A.R.S. tit. 6 ch. 9 — Arizona Revised Statutes Title 6 Chapter 9 — Mortgage Brokers, Mortgage Bankers And Loan Originators

6-901. Definitions In this article, unless the context otherwise requires: 1. "Affiliate" means an entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the entity specified. 2. "Commercial mortgage broker" means a person who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a commercial mortgage loan. 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 that is created with the consent of the owner of the commercial property. 4. "Commercial property" means real property that is not a residential dwelling of one to four units. 5. "Compensation" means anything of value or any benefit, including points, commissions, bonuses, referral fees, loan origination fees and other similar fees but excluding periodic interest resulting from the application of the note rate of interest to the outstanding principal balance remaining unpaid from time to time. 6. "Continuing education unit" means a fifty minute period of time in a continuing education course that relates to the mortgage industry or to mortgage transactions, including courses taken to maintain recognized industry designations. 7. "Generally accepted accounting principles" means United States generally accepted accounting principles issued by the financial accounting standards board or the international financial reporting standards issued by the international accounting standards board. 8. "Investor" means a person who lends or invests money in mortgage loans. 9. "License" means a license issued under this article. 10. "Licensee" means a person licensed under this article. 11. "Loan originator" has the same meaning prescribed in section 6-991. 12. "Mortgage broker" means a person who is not exempt under section 6-902 and who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage loan. 13. "Mortgage loan" means a loan secured by a mortgage or deed of trust or any lien interest on real estate located in this state created with the consent of the owner of the real estate. 14. "Mortgage loan closing" means the day by which all documents relating to the mortgage loan have been executed and recorded and all monies have been accounted for under the terms of the escrow instructions. 15. "Residential mortgage loan" means a mortgage loan that has security in the form of a residential dwelling of one to four units. 6-902. Exemptions A. This article does not apply to: 1. A person who does business under any other law of this state, or law of any other state while regulated by a state agency of such other state or the United States, relating to banks, savings banks, trust companies, savings and loan associations, profit sharing and pension trusts, credit unions, insurance companies or consumer lenders, or receivership, including directly or indirectly making, negotiating or offering to make or negotiate a mortgage loan if the mortgage transactions are regulated by the other law or are under the jurisdiction of a court. Subsidiaries and service corporations of these institutions shall not be exempt and shall be subject to the provisions of this article unless preempted by federal law. 2. A person who makes a mortgage loan: (a) With his own monies. (b) For his own investment. (c) Without intent to resell. (d) And is not engaged in the business of making mortgage loans. 3. A person who funds a mortgage loan which has been originated and processed by a licensee, by a mortgage banker licensed in this state or by a person exempt under paragraph 1 of this subsection and who meets all of the following: (a) Does not maintain a place of business in this state in connection with funding mortgage loans. (b) Does not directly or indirectly solicit borrowers in this state for the purpose of making mortgage loans. (c) Does not participate in the negotiation of mortgage loans. 4. A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a purchase money obligation. 5. A person who is licensed to practice law in this state, but is not actively and principally engaged in the business of negotiating mortgage loans, if this person renders services in the course of his practice as an attorney at law. 6. A person who receives a mortgage or deed of trust on real property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in the improvement of that real property or any lien created without the consent of the owner of the real property. 7. A person who is licensed pursuant to article 2 or 3 of this chapter. 8. An agency of any state or of the United States. 9. A nonprofit federally tax exempt corporation certified by the United States small business administration and organized to promote economic development within this state whose primary activity consists of providing financing for business expansion. 10. An institutional investor as defined in section 6-971 unless the institutional investor makes a mortgage loan other than a commercial mortgage loan as defined in section 6-971. B. For the purposes of: 1. Subsection A, paragraph 3 of this section, "originate" includes loans closed in a name other than that of the licensee, a mortgage banker licensed in this state or exempt person only if the person in whose name the loan is closed meets the other requirements of subsection A, paragraph 3 of this section. 2. Subsection A, paragraph 3, subdivision (c) of this section, "negotiation of mortgage loans" does not include setting the terms under which a person may buy a mortgage loan originated by a licensee or a person exempt under subsection A, paragraph 1 of this section. 6-902.01. Exemption; responsible individual; fees; revocation; rules A. A parent company may apply for and be granted a certificate of exemption on behalf of an entity that allows a responsible individual, as prescribed in section 6-903, subsection H, to reside out of state if the responsible individual meets the following criteria: 1. Is a natural person. 2. Meets all of the requirements pursuant to this article. 3. Receives notification from the parent company that the parent company was granted a certificate of exemption by the director. B. The parent company must apply on behalf of the entity and submit an attestation form as prescribed by the director that the parent company meets all of the following requirements: 1. Maintains a physical presence in this state. 2. Does not have any disciplinary actions by the department. 