Alston & Bird Consumer Finance Blog

Florida

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.

Majority of States Now Permit Remote Work for MLOs and Mortgage Company Employees

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A&B Abstract:

On June 9, Illinois became the latest state in a growing trend to authorize remote work for mortgage loan originators and mortgage company employees. This makes five states joining the list of jurisdictions legislatively permitting MLOs to work remotely since Montana enacted similar legislation in March, with more states expected during the 2024 legislative sessions.

The Illinois amendments to The Residential Mortgage License Act of 1987, signed by Governor Pritzker on June 30, 2023, take effect on January 1, 2024 and specifies requirements that licensed MLOs must follow to allow employees to work from remote locations. These changes include:

  • Requiring the licensee to have written policies and procedures for supervising mortgage loan originators working from a remote location;
  • Restricting access to company platforms and customer information in accordance with the licensee’s comprehensive written information security plan;
  • Prohibiting in-person customer interactions at a mortgage originator’s residence unless the residence is a licensed location;
  • Prohibiting maintaining physical records at a remote location;
  • Requiring customer interactions and conversations about consumers to be in compliance with state and federal information security requirements.
  • Mandating mortgage loan originators working from a remote location to use a secure connection, either through a virtual private network (VPN) or other comparable system, to access the company’s system;
  • Ensuring the licensee maintains appropriate security updates, patches, or other alterations to devices used for remote work;
  • Requiring the licensee to be able to remotely lock, erase, or otherwise remotely limit access to company-related contents on any device; and
  • Designating the loan originator’s local licensed office as their principal place of business on the NMLS.

Nevada, Virginia, and Florida passed legislation resembling the Illinois law, mandating similar security, compliance, and surveillance requirements.

Temporary Guidance Ending

Remote work flexibility is now the majority stance for the industry. The four states mentioned above are the most recent since Montana passed similar legislation in March. Of the 53 U.S. jurisdictions tracked by the Mortgage Bankers Association (including Washington, D.C., Guam, and Puerto Rico), 30 have implemented permanent statutes or regulations allowing remote work, with 9 more jurisdictions still operating under temporary guidance permitting remote work.

Of the states still operating under temporary guidance, Oklahoma’s guidance expires December 31, 2023. The state government will need to take further action, whether legislative or regulatory, to continue to allow MLOs to work remotely. Louisiana issued temporary guidance in July 2020, which would stay active, “as long as there is a public health emergency relating to COVID-19, as declared by Governor Edwards of the State of Louisiana, or until rescinded or replaced.” Governor Edwards ended the emergency in March 2022 when he did not renew the expiring order. Remote work in Louisiana is now operating in a grey zone with regards to whether the temporary order is still in effect due to the, “until rescinded” language.

Different Methods, Similar Results

Although remote work is the new norm, states are taking different routes to allow MLOs to work remotely. Many statehouses passed legislative statutes, which allow for stable policies but can be difficult to revise through the legislative process. These statutes tend to follow similar structures and have similar requirements. Illinois, Virginia, Florida, and Nevada require MLOs to work from home so long as certain records are not maintained in remote locations, professionals do not meet with customers outside of licensed facilities, employees are properly supervised as required by the license, and the company maintains adequate cybersecurity measures to protect customer data.

Nebraska’s state legislature did not pass specific guidance regarding remote work for MLOs, but rather, passed authorization to allow the Nebraska Department of Banking and Finance to promulgate regulations allowing remote work for MLOs. The Department has not yet issued permanent guidance for local MLOs regarding remote work requirements. Although using the regulatory system to implement rules may take longer to implement, it is also more flexible to changing circumstances and generally permits regulators to revise guidance faster than it takes a state legislature to convene, draft, and pass appropriate amendments to existing legislation.

