We were notified during a recent audit that “recent information indicates that mortgage loans made in Arizona, Nevada, New Jersey, Hawaii or Ohio by organizations without a physical presence in that state may not have a valid lien by state legislation.” We currently have two mortgages in Arizona and do not have a physical presence in that state. Is it true that our liens are invalid because we do not maintain a physical presence in Arizona?

While we are not experts on the laws of states other than Illinois, we do not believe your Arizona mortgages would be considered invalid solely because you do not maintain a physical presence in Arizona. That said, we strongly recommend reviewing any concerns about your lien status with bank counsel.

We do not believe that Arizona’s laws on mortgage bankers and commercial mortgage bankers (which require mortgage lenders to designate and maintain a principal place of business in Arizona in order to obtain a license to do business) apply to out-of-state banks regulated by their home state. As such, we do not believe an Illinois bank regulated by the IDFPR would have its Arizona mortgages invalidated solely because it does not maintain a physical presence in Arizona.

Note that our guidance relates only to the requirement that certain lenders maintain a physical presence in Arizona. However, there may be other requirements that we are unaware of that an out-of-state bank must fulfill before it can extend mortgage loans and take valid liens on properties outside of Illinois. As such, we recommend engaging counsel with expertise in the relevant state’s laws before extending mortgage loans and taking liens on properties outside of Illinois.

For resources related to our guidance, please see:

Ariz. Rev. Stat. § 6-943(A) (“A person shall not act as a mortgage banker if the person is not licensed under this article.”)

Ariz. Rev. Stat. § 6-944(E) (“Every licensed mortgage banker shall designate and maintain a principal place of business in this state for the transaction of business.”)

Ariz. Rev. Stat. § 6-941(6) (“‘Mortgage banker’ means a person who is not exempt under section 6-942 and who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage banking loan or a mortgage loan.”)

Ariz. Rev. Stat. § 6-941(7) (“‘Mortgage banking loan’ means a loan which is funded exclusively from the mortgage banker’s own resources, which is directly or indirectly secured by a mortgage or deed of trust or any lien interest on real estate located in this state and which is created with the consent of the owner of the real property. . . .”)

Ariz. Rev. Stat. § 6-942(A)(1) (“This article does not apply to: . . . A person who does business under any other law of this state, or any other state while regulated by a state agency of such other state . . . relating to banks, savings banks, trust companies, savings and loan associations, profit sharing and pension trusts, credit unions, insurance companies or consumer lenders, or receiverships, including directly or indirectly making, negotiating or offering to make or negotiate a mortgage banking loan or a mortgage loan if the mortgage transactions are regulated by the other law or are under the jurisdiction of a court.”)

Ariz. Rev. Stat. § 6-973(A) (“A person shall not act as a commercial mortgage banker without a license issued under this article.”)

Ariz. Rev. Stat. § 6-979(A) (“Each licensed commercial mortgage banker shall designate and maintain a principal place of business in this state to transact business. The license shall specify the address of the licensee’s principal place of business.”)

Ariz. Rev. Stat. § 6-971(2) (“‘Commercial mortgage banker’ means a person who engages in the following: (a) Originating commercial mortgage loans. (b) Servicing commercial mortgage loans. (c) Either directly or indirectly making, negotiating or offering to make or negotiate commercial mortgage loans.”)

Ariz. Rev. Stat. § 6-971(3) (“‘Commercial mortgage loan’ means a loan that is directly or indirectly secured by a mortgage or deed of trust or any lien interest on commercial property and created with the consent of the owner of the commercial property.”)

Ariz. Rev. Stat. § 6-972(9) (“This article does not apply to: . . . 9. A bank, savings bank, trust company, savings and loan association, profit sharing trust, pension trust, credit union, insurance company, consumer lender or receivership if it is regulated by this state, another state, the United States or a court with respect to its commercial mortgage business.”)