3. Has a class of securities registered with the United States securities and exchange commission. C. The applicant shall pay all applicable fees as prescribed in rule. D. The director may revoke the certificate if the director finds either of the following: 1. The interests of the consumer are not met. 2. The requirements of the responsible individual prescribed by this section are not met. E. The duration of the certificate of exemption is continuous during the license period unless the certificate of exemption is revoked pursuant to this section. F. If the director denies the application for or revokes a certificate of exemption, the director shall issue an order outlining the findings of fact, conclusions of law and reasons for the denial or revocation. The applicant has a right to a hearing pursuant to title 41, chapter 6, article 10. G. The director may prescribe rules to carry out this section. 6-903. Licensing of mortgage brokers required; qualifications; application; bond; fees; renewal A. A person shall not act as a mortgage broker if the person is not licensed under this article. A person who brokers only commercial mortgage loans shall obtain either a mortgage broker license or a commercial mortgage broker license. A person who brokers residential mortgage loans shall obtain a mortgage broker license. B. The deputy director shall not grant a mortgage broker's license or a commercial mortgage broker's license to a person, other than a natural person, that is not registered to do business in this state on the date of granting the license. C. An applicant for an original mortgage broker's license shall: 1. Have not less than three years' experience as a mortgage broker or loan originator or equivalent lending experience in a related business during the five years immediately preceding the time of application. 2. Have satisfactorily completed a course of study approved by the deputy director during the three years immediately preceding the time of application. 3. Have passed a mortgage broker's test pursuant to section 6-908. D. An applicant for an original commercial mortgage broker's license shall: 1. Have not less than three years' experience in the commercial mortgage broker business or equivalent lending experience in a related business during the five years immediately preceding the time of application. 2. Have made in the past or intend to make or negotiate or offer to make or negotiate commercial mortgage loans. 3. Provide the deputy director with the following: (a) A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet. (b) If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position. (c) Notes to the financial statement if applicable. E. Notwithstanding subsection D, paragraph 3 of this section, commercial mortgage broker licensees and commercial mortgage broker license applicants whose own resources are derived exclusively from correspondent contracts with institutional investors shall provide the deputy director with a current financial statement or that of its parent company prepared according to generally accepted accounting principles, including: 1. A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet. 2. If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position. 3. Notes to the financial statement if applicable. F. A person shall apply for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director. The deputy director may require additional information on the experience, background and competency of the applicant and any responsible individual designated by the applicant. If the applicant is a person other than a natural person, the deputy director may require information as to the competency of any officer, director, shareholder or other interested party of the association, corporation or group. G. The nonrefundable application fee and annual renewal fee are as prescribed in section 6-126. The nonrefundable application fee shall accompany each application for an original license only. The deputy director shall deposit, pursuant to sections 35-146 and 35-147, the monies in the state general fund. H. If a licensee is a person other than a natural person, the license issued to it entitles all officers, directors, members, partners, trustees and employees of the licensed corporation, partnership, association or trust to engage in the mortgage business if one officer, director, member, partner, employee or trustee of the person or an employee of an affiliated entity or the parent company of the licensee is designated in the license as the individual responsible for the person under this article. If a licensee is a natural person, the license entitles all employees of the licensee to engage in the mortgage business. If the natural person is not a resident of this state, an employee of the licensee shall be designated in the license as the individual responsible for the licensee under this article. For the purposes of this subsection, an employee does not include an independent contractor. The responsible individual shall be a resident of this state unless the director grants an exemption pursuant to section 6-902.01, shall be in active management of the activities of the licensee governed by this article and shall meet the qualifications set forth in subsection C or D of this section for a licensee. I. A licensee shall notify the deputy director that its responsible individual will cease to be in active management of the activities of the licensee within ten days after learning that fact. The licensee has ninety days after the notification is received by the deputy director within which to replace the responsible individual with a qualified replacement and to so notify the deputy director. If the license is not placed under active management of a qualified responsible individual and if notice is not given to the deputy director within the ninety-day period, the license of the licensee expires. J. Every person licensed as a mortgage broker or a commercial mortgage broker shall deposit with the deputy director, before doing business as a mortgage broker or a commercial mortgage broker, a bond executed by the licensee as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the faithful compliance of the licensee, including the licensee's directors, officers, members, partners, trustees and employees, with this article. The bond is payable to any person injured by the wrongful act, default, fraud or misrepresentation of the licensee or the licensee's employees and to this state for the benefit of the person injured. Only one bond is required for any person, firm, association or corporation irrespective of the number of officers, directors, members, partners or trustees who are employed by or are members of such firm, association or corporation. A suit may not be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation period provided in section 12-543, paragraph 3. If an injured person commences an action for a judgment to collect from the bond, the injured person shall notify the deputy director of the action in writing at the time of the commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request. K. The bond required by this section is $10,000 for licensees whose investors are limited solely to institutional investors and $15,000 for licensees whose investors include any noninstitutional investors. L. For the purposes of subsection K of this section: 1. "Institutional investor" means a state or national bank, a state or federal savings and loan association, a state or federal savings bank, a state or federal credit union, a federal government agency or instrumentality, a quasi-federal government agency, a financial enterprise, a licensed real estate broker or salesman, a profit sharing or pension trust or an insurance company. 