Takeaway

The post-COVID workforce is clinging onto the last bit of convenience that the pandemic forced upon us. Surveys show that remote work flexibility is now the primary perk that would drive people to different employers. Since the technology needed to safely conduct business remotely is now proven, states are realizing that the easiest way to retain qualified mortgage professionals is to allow remote work flexibility. The American Association of Residential Mortgage Regulators (AARMR) expressed concern over a lack of remote work options in 2022 before states started passing permanent legislation. State legislatures embraced AARMR’s concern that a lack of remote work options could cause professionals to leave the industry, further widening the access gap for already underserved communities. The remote work trend has touched other industries that were previously in-person only and is likely to grow in those other industries (e.g., remote notarization) as far as practically feasible.

* We would like to thank Associate, CJ Blaney, for their contributions to this blog post.

Georgia, Florida, Connecticut Enact Commercial Financial Disclosure Laws

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A&B Abstract:

Georgia, Florida, and Connecticut are among a growing list of states, including California, New York, Utah, and Virginia, that have enacted laws requiring consumer-style disclosures for commercial financing transactions. These laws are part of a burgeoning trend by state legislatures to impose burdensome disclosures, like those required by the federal Truth in Lending Act (TILA), on providers of small-balance commercial loans and financings. These laws apply to business-purpose transactions but not to transactions having a consumer, family, or household purpose.

The Georgia Law

On May 1, 2023, Georgia amended its Fair Business Practices Act to require certain providers of commercial financings of $500,000 or less to furnish various disclosures to small-business borrowers before the consummation of the transactions. The statute, known as Senate Bill 90, applies to covered commercial financings consummated on or after January 1, 2024.

The Georgia law requires providers of commercial credit in amounts of $500,000 or less to provide TILA-like disclosures to small-business borrowers before the consummation of the transaction but does not specify the time period. The Georgia law defines “provider” as “a person who consummates more than five commercial financing transactions” in Georgia during any calendar year, including participants in commercial purpose marketplace lending arrangements. “Commercial financing transactions” include both closed-end and open-end commercial loans as well as accounts receivable purchase transactions but do not include real-estate-secured transactions.

Exemptions

The Georgia law exempts federally insured depository institutions and their subsidiaries, affiliates, and holding companies; Georgia-licensed money transmitters; captive finance companies; and institutions regulated by the federal Farm Credit Act. The law also exempts purchase money obligations.

Required Disclosures

The Georgia law requires providers of commercial financing transactions to furnish the following information prior to consummation:

  • Total funds provided to the business.
  • Total funds disbursed.
  • Total amount paid to the provider.
  • Total dollar cost of the transaction.
  • Payment schedule.
  • Costs associated with prepayment.

Penalties

Providers who violate these disclosure requirements face civil penalties ranging from $500 per violation to $20,000 with possible additional penalties for continued violations. Notably, violations do not affect the enforceability of the transactions, and there is no private right of action under the law.

The Florida Law

On June 26, 2023, Florida enacted the Florida Commercial Financing Disclosure Law, which requires covered providers to furnish consumer-oriented disclosures to businesses for certain commercial non-real-estate-secured financing transactions exceeding $500,000. The Florida law takes effect July 1, 2023 and becomes mandatory for transactions consummated on or after January 1, 2024.

The Florida law applies to providers of commercial financing transactions and defines “provider” as a “person who consummates more than five commercial financings” in Florida during any calendar year. “Commercial financing transactions” include commercial loans, open-end lines of credit, and accounts receivable purchase transactions. The Florida law exempts the following entities and transactions: federally insured depository institutions, their subsidiaries, affiliates, and holding companies; licensed money transmitters; real-estate-secured loans; loans exceeding $500,000; leases; and certain purchase money transactions.

Required Disclosures

The provider is required to disclose in writing the following at or before the consummation of a commercial financing transaction:

  • The total amount of funds provided to the business.
  • The total amount of funds disbursed to the business if less than the total amount of funds provided because of any fees deducted or withheld at disbursement and any amount paid to a third party on behalf of the business.
  • The total amount to be paid to the provider.
  • The total dollar cost of the commercial financing transaction, calculated by subtracting the total amount of funds provided from the total amount of the payments.
  • The manner, frequency, and amount of each payment or, if there are variable payments, an estimated initial payment and the methodology used for calculating it.
  • Certain information about prepayments.

