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New Florida Law Restricts Foreign Nationals’ Land Ownership

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What Happened?

In a development that is becoming a trend in state legislatures, effective July 1, 2023, the Florida Senate passed a bill that restricts certain foreign nationals from acquiring property in the state.

Why Is It Important?

Florida Senate Bill 264 (“SB 264”), codified at Florida Statutes 692.201-204, restricts the conveyance of real property in Florida to individuals and entities associated with certain foreign countries.  Notably, subject to limited exceptions, it prohibits the sale of any real property to Chinese nationals.

SB 264, which became effective on July 1, 2023, contains three primary components prohibiting the conveyance of real property in Florida.  First, subject to limited exceptions, SB 264 prohibits individuals and entities designated as “foreign principals,” from “foreign countries of concern,” from acquiring agricultural land in Florida.  The impacted countries are the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, and the Syrian Arab Republic.

Second, SB 264 prohibits foreign principals from owning or acquiring any interest in real property within 10 miles of any military installation or critical infrastructure in the state.  Third, subject to limited exceptions, SB 264 prohibits Chinese entities and nationals who are not citizens or lawful permanent residents of the U.S. from purchasing or acquiring any interest in real property in the state.

Notable Exceptions

SB 264 contains notable exceptions. First, foreign principals and Chinese nationals may continue to own real property acquired before the July 1, 2023 effective date; however, they had until January 1, 2024 to register the property ownership by with the designated Florida regulatory authority.  Second, a foreign principal or Chinese national may purchase up to one residential real property not exceeding two acres, as long as the parcel is not within five miles of any military installation.

SB 264 also creates exceptions for ownership through a publicly traded company that is either: (a) less than 5% interest, or (b) is a non-controlling interest in an entity controlled by a non-foreign entity registered with the SEC as an investment adviser.  Further, the legislation permits a “foreign principal” to acquire interest by devise or descent, enforcement of security interests, or collection of debt on or after July 1, 2023; however, the party must sell the property within three years of acquisition.

 Penalties

SB 264 requires the buyer of real property to sign an affidavit under penalty of perjury to his/her compliance with the law.  While a failure to obtain or maintain the affidavit does not affect the title or insurability of the title for the real property, SB 264 provides that “if any real property is owned or acquired in violation of this section, the real property may be forfeited to the state.“ Further, a foreign principal that fails to timely file a registration is subject to a civil penalty of $1,000 for each day that the registration is late.

Clarifying Regulations

SB 264 is self-implementing, but the legislation requires certain Florida regulatory agencies to adopt rules to implement certain sections of the legislation. On September 20, 2023, the Florida Department of Commerce released its initial set of proposed rules for implementing SB 264.   Shortly thereafter, the Florida Real Estate Commission followed suit with proposed rules containing the form buyer’s affidavits. Further, the Florida Department of Agriculture and Consumer Services is drafting rules related to the interests of foreign ownership of agricultural land in Florida.

What Do You Need to Know?

In May 2023, litigation challenging the constitutionality of the legislation was brought in the U.S. District Court for the Northern District of Florida.  The plaintiffs contend that SB 264 violates the Fourteenth Amendment’s Equal Protection and Due Process Clauses, the Supremacy Clause, and the Fair Housing Act.  It is unclear whether this and other possible litigation challenging the enforceability of the law will be meritorious.

In addition to Florida, nearly 20 other states (including Missouri ,Pennsylvania, Tennessee, Virginia, and Wisconsin) have adopted or are considering foreign ownership restrictions which are similar but generally less onerous.

Consumer Finance State Roundup

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With the beginning of the 2024 legislative session, we return to the Consumer Finance State Roundup, which is intended to provide a brief overview of recently enacted legislation of potential interest.

To date in January, one state has enacted a legislative measure of potential interest to Consumer Finance ABstract readers: New Jersey Assembly Bill 5664 (2023 N. J. Laws 255).  Effective immediately upon approval by Governor Phil Murphy on January 12, the measure amends the state’s Fair Foreclosure Act (“Act”) to address requirements relating to sheriff’s sales, and establishes the Community Wealth Preservation Program (“Program”).

Sheriff’s Sales:

The measure substantially amends Section 2A:50-64 of the Act, which sets forth requirements for sheriff’s sales (including obligations of the plaintiff in a foreclosure action). First, prior to the sale, the measure the foreclosing plaintiff to disclose (if known) whether the property is vacant, tenant-occupied, or owner-occupied.  Second, the measure prohibits the plaintiff (or that party’s agent) from contacting the defendant, their next of kin, or a community development corporation prior to providing the sheriff’s office with the reserve (or “upset”) price to inquire whether that party will participate in the sheriff’s sale or exercise other rights under New Jersey law.

