If you’re selling a property to an owner occupant and carrying the paper as a seller financing, there are some new rules that you need to watch. The biggest one goes into effect January 10, 2014. It’s part of the Frank-Dodd Act. To understand what is happening, we have to go back a few years.
Roughly 5 years ago, the “SAFE Act” (Secure and Fair Enforcement for Mortgage Licensing for 2008) was passed on the federal level, then was implemented on a state-by-state basis. The SAFE Act basically required that you be a mortgage loan originator, or use a mortgage loan originator to sell properties with owner financing. This means getting a loan application like a FNMA 1003, comply with Truth in Lending, and have the buyer sign the ½” thick pile of other lender disclosures.
People panicked when the SAFE Act came out, and declared that seller financing was all but dead. Savvy creative real estate investors found that they could ask a mortgage guy if he could “originate” seller financing loans. In one deal, the mortgage guy just printed the stack of documents from his lender software and charged the buyer $400 as a loan origination fee. No big deal, just a waste of good trees.
The SAFE Act was later amended in many states to allow you to do three or so deals a year without having to do all this nonsense. The Act did not address using different entities for every three deals, leaving a possible loophole in those states.
In other states, however, there were NO exemptions, meaning unless you were selling your own principal residence, you had to be a mortgage loan originator, or use one in the transaction, even for one deal. Technically, you can’t even ADVERTISE the seller-financing feature – the mortgage loan originator has to do so.
That’s where we are now. If you’re doing seller financing of a property that isn’t your own home, you need to find out whether the property is in one of the amended SAFE states. If you are, follow the rules. If you’re not, you probably need to find a loan originator.
And it’s about to get more complicated again.
Enter the Dodd-Frank regulations that go into effect January 10, 2014. This one is a bit more complex and difficult to deal with, largely because it is confusing and has regulations that have yet to be clarified.
We’ll start with who is exempt and who is not. If you are selling raw land, commercial property, or to a person who is not going to a live in the property, you have nothing to worry about. If you are a person or a trust, you can do one deal a year, so long as it’s not a “funky” loan, like a reverse amortization, etc .
If you are in a state that has the amended SAFE Act, than you will be able to do 3 loans. If you’re in a state that has not, the same old rules apply.
Tomorrow, we’re going to talk about a strategy to increase the number of seller financed deals in a year.
Action steps from today:
- Determine whether you are in a state that has adopted amended SAFE Act of 2008 regulations. (And if so, what they are)
- Clarify what your goals are. What are you going to be selling and to what kind of buyer?
- Listen to the free webinar on seller financing by attorney Bill Bronchick at http://www.USTaxAid.com/sellerfinancing