Have you been investigated for borrowing money? - Posted by Todd_OH

Posted by AJ on October 23, 2003 at 11:34:05:

I don’t know if it will be much help or not, but it could be considered a security, and like someone has already mentioned, it would require filing w/ the SEC and extra paperwork, and in order to be able to sell these out, you would need appropriately licensed people, series 6 or 7 license, just like a mortgage lender needs a license.

Have you been investigated for borrowing money? - Posted by Todd_OH

Posted by Todd_OH on October 21, 2003 at 11:23:23:

Wow! What a morning. First a dentist appointment, then my 2nd investigation by the Ohio Division of Securities for borrowing private money. The first one was early 2001. Besides me and a HUGE investor in Toledo, Ohio, has anyone else out there been investigated by their State Division of Securities?

Having been through this before, I have no fear of these guys since I know the securities laws and I comply with them. If you DON’T know the laws in your states, then you should read up on them if you are borrowing private money. Believe it or not, PROMISSORY NOTES and MORTGAGES are SECURITIES. The first time I hired two different securities attorneys. This time, I went down by myself.

I think that stock brokers are having people (me) investigated because people are liquidating their stocks to invest with us…

DEFINITION (for those who don’t know): “Private money” is money borrowed from private individuals rather than from a bank.

Hope your morning was more fun than mine :slight_smile:


Re: Have you been investigated for borrowing? - Posted by jasonrei

Posted by jasonrei on October 22, 2003 at 11:34:06:

My first pair of private money lenders pulled $150k out of stocks to lend me. Their stockbroker knew where the money was going, and he was very angry, slightly verbally abusive. I have another lender that is about to use IRA funds, and his broker is being a punk about it. I can definitely see brokers reporting these things.

Private Money Question sent to me by email… - Posted by Todd_OH

Posted by Todd_OH on October 22, 2003 at 07:08:55:

This question was sent to me by email, and I am posting it here because I am certain other people had the same question…


“Todd, If promissory notes and Mortgages are Securities then how are you able to borrow private funds in Ohio succesfully and keep these guys off of your backs. There is obviously a loophole since John Ulmer borrows millions a year in your state. Please explain. Thanks”


  1. The real problem is not that notes and mortgages are securities. Obviously securities are not illegal. The problem is that securities have to be registered, just like stocks, bonds, mutual funds have to be registered. What does that entail? A bunch of licensing and paperwork to be able to “sell” them and/or use them in your business. Obviously this is usually more red tape than we want to get involved in as Real Estate Investors.

  2. The “loophole” as he put it, is that in our state (and I suspect the same is true in virtually all other states) a “mortgage backed security” does not have to be registered. In other words as long as you are providing real estate as collateral via a mortgage, then your promissory note does not need to be registered like a stock, bond, or mutual fund would have to be. The legal term for the “loophole” is an “exemption” under that section of the Ohio Securities Law.

Have a profitable day!


How many loans? - Posted by Jack

Posted by Jack on October 21, 2003 at 14:33:08:

No, I have never heard of such a thing. How many private loans have you gotten in the past few years?

Have you been investigated for borrowing money? - Posted by Hank FL

Posted by Hank FL on October 21, 2003 at 11:46:09:

What do I know, but I thought:

1 private lender, 1 loan, 1 investor, 1 house; would not considered a security, even in OH.

If I sent out letters or had a page on my website that said “15% through private mortgage lending, call 555-5555 for details” and I then pooled or mixed moneys together to loan out, then there could be a regulatory problem.

This issue of course is seperate from the brokerage question methinks.

Again, I’m just thinking out loud here.

Perhaps someone will come along with something better.

Re: How many loans? - Posted by Todd_OH

Posted by Todd_OH on October 21, 2003 at 14:49:43:

The number of loans is irrelevant. The important thing to know is that a promissory note is a security, and a mortgage is a security. If you do one transaction involving a promissory note, you are engaging in the “sale of a security”.


I haven’t but… - Posted by E.Eka

Posted by E.Eka on October 21, 2003 at 11:51:02:


I do know this; the amount or parties or the amount of loans whether small or large wouldn’t negate the fact that it is a security. Remember states have different regulations than the fed (SEC). One mortgage if treated a certain way, may qualify for a security.