Property Maintenance:

Beyond the requirements for sheriff’s sales, the measure amends the Act to address conditions related to foreclosure proceedings and property maintenance requirements.  After institution of a foreclosure proceeding pursuant to the Act, current law permits a creditor to engage an agent to be responsible for the care, maintenance, security, and upkeep of a vacant and abandoned property.  The measure clarifies that neither the creditor nor the agent will be liable for damage caused by entry into the property, provided that such entry is peaceful and conducted with reasonable care.

Program:

According to the measure’s definition, the legislature created the Program “to assist prospective owner-occupants, nonprofit community development corporations, foreclosed upon defendants, next of kin of foreclosed upon defendants, and tenants of foreclosed upon defendants in purchasing and financing foreclosed upon residential properties in sheriff’s sales.”  In a sheriff’s sale, an eligible party must provide an initial 3.5 percent deposit, and then has 90 days to pay the balance (or may provide proof of pre-approval to finance the remainder of the purchase amount). Such purchaser must maintain eligibility (to include that, in the case of an individual bidder, the party will occupy the purchased property as a principal residence for a period of at least 84 months after taking possession).  The sheriff’s office must maintain and publicly display (i.e., on its website) information regarding the Program written in plain language to explain financing for the purchase of foreclosure sales.

Fees:

Finally, the measure amends Section 22A:4-8 of the New Jersey Statutes, which relates to the fees that a sheriff may charge for execution of a sheriff’s sale.  For sales by virtue of an execution conducted in accordance with the Act’s provisions, the amended section authorizes the sheriff to charge: (a) 6 percent; or (b) if a sale reverts to the foreclosing plaintiff, $150.

Mortgage Industry Update: Washington DFI Holds First Mortgage Industry Webinar of 2024

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A&B Abstract:

On January 24th, the Washington Department of Financial Institutions (the “DFI”) conducted its first Mortgage Industry Webinar of 2024 and provided updates in the areas of licensing, examination, and enforcement. Highlights from the Webinar are briefly summarized below.

Licensing Update

The DFI provided the following snapshot of licensing activity as of December 31, 2023:

  • Company licenses increased since the prior year.
  • Branch licenses decreased due to authorized remote work by mortgage loan originators (“MLO”).
  • MLO licenses decreased compared to previous years.
  • 70 % of MLOs submitted renewals, representing an increase of 10% from the prior year.
  • 30% of reinstatement/late renewals submitted so far this month.
  • The DFI approved 230 company applications, 950 branch applications and approximately 3,300 individual applications.

Examination Update

The DFI also provided an overview of the following common violations found during examinations conducted of MLOs, mortgage brokers, residential mortgage loan servicers, and consumer loan licensees:

  • Failure to maintain records for 3 years.
  • Failure to date mortgage loan applications and/or complete required information.
  • Failure to maintain supervisory plans.
  • Failure to submit accurate mortgage call reports (“MCRs”) by certain mortgage brokers.
  • Failure to complete all required information on license applications.
  • Failure to report accurate information to the credit bureaus.
  • Failure to conspicuously disclose fees.
  • Failure to report mortgage loan payoffs by certain mortgage loan servicers.

Additionally, in response to an inquiry regarding the rating system used by the DFI in conducting examinations, the DFI explained that it uses a rating scale of 1 to 5, where 1 would be the best rating, and 5 would be the worst rating.

Enforcement Update

The DFI also provided an overview of complaints investigated by its Enforcement Unit during the last quarter of 2023 and identified certain common violations under Washington’s Mortgage Broker Practices Act (“MBPA”) and the Consumer Loan Act (“CLA”).

Specifically, the DFI indicated that it saw an increase in:

  • Instances where address locations of branches or companies were found to be changed and contact information changed without corresponding updates in the NMLS.
  • Complaints alleging unlicensed activity by loan modification companies.
  • Complaints alleging advertising violations, such as providing misleading information about interest rates by indicating that a loan is “interest free” without proper disclosure.

Further, with respect to unlicensed MLO activity, the DFI indicated that it examines the actual activity performed by the individual in question, and if the individual’s activity meets the definition of an MLO, then that individual has engaged in mortgage loan activity and must be licensed as an MLO.

Finally, the DFI indicated that its Enforcement Unit closed more than 950 complaints that resulted in (1) $80,000 in restitution granted to impacted consumers, (2) the postponement or halting of at least 10 or more foreclosures, and (3) the granting of several loan modifications.