Prohibited Acts

The Florida law prohibits a broker arranging a consumer financing transaction from engaging in any of the following acts:

  • Assessing, collecting, or soliciting an advance fee from a business to provide services to a broker. However, this prohibition would not preclude a broker from soliciting a business to pay for, or preclude a business from paying for, actual services necessary to apply for commercial financial products, such as a credit check or an appraisal of security, if certain conditions are met.
  • Making or using any false or misleading representations or omitting any material facts in the offer or sale of the services of a broker or engaging in any act that would “operate as fraud or deception upon any person in connection with the offer or sale of the services of the broker, notwithstanding the absence of reliance by the business.”
  • Making or using any false or deceptive representations in its business dealings.
  • Offering the services of a broker by any advertisement without disclosing the actual address and telephone number of the business of the broker.

Penalties 

Like the Georgia law, the Florida law punishes violations with civil fines ranging from $500 per incident to $20,000 with possible additional penalties for “aggregated violations.” Notably, violations do not impair the enforceability of the transactions or create a private right of action.

The Connecticut Law

On June 28, 2023, Connecticut enacted “An Act Requiring Certain Financing Disclosures,” which requires (1) lenders offering certain types of commercial purpose “sales-based financing” in amounts of $250,000 or less to provide specified consumer-like disclosures to applicants; and (2) mandates that lenders offering such credit register annually with the Connecticut Department of Banking starting by October 1, 2024. The Connecticut law authorizes the state banking commissioner to adopt promulgating regulations, and the law takes effect on July 1, 2024.

The Connecticut law applies to providers of commercial financings and defines “provider” as “a person who extends a specific offer of commercial financing to a recipient and includes, unless otherwise exempt … a commercial financing broker.”

“Commercial financing” means any extension of sales-based financing by a provider not exceeding $250,000. Under the statute, “sales-based financing” is a “transaction that is repaid by the recipient to the provider over time” (1) as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the recipient’s sales or revenue, or (2) according to a fixed payment mechanism that provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue.

Notably, the Connecticut law exempts the following entities and transactions:

  • Banks, bank holding companies, credit unions, and their subsidiaries and affiliates.
  • Entities providing no more than five commercial financing transactions in a 12-month period.
  • Real-estate-secured loans.
  • Leases.
  • Purchase money obligations.
  • Technology service providers acting for an exempt entity as long as they do not have an interest in the entity’s program.
  • Transactions of $50,000 or more to motor vehicle dealers or rental companies.
  • Transactions offered in connection with the sale of a product that the person manufactures, licenses, or distributes.

Required Disclosures

The Connecticut law requires that before making a “specific offer” (i.e., a binding offer of credit) providers must furnish certain disclosures to borrowers, in a form prescribed by the state banking commissioner, including:

  • The total amount of the commercial financing.
  • The disbursement amount, which is the amount paid to the recipient or on the recipient’s behalf, excluding any finance charges that are deducted or withheld at disbursement.
  • The finance charge.
  • The total repayment amount, which is the disbursement amount plus the finance charge.
  • The estimated repayment period.
  • A payment schedule.
  • A description of fees not included in the finance charge such as draw fees, and late charges.
  • A description of any collateral requirements.
  • Information about brokerage compensation.

The Connecticut banking commissioner is expected to promulgate implementing regulations and model disclosures before the effective date of July 1, 2024.

Registration Requirement

The Connecticut law requires providers and brokers to register with the state banking commissioner by October 1, 2024 and to qualify to “do business” in the state. The registration must be renewed annually.

Penalties

The statute authorizes the banking commissioner to impose civil penalties of up to $100,000 for violations of the law as well as enjoin those violating the statute.

Takeaway

The three state laws recently enacted in Georgia, Florida, and Connecticut are part of a growing trend among states to regulate small-balance commercial non-real-estate-secured loans. The burdens imposed by the laws will be the lenders’ cross to bear unless they can avoid triggering the coverage of the statutes.