2. "Investor" means any person who directly or indirectly provides to a mortgage broker funds that are, or are intended to be, used in making a loan and any person who purchases a loan or any interest in a loan from a mortgage broker or in a transaction that has been directly or indirectly arranged or negotiated by a mortgage broker. M. Notwithstanding section 35-155, in lieu of the bond described in this section, an applicant for a license or a licensee may deposit with the deputy director a deposit in the form of cash or alternatives to cash in the same amount as the bond required under subsection J of this section. The deputy director may accept any of the following as an alternative to cash: 1. Certificates of deposits or investment certificates that are payable or assigned to the state treasurer, issued by banks or savings banks doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution. 2. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a savings and loan association doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution. 3. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a credit union doing business in this state and fully insured by the national credit union administration or any successor institution. N. The deputy director shall deposit the cash or alternatives to cash received under this section with the state treasurer. The state treasurer shall hold the cash or alternatives to cash in the name of this state to guarantee the faithful performance of all legal obligations of the person required to post bond pursuant to this section. The person is entitled to receive any accrued interest earned from the alternatives to cash. The state treasurer may impose a fee to reimburse the state treasurer for administrative expenses. The fee shall not exceed $10 for each cash or alternatives to cash deposit and shall be paid by the applicant or licensee. The state treasurer may prescribe rules relating to the terms and conditions of each type of security provided by this section. O. In addition to such other terms and conditions as the deputy director prescribes by rule or order, the principal amount of the deposit shall be released only on written authorization of the deputy director or on the order of a court of competent jurisdiction. The principal amount of the deposit shall not be released before the expiration of three years from the first to occur of any of the following: 1. The date of substitution of a bond for a cash alternative. 2. The surrender of the license. 3. The revocation of the license. 4. The expiration of the license. P. A licensee or an employee of the licensee shall not advertise for or solicit mortgage business in any manner without using the license name, or other assumed name or trade name that is submitted to the department pursuant to section 6-117, and the license number. If a license is issued in the name of a natural person, the advertising or solicitation may not imply the license is in the name of another person or entity. For the purposes of this subsection, advertise does not include business cards, radio and television advertising directed at national or regional markets and promotional items except if those items contain rates or terms on which a mortgage loan may be obtained. Q. A licensee shall not employ any person unless the licensee: 1. Conducts a reasonable investigation of the background, honesty, truthfulness, integrity and competency of the employee before hiring. 2. Keeps a record of the investigation for not less than two years after termination. R. A license is not transferable or assignable and control of a licensee may not be acquired through a stock purchase or other device without the prior written consent of the deputy director. Written consent shall not be given if the deputy director finds that any of the grounds for denial, revocation or suspension of a license as set forth in section 6-905 are applicable to the acquiring person. For the purposes of this subsection, "control" means the power to vote more than twenty percent of outstanding voting shares of a licensed corporation, partnership, association or trust. S. The licensee is liable for any damage caused by any of the licensee's employees while acting as an employee of the licensee. T. A licensee shall comply with the requirements of section 6-114 relating to balloon payments. U. The examination and course of study requirements of this section shall be waived by the deputy director for any person applying for a license who, within the six months immediately before submitting the application, has been a licensee or a responsible person pursuant to this chapter. V. If the applicant for renewal of a mortgage broker license is a natural person, the applicant shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application. If the applicant is other than a natural person, the designated responsible individual shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application. An applicant for renewal of a commercial mortgage broker license is not subject to the continuing education requirements prescribed by this article. W. A licensee who employs a loan originator shall comply with section 6-991.03. 6-904. Issuance of license; renewal; inactive status; branch office license; application; fee A. The deputy director, on determining that the applicant is qualified and has paid the fees, shall issue a mortgage broker's license or a commercial mortgage broker's license to the applicant which is evidenced by a continuous certificate. The deputy director shall grant or deny a license within one hundred twenty days after receipt of the completed application and fees. An applicant who has been denied a license may not reapply for such a license before one year from the date of the previous application. B. For licenses approved on or before September 30, 2008, a licensee shall pay the renewal fee on or before September 30, 2008 and on or before December 31 for subsequent years beginning on or before December 31, 2009. Licenses not renewed by September 30, 2008 are suspended, and the licensee shall not act as a mortgage broker or a commercial mortgage broker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after September 30, 2008 that a license renewal fee is not received by the deputy director and making application for renewal as prescribed by the deputy director. Licenses which are not renewed by October 31, 2008 expire. