Attorney Exception for Seller Financing/Mortgage License


Alabama Code Section 5-26-4(2)(d) contains an exception to the S.A.F.E. Act. It says the Act does not apply to:

  • “A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator.”

The question, of course, is what is meant by the words “as an ancillary matter to the attorney’s representation of the client…”

HUD’s commentary on this issue makes it clear that it intended the attorney exception to apply only when the attorney represents the consumer, NOT when the attorney represents the lender or seller. The commentary says:

  • “Additionally, the definition generally would not apply to, for example, a licensed attorney who negotiates terms of a residential mortgage loan with a prospective lender on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other mortgage loan originator or by an agent of such lender, mortgage broker, or other loan originator. In such cases, the duties of loyalty, competence, and diligence owed by the attorney to his or her client are significant. HUD views the SAFE Act’s requirements for registration and licensing as not applying in this context, which is distinguished from the commercial context contemplated in the SAFE Act.”

When you understand that the SAFE Act is to protect consumers, and then you read the language, “In such cases, the duties of loyalty, competence, and diligence owed by the attorney to his or her client are significant,” you understand the exception is only for lawyers representing buyer/borrowers.

The complete HUD commentary on this, and other, issues, can be viewed HERE.