Takeaway

Licensees under the MBPA or CLA are encouraged to review the issues identified by the DFI against their policies, procedures, and practices to ensure compliance with the requirements under the MBPA and/or CLA.

New Indiana Money Transmission License Requirements Impact Business Purpose Activities

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A&B Abstract:

On May 4, 2023, Governor Holcomb signed SEA 458, the Model Money Transmission Modernization Act (the “MTMA”), into law in Indiana. The MTMA repeals and replaces Indiana’s existing law on money transmitters and, in doing so, expands the definition of money transmission to include business purposes. The new law took effect on January 1, 2024.

The MTMA

The MTMA is based on the Conference of State Bank Supervisors’ (CSBS) endorsed model act (the “Model Act”) with a few modifications. The Model Act is intended to streamline the licensing process and promote multistate supervision. Around 25 states have at least partially adopted provisions of the Model Act over the past two years.  The MTMA adopts many of the Model Act’s provisions, including:

  • Definitions applicable to money transmitters.
  • Exemptions from money transmitter licensing.
  • Licensing process, including standardized determination of who controls a licensee and the vetting process.
  • Safety and soundness requirements, including net worth, bonding, and permissible investments.

Critically, the new definitions adopted under the MTMA are broader than Indiana’s prior law and encompass both consumer purpose and business purpose activity. That said, the MTMA is narrower than the Model Act in several respects. For example, under the MTMA, typical payroll processing activity may no longer be considered licensable activity, while entities offering “bill pay services” and those engaged in money transmission for jail or prison commissaries must assess whether a license is required under the MTMA. Indiana did not adopt the virtual currency portion of the Model Act and did not include the transmission of virtual currency in its regulation. In addition, the MTMA includes several statutory exceptions to licensure which are similar to the exemptions under Indiana’s prior law.

Licensure under the MTMA is required as of January 1, 2024. Applicants working toward licensure and compliance will have until June 30, 2024, to confirm submission of a completed application with the Indiana Department of Financial Institutions. Note that any late or incomplete applications submitted after June 30, 2024, will be considered delinquent.  Existing licensees need not reapply but must adhere to the MTMA’s new requirements as of January 1, 2024.

Takeaway:

Entities engaged in business purpose money transmission who have not previously been required to obtain a money transmission license in Indiana are strongly encouraged to review the MTMA and their business model to determine whether their business activities will require a license under the MTMA.

Don’t Miss the Small Stuff Lenders: New Mexico Issues Regulatory Guidance for Completing the “Freedom to Choose” Insurance Company Form

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A&B Abstract:

Under New Mexico’s Insurance Code, it has been a long-standing requirement that lenders may not condition a loan of money on the procurement of insurance from any particular insurer, agent, solicitor, or broker.  The lender is required to inform the buyer of their rights “regarding the placement of insurance on a form prescribed by the superintendent” and the borrower must “signify that he has been so informed.”  The form of the required “Freedom to Choose” is provided by regulation to the Insurance Code as follows:

FREEDOM TO CHOOSE INSURANCE COMPANY AND INSURANCE PROFESSIONAL

The undersigned person hereby acknowledges that I have been informed by (individual’s name) on behalf of (name of lender) that, although I may be required by the seller or lender to purchase insurance to cover the property that is being used as security for the loan, I may purchase that insurance from the insurance company or agent of my choice, and cannot be required by the seller or lender, as a condition of the sale or loan, to purchase or renew any policy of insurance covering the property through any particular insurance company, agent, solicitor, or broker. I hereby acknowledge receipt of a true copy of this notice on the _____day of_____________, _____.

__________________________________

(Signature of Purchaser or Borrower)

The New Mexico Financial Institutions Division (FID) issued regulatory guidance (the “Guidance”) this month as some lenders have not been completing the form correctly.  The Guidance clarifies that the “Freedom to Choose” notice requires the name of the individual providing the notice, and the FID finds the practice of providing only the company name in the blank reserved for the individual’s name as a violation of the Insurance Code.

 Takeaway:

Lenders take note as this is an easy violation to avoid.  To that end, now is a good time to review your New Mexico policies, procedures and QC reviews to ensure compliance with this requirement.  Please don’t hesitate to reach out with any questions on when the form is required and how to ensure it is completed correctly.  While the FID’s Guidance does not speak to penalties, it is worth noting that the Superintendent of the New Mexico Regulation and Licensing Department has authority to impose monetary penalties for violations of this provision, including a fine not to exceed $500 per violation. The statute also authorizes administrative penalties and civil actions.