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license. C. For licenses approved on or before September 30, 2008, a licensee may request inactive status on or before September 30, 2008 for the following license year, and the license shall be placed on inactive status after payment to the deputy director of the inactive status renewal fee prescribed in section 6-126 and the surrender of the license to the deputy director. During inactive status, an inactive licensee is not required to maintain a bond and shall not act as a mortgage broker or a commercial mortgage broker. A licensee may not be on inactive status for more than two consecutive years, nor for more than four years in any ten-year period. The license is deemed expired on violation of any of the limitations of this subsection. D. For licenses approved after or renewed on September 30, 2008, a licensee shall pay the renewal fee on or before December 31, 2009 and on or before December 31 of each subsequent year. Licenses not renewed by December 31 are suspended, and the licensee shall not act as a mortgage broker or a commercial mortgage broker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after December 31 that a license renewal fee is not received by the deputy director and applying for renewal as prescribed by the deputy director. A license that is not renewed by January 31 expires. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license. E. For licenses approved after or renewed on September 30, 2008, beginning in 2009 and each subsequent year, a licensee may request inactive status for the following license year if the licensee makes the request on or before December 31. The license shall be placed on inactive status after the licensee pays to the deputy director the inactive status renewal fee prescribed in section 6-126 and surrenders the license to the deputy director. During inactive status, an inactive licensee is not required to maintain a bond and shall not act as a mortgage broker or a commercial mortgage broker. A licensee may not be on inactive status for more than two consecutive years or for more than four years in any ten-year period. The license expires on violation of this subsection. F. An inactive licensee may return to active status notwithstanding the requirements of section 6-903, subsections C and D by making a written request to the deputy director for reactivation and paying the prorated portion of the annual assessment that would have been charged to the licensee. The licensee shall also provide the deputy director with proof that the licensee meets all of the other requirements for acting as a mortgage broker or a commercial mortgage broker, including required bond coverage or the deposit of a cash alternative. G. A licensee shall prominently display the mortgage broker license or commercial mortgage broker license in the office of the mortgage broker or commercial mortgage broker. H. Every licensed mortgage broker and licensed commercial mortgage broker shall designate and maintain a principal place of business in this state for the transaction of business. The license shall specify the address of the licensee's principal place of business. If a licensee wishes to maintain one or more locations in addition to a principal place of business, the licensee shall first obtain a branch office license from the deputy director and designate a person for each branch office to oversee the operations of that office. The licensee shall submit a fee as set forth in section 6-126 for each branch office license. If the deputy director determines that the applicant is qualified, the deputy director shall issue a branch office license indicating the address of the branch office. The licensee shall conspicuously display the branch office license in the branch office. If the address of the principal place of business or of any branch office is changed, the licensee shall immediately notify the deputy director of the change and the deputy director shall endorse the change of address on the license for a fee as prescribed in section 6-126. 6-905. Denial, suspension or revocation of licenses A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee: 1. Is insolvent as defined in section 47-1201. 2. Has violated any applicable law, rule or order. 3. Refuses to allow an examination by the deputy director of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the deputy director. 4. Has been convicted in any state of a felony or any crime involving breach of trust or dishonesty. 5. Has had a final judgment entered against the applicant or licensee in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow such a person to be licensed or to control or manage a licensee. 6. Has had an order entered against the applicant or licensee involving fraud, deceit or misrepresentation by an administrative agency of this state, the federal government or any other state or territory of the United States and that the facts relating to the order indicate that it would be contrary to the interest of the public to allow such a person to be licensed or to control or manage a licensee. 7. Has made a material misstatement or suppressed or withheld information on the application for a license or any document required to be filed with the deputy director. B. If a person to whom a license is issued or who has applied for a license under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a like offense or offenses, and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director, the deputy director may suspend the license issued to the licensee or refuse to grant a license to an applicant pending trial on the indictment. C. If a licensee is other than a natural person, it is sufficient cause for the suspension or revocation of the license if an officer, director, member, partner, trustee, employee, while acting in the course of the mortgage broker business, or person entitled to vote more than twenty percent of the outstanding voting shares of the licensed corporation, partnership, association or trust has acted or failed to act in the same manner as would be cause for suspending or revoking a license of the party as an individual. If a licensee is a natural person, it is sufficient cause for the suspension or revocation of the license if an employee of the person, while acting as an employee, has acted or failed to act in the course of the mortgage broker business of the licensee in the same manner as would be cause for suspending or revoking a license of the party as an owner. 