Mortgage Industry Information, Opinions & Tips

Unlicensed Mortgage Company Employees

In 2000, the then California Department of Real Estate (now the California Bureau of Real Estate) promulgated Commissioner’s Regulation 2841 which codified the definition of duties that could be performed by unlicensed individuals working as W-2 employees of mortgage brokers. It is important to review the job descriptions and duties of your unlicensed employees to make sure that they are abiding by the regulation and not stepping over the line and engaging in licensed activities. Those unlicensed individuals performing licensed activities can be fined (or worse) and the broker and his/her corporation can face huge fines and penalties. In addition, if it can be
proven that the unlicensed individual(s) performed activities which resulted in earned commissions, those commissions can be caused to be disgorged to the state as a penalty. I have seen such penalties in the $100,000 or more range. Not a good thing!

There are 15 items that are listed in the regulation which the unlicensed employee can undertake and not violate
licensing laws. It is an excellent guide to the job description that a broker can use for his/her unlicensed employees and can even be printed and signed by the employee showing their agreement and understanding. Those specific duties are:

  1. Preparing and designing advertising relating to loan transactions for broker review and written approval prior to its distribution, circulation, use or publication.
  2. Distributing, circulating, using or publishing preprinted brochures, flyers, fact sheets or other written materials relating to loans secured by real property which the broker can make or negotiate and which have been reviewed and approved in writing by the broker prior to their being distributed, circulated or published. Materials subject to this subdivision may not contain the name, address or telephone number of the nonlicensed employee.
  3. Providing written factual information about loan terms, conditions or qualification requirements to a prospective borrower that has been either prepared by the broker, or reviewed and approved in writing by the broker. A nonlicensed employee may discuss such information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.
  4. Notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice to a prospective borrower.
  5. Entering information provided by the prospective borrower on a pre-printed application form without providing counseling or advice to a prospective borrower.
  6. Entering information provided by a prospective borrower or third party into a preformatted computer database.
  7. Accepting and providing a receipt on behalf of a broker for funds received from a prospective borrower for credit or appraisal fees.
  8. Preparing and mailing requests for verification of employment, verification of deposits, credit reports or appraisal reports. Obtaining such reports for transmission to the broker.
  9. Assembling, under the direction of the broker, materials obtained in the course of a loan transaction for submission to a prospective lender or loan committee, providing the final determination as to completeness or compliance is made by the broker.
  10. Communicating with a service provider in connection with a loan transaction to determine when reports or other information needed concerning any aspect of the transaction will be delivered, or when certain services will be performed or completed.
  11. Mailing, delivering, picking up, or arranging the mailing, delivery, or picking up of documents or instruments related to the loan transaction, including obtaining signatures to the documents or instruments from principals, parties or service providers in connection with the loan transaction, as long as the nonlicensed employee does
    not interpret or explain the content, relevance, significance or effect of the document or signature and such documents or instruments have been reviewed and approved in writing by the broker.
  12. Contacting a prospective lender to determine the status of a loan application.
  13. Responding to an inquiry or notifying a prospective borrower or his or her agent of the status of the loan application as long as the nonlicensed employee does not interpret or explain the relevance, significance or effect of that status. A nonlicensed employee may communicate omissions to a party or principal to the loan as long as the nonlicensed employee does not interpret or explain the relevance or significance of those omissions.
  14. Preparing and completing documents and instruments under the supervision and direction of the broker if the final documents or instruments will be or have been reviewed and approved in writing by the broker.
  15. Arranging or making appointments for third party service providers to enter the real property securing the loan, or arranging or making appointments for the prospective borrower or lender to meet with the broker, lender or other party or service provider in connection with the loan.

You will note that I have emphasized the term “employee” in this article. The code specifically states that for unlicensed mortgage brokerage employees “the term ‘employee’ means a person in the service of a broker under any appointment or contract of hire, express or implied, oral or written and for whom the broker is obligated to withhold income tax payments and provide workers compensation insurance and unemployment insurance.”

Pam Strickland is an independent consultant who helps brokers prepare for the dreaded call from the CalBRE. She can be reached at