutory proviso)
- In Re Lunsford, 143 N.C.App. 646, 547 S.E.2d 483 (2001) (ordinary meaning of undefined terms)

Source

• Landing page: https://ncdoj.gov/opinions/permissible-mortgage-lending-activities-of-exempt-entities/

Original opinion text

Re: Advisory Opinion – – Permissible Mortgage Lending Activities of Exempt Entities Under G.S. § 53-243.01(8)(h) of the North Carolina Mortgage Lending Act

Dear Senator Kinnaird:

You have requested an opinion on the permissible lending activities of a nonprofit exempt entity under G.S. § 53-243.01(8)(h) of the North Carolina Mortgage Lending Act (the "MLA").

A. Recitation of the Facts

In your request for an opinion you identify an entity known as EmPOWERment and indicate that it is a nonprofit community development corporation, qualified under Section 501(c)(3) of the Internal Revenue Code (charitable organizations), engaged in assisting disadvantaged residents of Orange and Chatham Counties in securing affordable housing by making mortgage loans to these residents. You next indicate that on April 22, 2003, EmPOWERment submitted an application to the Office of the Commissioner of Banks ("OCOB") for exemption from the MLA under G.S. § 53-243.15, and that on April 30, 2003, the OCOB granted the requested exemption.

You also advise that, although the OCOB issued an exemption letter to EmPOWERment, that office determined that the corporation was not permitted to engage in mortgage brokering without meeting additional licensure requirements. Finally, you suggested that since EmPOWERment had met the exemption provisions of G.S. § 53-243.02(8)(h), it should be lawfully entitled to engage in mortgage brokering or mortgage banking without meeting additional licensure requirements. In view of what you believed to be a contradiction between the clear language of the MLA and its administrative interpretation by the OCOB, you have asked us for our opinion on the matter.

B. Discussion of the Law

1. Licensure and Exemption Provisions Generally

First, as you have noted in your request for an opinion, G.S.§ 53-243.02(a) provides that other than an exempt person, it is unlawful for any person in this State to act as mortgage broker or banker without first being licensed by the Commissioner of Banks. The term "person" is broadly defined to include an individual as well as a business entity. G.S. § 53-243.01(16).

Upon close examination of the exemption provisions, G.S. § 53-243.01(8)(a) through (i), it appears that the MLA draws a distinction between persons who are generally exempt from licensure and those who have a limited exemption. There also appear to be more specific exemptions from licensure for persons making mortgage loans than for persons brokering these loans.

(a) General Exemptions.

Subsection (8)(a) exempts from licensure the federal government or any state or municipal government "granting mortgage loans under specific authority of the laws of any state or the United States." Sections 8(c) and (e) exempt banks, thrifts, credit unions, farm credit systems, and their employees acting within the scope of their employment. Section (8)(f) exempts the North Carolina Housing Finance Agency and the North Carolina Agriculture Finance Authority, and Subsection (8)(i) exempts insurance companies doing business in this State. These are either government sponsored enterprises or financial institutions chartered by and subject to the jurisdiction of a state or federal financial regulatory agency.

(b) Limited Exemptions.

Subsection (8)(b) exempts from licensure clerical employees of a licensee who do "not solicit borrowers, accept applications, or negotiate the terms of loans on behalf of the employer" (acts which would generally constitute "acting as a mortgage broker," defined at G.S. § 53-243.01(1)). Section (8)(d) exempts licensed real estate agents and brokers who are performing their duties under the authority of the North Carolina Real Estate Commission, but these agents and brokers may not receive a commission for originating, placing or referring a mortgage loan without being licensed as a mortgage broker. Section 8(f) exempts up to five seller-financed transactions per year, and as discussed more fully below, Section 8(h) provides a limited exemption for qualified nonprofit corporations which make mortgage loans to promote home ownership or home improvements.

We think it is significant that the General Assembly drew a distinction between persons who are generally exempt – – government sponsored enterprises and highly regulated financial institutions, both of which are subject to certain oversight, and those persons who have a limited exemption. Again, the General Assembly appears to permit greater exemption for making mortgage loans than brokering these loans.

2. Exemption for Nonprofit (501(c)(3)) Corporations.

EmPOWERment's authority to make mortgage loans without licensure is expressly governed by G.S. § 53-243.01(8)(h), which provides an exemption for:

Any nonprofit corporation qualifying under section 501(c)(3) of the Internal Revenue Code which makes mortgage loans to promote home ownership or home improvements for the disadvantaged, provided that such corporation is not primarily in the business of soliciting or brokering mortgage loans. (Emphasis added)

There have been no reported decisions construing the MLA; therefore, we must interpret this statute, as would the courts of our State, using principles of statutory construction. First, and most importantly, legislative intent is the controlling factor. Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 388 S.E.2d 134 (1990). Based on our review of the matter, we believe the General Assembly intended to carve out broad exemptions for governmental entities and financial institutions already subject to regulatory oversight, while narrowing those exemptions for persons not subject to the same level of audit or review.

It is clear that EmPOWERment may make mortgage loans without licensure. Making mortgage loans means "to close a mortgage loan, to advance funds, to offer to advance funds, or to make a commitment to advance funds to a borrower under a mortgage loan." G.S. § 53-243.01(11). Where a statute is clear and unambiguous on its face, there is no room for judicial construction, and courts are required to give it its plain and definite meaning. Biltmore Square Associates v. City of Asheville, 129 N.C. App. 101, 497 S.E.2d 121 (1998), disc. rev. den. 336 N.C. 314, 445 S.E.2d 392, writ of cert. den. 513 U.S. 824, 115 S.Ct. 90.

EmPOWERment's authority to make mortgage loans is limited by the phrase " … provided that such corporation is not primarily in the business of soliciting or brokering mortgage loans." The ordinary function of a proviso of a statute is to qualify the statute so as to exclude from its scope something which would otherwise be within its terms. Robbins v. Charlotte, 241 N.C. 197, 84 S.E.2d 814 (1954). In other words, EmPOWERment may only employ its exemption for making mortgage loans without licensure so long as it is not primarily in the business of soliciting or brokering loans. The word "primarily" is not defined in the MLA, thus it must be given its ordinary everyday meaning. In Re Lunsford, 143 N.C.App. 646, 547 S.E.2d 483, vacated and remanded on other grounds 354 N.C. 571, 556 S.E.2d 292 (2001). Primarily is generally defined as chiefly or mainly. The American Heritage College Dictionary, 3rd. Ed. (1997).

In summary, the General Assembly chose to limit the mortgage lending exemption for qualified nonprofit corporations to those entities that are not engaged primarily in the business of soliciting or brokering mortgage loans. Based on the information provided, EmPOWERment may solicit or broker mortgage loans without being licensed by the OCOB but only to the extent that such transactions do not become a primary business activity. Employees of EmPOWERment who accept, or offer to accept application for mortgage loans, or who solicit, or offer to solicit mortgage loans, or negotiate the terms and conditions of a mortgage are not, however, exempt from the MLA. Thus they must meet the licensing requirements of G.S. § 53-243.02.

Sincerely,

M. Ann Reed
Senior Deputy Attorney General

L. McNeil Chestnut
Special Deputy Attorney General