6-906. Required accounting practices and records; escrow of monies; disclosure A. Every mortgage broker shall keep and maintain at all times correct and complete records as prescribed by the deputy director that will enable the deputy director to determine whether the licensee is conducting the licensee's business in accordance with this article. A mortgage broker shall make records available to the deputy director in this state not more than three business days after demand and provide for the acceptance of collect calls or provide a toll-free telephone number to borrowers to obtain information from the records if the licensed place of business in this state cannot readily provide the information requested by the borrowers. Every mortgage broker shall maintain original documents or clearly legible copies of all mortgage loan transactions for not less than five years after the date of the mortgage loan closing. B. Every mortgage broker shall observe generally accepted accounting principles and practices. C. A mortgage broker shall immediately deposit all monies received by the mortgage broker in an escrow account with an escrow agent licensed pursuant to chapter 7 of this title. Withdrawals shall only be disbursed according to the terms of the escrow instructions. The escrow agent shall not be the mortgage broker. A mortgage broker, however, may accept an appraisal fee, which the mortgage broker shall only use to obtain an appraisal, a credit investigation fee and a fee in connection with an application for a mortgage loan. The mortgage broker shall not commingle the appraisal fee or credit investigation fee with other monies of the mortgage broker. A mortgage broker shall not accept any monies or documents in connection with an application for a mortgage loan in an amount of $200,000 or less, except as provided in this section and pursuant to a written agreement. The parties shall sign the written agreement and the agreement shall contain terms pertaining to the disposition of the monies and documents, whether the loan is finally consummated or not, the term for which the agreement is to remain in force before return of the monies and documents for nonperformance can be required and an itemized list of all estimated costs to the borrower of obtaining the mortgage loan, including all costs charged by third parties. The licensee shall preserve all agreements between the parties involved in the transaction and all contracts, agreements and escrow instructions to or with the depository. All documents provided by the borrower or at the expense of the borrower to the mortgage broker, including any appraisals, are the property of the borrower and, at the borrower's request, shall be returned to the borrower or transferred to any person designated by the borrower without further expense to the borrower if the loan is not consummated, provided that any such document is not prohibited by law from being transferred or returned. D. Before a mortgage loan closing on residential real property designed principally for the occupancy of from one to four families, a licensee shall fully comply, to the extent applicable, with the real estate lending disclosure requirements of title I of the consumer credit protection act (15 United States Code sections 1601 through 1666j), the real estate settlement procedures act (12 United States Code sections 2601 through 2617) and the regulations promulgated under those acts. 6-907. Required disclosure to investors A. Before payment of any money by an investor in connection with a mortgage loan, a licensee shall provide to an investor that is not a financial institution, state or national bank, state or federal savings and loan association, state or federal savings bank, state or federal credit union, financial enterprise, licensed real estate broker or salesman, profit sharing or pension trust or insurance company: 1. An opinion from an independent source stating the value of the property subject to the mortgage loan being made or sold. The opinion shall state the value of the property as it exists on the date of the opinion. 2. A copy of the preliminary title report that states the condition of title and discloses any encumbrances, assessments and liens of record on the property securing the mortgage loan being made or sold. 3. A disclosure statement that includes the following information: (a) The name and address of the fee owner of the property securing the mortgage loan being made or sold. (b) Information relative to the ability of the borrower to meet the obligations of the mortgage loan. (c) A legal description or address of the property securing the mortgage loan being made or sold. (d) The existence of any improvements on the property or any utilities on or adjacent to the property that will serve the property. (e) The terms and conditions of the mortgage loan being made or sold, including the principal balance owed and the status of principal and interest payments thereon. (f) The terms and conditions of all liens on the property securing the mortgage loan being made or sold. (g) A statement as to whether the mortgage broker is acting as principal or agent in the transaction. (h) Any additional information prescribed by the deputy director. B. After using the licensee's best efforts to verify all of the information required by this section, the licensee shall sign the statement attesting to the validity of the information to the best of the licensee's knowledge and belief. The licensee shall maintain a record of acknowledgment from the lender of the receipt of this information for not less than two years from the date of the mortgage loan closing. 6-908. Testing committee; testing of applicants; approval by deputy director; definition A. The deputy director shall establish a testing committee to create, periodically update and establish standards for passing a test for mortgage brokers. The committee shall consist of five members appointed by the deputy director once every two years. Four of the members shall be licensees appointed from nominations submitted by licensees and one of the members shall be an employee of the department. Licensees who serve as members of the committee shall serve without expense to this state. The test is subject to the approval of the deputy director. B. Each applicant for an original license, before issuance of the license, shall personally take and pass the written test given under the supervision of the department. The test must reasonably examine the applicant's knowledge of: 1. The obligations between principal and agent, the applicable canons of business ethics, the provisions of this article and the rules adopted under this article. 2. The arithmetical computations common to mortgage brokerage. 3. The principles of real estate lending. 