Private lending in Ohio is dying fast. Commissioner Andrea L. Seidt of the Ohio Securities Division and her team have progressively taken aim at real estate investors that are selling promissory notes, trust deeds, LLC membership units and other items that are deemed securities.

Since 2006, the OH Securities Division has focused on companies advertising real estate securities. Their goal is to stop companies from selling unregistered securities and to protect Ohio residents from those companies that are not in compliance.

NOTE: Replace Ohio with your own state. State security regulators nationwide are cracking down on real estate investors raising money without a registering and filing with the State Securities Commission.

Some Ohio real estate investors are still attempting to skirt the law. My inbox will regularly get photos of signs, links to websites, and advertisements from those that are advertising for private capital yet, they are unregistered. They truly believe they can work the around Ohio’s Securities Regulations by calling their actions a ‘private loan’. It’s simply will not fly if tested by state regulators.

So is all this bad news if you’re using private money? This is actually good news, here’s why…

While some of the real estate companies are providing the returns they offered their investors, others are not. Therefore complaints to the security regulators on the state level is increasing which bring more attention to the unregistered activity of real estate investors. Just recently, the president of a REIA (Real Estate Investor Association) in the Northwest was fined along with her partner for selling notes as investments and seeking private lenders at the REIA meetings.

Being registered with the State not only benefits those investing money in your company, it protects you from getting caught by regulators. If your companies lose money, you will be protected as long as you used the funds as stated in your offering circular, disclosed all the materials facts, and all your investors were qualified for the offering.

Finally, with the State enforcing the law there will be less competition from other real estate investors trying to raise money. They’re eliminating the majority of your competition in your business sector.

You may be wondering why the SEC hasn’t got more involved. Here’s how they operate.

The SEC (Security and Exchange Commission) takes the stance of the lifeguard. They’re not going to jump in and save the passive investor until someone is drowning AND they yell for help. Even then, in Bernie Madoff’s case whistle-blower Harry Markopolos was ignored from 2000-2007 by the SEC.

State regulators are the SWAT team of the investment sector. Ohio regulators and other states are not sitting around waiting for the passive investors to cry for help. They are actively searching for violators that are advertising their offer to give a return for someone’s passive investment. While it takes a lot of noise to get attention of the SEC it only takes a phone call or one compliant file through their website to get State regulators on the case.

They are watching Craigslist, discussion forums, and websites, waiting for you to advertise for private lenders. Several have been found advertising in magazines, newspapers, and through direct mail.

Private Lending Lies

Don’t fall for the B.S. offered by some of the gurus. Like “just don’t call it a security… you and the money partner should just call it a personal transaction.” That didn’t work for the hooker in Vegas and it isn’t going to work for you when the enforcement division of the State regulators starts calling you.

Now, that doesn’t mean you cannot raise capital for your real estate business. You should really only be concerned with doing it right or not doing it at all. You are going to see more enforcement actions and, unfortunately, a lot of them will be real estate companies and investors.

For years, we’ve been told that it’s a personal loan and it’s exempt. If you still believe that, feel free to contact the OH Securities Division in the link below and ask them for a “No Action Letter” after they review how you’re raising money. If it’s outside the scope of their enforcement or legality, they’ll give you a “No Action Letter”. On the other hand, if it violates State Law your party is just starting. http://www.com.ohio.gov/secu/

In upcoming posts, I’ll share actual court cases, cease and desist letters with you so you can know what to avoid and be able to raise capital legally.