4. The general purposes and legal effect of mortgages, deeds of trust and security agreements. C. The department shall administer the test to applicants for licenses not less than once every six months. The deputy director may contract for the testing of applicants. The department or the department's contractor shall reasonably prescribe the time, place and conduct of testing and collect a fee for administration of the test to be assessed to all persons taking the test. The fee is $50 per testing. If the deputy director contracts for the testing of applicants, the testing fee owed pursuant to this section is payable by the applicant directly to the contractor. The deputy director may allow a contractor to charge a reasonable testing fee that is more than the fee prescribed in this subsection. An applicant may not take the test more than four times within a twelve-month period. D. All tests shall be given, conducted and graded in a fair and impartial manner and without unfair discrimination between individuals tested. The committee shall inform the applicant of the result of the test within thirty days. E. For testing purposes, the department shall prepare a handbook for mortgage brokers and distribute it to all applicants for a fee of not to exceed the actual cost of producing and distributing the handbook. F. For the purposes of this section "applicant" means a person who has submitted a completed application in the form prescribed by law, accompanied by a letter of inquiry to a surety company authorized to do business in this state regarding the procurement of a bond pursuant to section 6-903, to be issued on completion of all requirements for the granting of a license. 6-909. Prohibited acts A. Except for employment verifications, verifications of mortgages and loans, and deposit or account verifications, a person, in connection with or incidental to the making of any mortgage loan, shall not induce, require or permit any document to be signed by a party to the transaction if such document contains any blank spaces to be filled in after it has been signed, except that the party may specifically authorize the licensee or the escrow agent handling the transaction, in writing, to complete certain blank spaces. B. A person is not entitled to receive compensation in connection with arranging for or negotiating a mortgage loan if such person is not licensed pursuant to this article. A mortgage broker shall not pay compensation to, contract with or employ as an independent contractor a person who is acting as a mortgage broker or mortgage banker but who is not licensed under this chapter. C. A person engaged in the mortgage business shall not knowingly advertise, display, distribute, broadcast or televise, or cause or permit to be advertised, displayed, distributed, broadcast or televised, in any manner whatever, any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for a mortgage loan. The charges or rates of charge, if stated, shall be set forth in such manner as to prevent misunderstanding by prospective borrowers. D. A mortgage broker shall not request or require a person seeking a mortgage loan on real property designed principally for the occupancy of from one to four families in an amount of two hundred thousand dollars or less to enter into an agreement that prohibits the person from seeking the loan from another source. E. A mortgage broker, except in good faith, shall not delay or cause delay in the closing of a loan that results in increased costs to a borrower. F. A mortgage broker shall not record or cause to be recorded any document that would give rise to liability under section 33-420. G. A mortgage broker shall not, for compensation, either directly or indirectly make or negotiate or offer to make or negotiate a loan that is either: 1. Less than five thousand dollars. 2. Not secured by a mortgage or deed of trust or other lien interest in real property. H. A person who is employed by a licensee to act in the capacity of a mortgage broker shall not be concurrently employed by any other licensee to act as a mortgage broker, except with the prior written approval of all the concurrently employing licensees. I. A mortgage broker shall not collect compensation for rendering services as a real estate broker or real estate salesman unless both of the following apply: 1. The mortgage broker is licensed pursuant to title 32, chapter 20. 2. The mortgage broker has disclosed to the person from whom the compensation is collected that the mortgage broker is receiving compensation both for mortgage broker services, if applicable, and for real estate broker or real estate salesman services. J. A licensee shall not accept any assignment of the borrower's wages or salary in connection with activities governed by this article. K. A mortgage broker shall not receive or disburse monies in servicing or arranging a mortgage loan except as provided in section 6-906, subsection C. L. A mortgage broker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage broker business. M. A mortgage broker shall not fail to truthfully account for the monies belonging to a party to a mortgage loan transaction or fail to disburse monies in accordance with his agreements. N. A mortgage broker shall not engage in illegal or improper business practices. O. A mortgage broker shall not record a mortgage or deed of trust if monies are not available for the immediate disbursal to the mortgagor unless, before that recording, the mortgage broker informs the mortgagor in writing of a definite date by which payment shall be made and obtains the mortgagor's written permission for the delay. P. A mortgage broker shall not require a person seeking a loan secured by real property to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer. Q. A mortgage broker must reasonably supervise the activities of a loan originator who is licensed pursuant to article 4 of this chapter and who is employed by the mortgage broker. 6-910. Noncompliance not to affect validity of loan A failure to comply with this article does not affect the validity or enforceability of any debt, mortgage, deed of trust or any other lien interest on real estate. A person acquiring a mortgage loan or any interest in a mortgage loan as mortgagee or beneficiary or as an assignee, holder or transferee or as a pledgee or the holder of a security interest is not required to ascertain whether this article has been complied with. 6-911. Active military duty; compensation Notwithstanding any other law, a mortgage broker who is a member of the Arizona national guard, the United States armed forces reserves or the regular component of the United States armed forces and who is serving on federal active duty when the mortgage broker's license expires may receive compensation for transactions under this article. 6-912. Certificate of exemption A. A person who is exempt from licensure pursuant to this article and articles 2 and 3 of this chapter as a federally chartered savings bank that is registered with the nationwide mortgage licensing system and registry may file a written application with the department for a certificate of exemption for the following purposes: 1. Registering with the department except that the registration shall not affect the exempt status of the applicant. 2. Sponsoring one or more mortgage loan originators. 3. Fulfilling any reporting requirements. 4. Reasonably supervising the activities of a mortgage loan originator who is licensed pursuant to article 4 of this chapter and who is employed by or under exclusive contract with the applicant. B. A person shall apply for a certificate of exemption or renewal of a certificate of exemption in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director. The deputy director may require additional information on the experience, background and competency of the applicant and the responsible individual designated by the applicant. C. The department may charge a fee for processing the original or renewal application for a certificate of exemption and for other costs incurred by the department. D. An exempt person shall notify the deputy director that the person has designated a responsible individual to actively manage the activities of the mortgage loan originator licensees. The responsible individual may be located in this state or in the state where the primary business of the bank is conducted and shall have at least three years of experience in the business of making mortgage loans or equivalent experience in a related business. The responsible individual may supervise one or more licensed mortgage loan originators in this state. E. Within ten days after learning that a responsible individual will cease managing the licensees' activities, an exempt person must notify the deputy director. Within ninety days after the notification is received by the deputy director, the exempt person must replace the responsible individual with a person who meets the qualifications prescribed by subsection D of this section and must notify the deputy director of the replacement. A certificate of exemption expires if either of the following occurs: 1. The exempt person is not placed under active management of a qualified responsible individual. 2. The exempt person does not provide notice of replacement of the responsible individual to the deputy director as prescribed by this section. F. After reviewing the application for a certificate of exemption and after verifying the submitted information, the department shall issue the certificate of exemption. G. An exempt person who sponsors a loan originator on an exclusive contract shall comply with section 6-991.03. H. The deputy director may deny a certificate of exemption to a person or suspend or revoke a certificate of exemption if the deputy director finds that an applicant or certificate holder has done any of the following: 1. Violated any applicable law, rule or order. 2. Refused or failed to furnish, within a reasonable time, any information or make any report that may be required by the deputy director. 3. Had a final judgment entered against the applicant or certificate holder in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow the applicant or certificate holder to manage a loan originator. 4. Had an order entered against the applicant or certificate holder involving fraud, deceit or misrepresentation by an administrative agency of this state, the federal government or any other state or territory of the United States and the facts relating to the order indicate that it would be contrary to the interest of the public to allow the applicant or certificate holder to manage a loan originator. 5. Made a material misstatement or suppressed or withheld information on the application for a certificate of exemption or any document required to be filed with the deputy director. I. If a person to whom a certificate of exemption is issued or who has applied for a certificate of exemption under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a like offense, and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director, the deputy director may suspend the certificate of exemption issued to the exempt person or refuse to grant a certificate of exemption to an applicant pending trial on the indictment or information. J. Every person to whom a certification of exemption is issued pursuant to this section shall deposit with the deputy director, before doing business as a registered exempt person, a bond executed by the registered exempt person as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the faithful compliance of the registered exempt person, including the registered exempt person's directors, officers, members, partners, trustees and employees, with this article. The bond is payable to any person injured by the wrongful act, default, fraud or misrepresentation of the registered exempt person, or the registered exempt person's directors, officers, members, partners, trustees and employees and to this state for the benefit of the person injured. Only one bond is required for any person, firm, association or corporation irrespective of the number of officers, directors, members, partners or trustees who are employed by or are members of such firm, association or corporation. A suit may not be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation provided in section 12-543, paragraph 3. If an injured person commences an action for a judgment to collect from the bond, the injured person shall notify the deputy director of the action in writing at the time of the commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request. The bond required by this section is $200,000. 6-913. Conversion to commercial mortgage broker license Notwithstanding section 6-903, a person who holds a mortgage broker license may convert it to a commercial mortgage broker license by applying in a manner prescribed by the deputy director by rule. The approval of the conversion is at the discretion of the deputy director. 6-941. Definitions In this article, unless the context otherwise requires: 1. "Affiliate" means an entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the entity specified. 2. "Compensation" means anything of value or any benefit including points, commissions, bonuses, referral fees, loan origination fees and other similar fees but excluding periodic interest resulting from the application of the note rate of interest to the outstanding principal balance remaining unpaid from time to time. 3. "Generally accepted accounting principles" means United States generally accepted accounting principles issued by the financial accounting standards board or the international financial reporting standards issued by the international accounting standards board. 4. "License" means a license issued under this article. 5. "Licensee" means a person licensed under this article. 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. 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. For the purposes of this paragraph, "own resources" means any of the following: (a) Cash, corporate capital, warehouse credit lines at commercial banks, savings banks or savings and loan associations or other sources that are liability items on the mortgage banker's financial statements for which its assets are pledged. (b) Correspondent contracts between the mortgage banker and a bank, savings bank, trust company, savings and loan association, credit union, profit sharing or pension trust, consumer lender or insurance company. (c) The mortgage banker's affiliates' cash, corporate capital, warehouse credit lines at commercial banks or other sources that are liability items on the affiliates' financial statements for which the affiliates' assets are pledged. 8. "Mortgage banking loan closing" means the day by which all documents relating to the mortgage banking loan or mortgage loan have been executed and recorded and all monies have been accounted for. 9. "Mortgage loan" means any loan, other than a mortgage banking loan, secured by a mortgage or deed of trust or any lien interest on real estate located in this state and created with the consent of the owner of the real estate. 6-942. Exemptions A. This article does not apply to: 1. 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, or of the United States, 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. 2. A person who makes a mortgage banking loan or a mortgage loan: (a) With his own monies. (b) For his own investment. (c) Without intent to resell. (d) And is not engaged in the business of making mortgage loans or mortgage banking loans. 3. A person who funds a mortgage loan or mortgage banking loan which has been originated and processed by a licensee, by a mortgage broker licensed in this state or by a person exempt under paragraph 1 of this subsection and who meets all of the following: (a) Does not maintain a place of business in this state in connection with funding mortgage loans or mortgage banking loans. (b) Does not directly or indirectly solicit borrowers in this state for the purpose of making mortgage loans. (c) Does not participate in the negotiation of mortgage loans. 4. A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a purchase money obligation. 5. A person who is licensed to practice law in this state, but is not actively and principally engaged in the business of negotiating mortgage banking loans or mortgage loans, if this person renders services in the course of his practice as an attorney at law. 6. A person who receives a mortgage or deed of trust on real property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in the improvement of that real property or any lien created without the consent of the owner of such real property. 7. A person who is licensed pursuant to article 1 or 3 of this chapter. 8. An agency of any state or of the United States. 9. A nonprofit federally tax exempt corporation certified by the United States small business administration and organized to promote economic development within this state whose primary activity consists of providing financing for business expansion. 10. An institutional investor as defined in section 6-971 unless the institutional investor makes either: (a) A mortgage loan other than a commercial mortgage loan as defined in section 6-971. (b) A mortgage banking loan other than a commercial mortgage loan as defined in section 6-971. B. Subsidiaries and service corporations of institutions exempt under subsection A, paragraph 1 of this section shall not be exempt and shall be subject to the provisions of this article unless preempted by federal law. C. For the purposes of: 1. Subsection A, paragraph 3 of this section, "originate" includes loans closed in a name other than that of the licensee, a mortgage broker licensed in this state or exempt person only if the person in whose name the loan is closed meets the other requirements of subsection A, paragraph 3 of this section. 2. Subsection A, paragraph 3, subdivision (c) of this section, negotiation of mortgage loans does not include setting the terms under which a person may buy a mortgage loan originated by a licensee or a person exempt under subsection A, paragraph 1 of this section. 6-943. Licensing of mortgage bankers required; qualifications; application; bond; fees; renewal A. A person shall not act as a mortgage banker if the person is not licensed under this article. B. The deputy director shall not grant a mortgage banker's license to a person, other than a natural person, who is not registered to do business in this state on the date of application for a license. The deputy director shall not issue a mortgage banker's license or a renewal of a license to an applicant unless the applicant meets all of the requirements prescribed in subsection C of this section. The deputy director shall determine whether the applicant meets the requirements based on the application and evidence presented at a hearing, if any, or any other evidence that the deputy director may have regarding qualifications of the applicant. C. In order to qualify for a mortgage banker license or a renewal of a license, an applicant shall: 1. Have not fewer than three years' experience in the business of making mortgage banking loans or equivalent lending experience in a related business. If the applicant is a person other than a natural person, the responsible individual shall meet this requirement. 2. Have engaged or intend to engage in the business of making mortgage loans or mortgage banking loans. 3. Either: (a) Be authorized to do business with any of the following: (i) The federal housing administration. (ii) The United States department of veterans affairs. (iii) The federal national mortgage association. (iv) The federal home loan mortgage corporation. (b) Notwithstanding paragraph 5 of this subsection, at all times have and maintain a net worth of not less than $100,000. 4. Provide the deputy director with a current audited financial statement, or that of its parent company, that is prepared by an independent certified public accountant in accordance with generally accepted accounting principles and that includes: (a) The certified public accountant's opinion as to the fairness of the presentation in conformity with generally accepted accounting principles. (b) A balance sheet prepared within the previous six months and certified by the licensee. The deputy director may require a more recent balance sheet. (c) A statement of operations and retained earnings and a statement of changes in financial position if the applicant has commenced operations. (d) Notes to the financial statement, if applicable. 5. At all times have and maintain a net worth of not less than $100,000. D. A person shall apply for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director, including the requirements prescribed in subsection C of this section. The deputy director may require additional information on the experience, background and competency of the applicant and any r