BiggerPockets

Hi, you need to search the SAFE Act here as to opinions...plenty of them.

The law went into effect last July. While owner occupied homeowners can do seller financing, limitations vary state to state, investers or non-owner occupied residential properties require the loans to be originated by a mortgage originator. The distinction too is residential property, not commercial, and includes any property, real or personal, intended for residential use, including residential lots.

As to contracts, actually they can be very involved and I would suggest, unless you have a specific question, that you get with your attorney and hopefully one with real estate financing experience. Underwriting a seller financed deal is not the same as a conventional loan at all as you need to look to the future ability rather than current qualifications to meet an obligation. Doing a seller financed deal without due diligence now will be risky if you are seen as a preditory lender when the loan becomes due and the borrower fails to meet the obligation and they decide to go to court over any foreclosure.

Good luck...and now, I have some ribs to eat, lol, so that kmeans sticky fingers.....later, Bill

I agree that there are plenty of opinions!

An attorney did a session at RENC several months ago and investors fired all sorts of kooky questions at him. My understanding is that it is okay to finance deals with the owner involved if you get someone licensed to do all of the docs. You can't "negotiate the terms" with the seller. This begs many questions:

1. What does negotiating mean? Can I give a range of payment amounts to qualify people? Does $1300 - $1500 per month make it a non-negotiation? How about $1300 - $1325? How about $1300 - $1305?

2. What is required? It appears rate sheets, underwriting guidelines, etc. are WANTED. I'm not sure how they will be enforced though and how often the lender would be required to keep them before modifying them

....

I could go on and on. The bottom line to me is that none of this will be resolved until there are court cases and/or something blows up.

I would recommend trying to comply as well as you can, but not going nuts and shutting down your business to do so.

Thank you guys for all the great information. I have a ton of great reading material now. With the number of options other than seller financing I believe I would not have an issue staying under the 5 limit. I will keep this discussion up to date with information I find in my research.

Thanks again...

I'm not sure about other states Bill, but in Texas the attorneys that are very familiar with this type of transaction were recommending that you have rate sheets and such when you sell many properties with owner financing. It was unclear when and to what extent you need to use someone with a license. The enforcement folks in Texas basically punted too wait for the national legislation so everyone is in limbo right now.

Apparently negotiating specifics of the loan was frowned upon so it was difficult to know what was allowed when you talk to a seller. I will try to dig up the email I had on this several months ago and post again.

Thanks Bryan. I know the Texans don't want another Alimo, so they will ,probably shoot for the simplest thing they can regardless of individual rights (LOL).

Meaning, it would be a cold day before I would not attempt to negotiate loan terms of a seller financed deal as the buyer/borrower and, visa versa. The parties to the contract would have to negotiate. After the lose terms of rate, term and amortization were agreed, I can certainly see required covenats. And, by the way, HUD required fully amortized loans without balloons until at least half of the original principal amount was paid as amortized.

I can also see a usury rate adopted, as that would make sence for individual residential deals. Rate sheets, that's what I was saying with respect to wearing conventional loan hats. Interest relates to risk and there is a world of difference between seller financing and a conventional loan. Another square peg in a round hole.

Since a seller is not regulated I doubt there will be any requirement on the seller to keep a file, but the Originator will have to, probably seven years after it's paid off, as with other loans, to meet the statute of limitations as to any claims.

Enforcement will be very difficult between buyers and sellers who agree to do such deals, but it will become very easy to enfoce when such agreements are to be enforced. The burden is clearly on the seller, especially investor types with non-owner occupied, so attempting to foreclose on an illegal transaction. Another issue for ill concieved notes will be in bankruptcy, when the borrower lists the note obligation on his home. Enforcement will not be hard to do given time as several things can occur to expose any wrong doing. So, they don't have to go look for deals done on the side.

I suspect most states will be punting.

Like to see anything you have on the topic....and maybe we ought to start another thread. But, I guess this applies too.

I think you have it figured out. Exemptions R Us! One other big piece to consider is loan servicing. I agree with Bill (other threads) that an independent third party should be considered and I would say this would be a 'best practice' I plan to employ. Jeff, I would be interested in how you found an originator. I have not been able to find one who is independent and will do a 'one of' loan. How did you do it? I am in discussion with a local bank to provide both, but this is clearly outside their box (as Bill says Another square peg in a round hole) for them and the process is taking a long time.

LMAO!

Well, guess I'll be putting deals, listing suggestions for sellers in Texa together!

Sounds like Texas wants to kill seller financing.

Here are some issues that a seller might be entitled to;

A rate of interest that meets his investment needs, especially from an after tax opportuniity cost standpoint. He should be free to decide if his needs for cash, say for another home or investment, is out weighed at some interest rate. I'm not assuming it will be the highest rate allowed by law, just a rate that fits the needs. What if the Originator comes back at 2% under that acceptable rate, or at 2% above from a tax standpoint?

Bryan, loan fees should nebver be charged by a seller in seller financing since it is an equity loan, not a cash advance.

It's obvious to me that they have simply gone down a check list of conventional lending aspects and applyed them to a seller financed note.

I doubt the Originator will be versed in portfolio risk analysis and be able to fully expalin to an individual the risk of doing business with that specific individual...really, the seller/note holder can't be aware of the matters contained in a loan application? WOW! I guess the seller needs to have a buyer application, not a loan application.

Well, seller fiancing will be dead on arrival in Texas, just what lenders want.

Bryan, did you mean a ruling this fall as in anytime now or 2011?

:roll:

That's good to hear Jeff! The reason why this became an issue was due to two things really. One, there are billions out there in seller financed transactions and much of it circumvents what banks believe to be a road block to alot of business, with refinances and lost fee income, the other is due to the fact that so many buyer were getting screwed over by scamming seller, who took the down payment, made terms that could not be reasnably met, foreclosed and did it again.

I don't think any investor/seller should service their own loan, not when there are originators and servicers available. There are important reasons and benefits to both parties to employ a good originator and loan servicer, so hope my comments are not taken as if investors should draft their own deals, not at all, but they do have to accept the risk and live with the borrower and any note holder has the right to know who they are doing business with. They certainly have a right to say what a payment is required to be to make it work for them, but the buyer needs to be guided as to wheather or not that payment is right for them.

Point is, much of this is beyond the pay grade of any bureaucrat making the call at any state level or in HUD, IMEO!

hey there jeff,

i have sold few properties owner financed..if you want, pm me and i can share the attorney's info with you in charlotte....he's very patient and will hold your hand thru the process...good luck!

In Texas at least, it's pretty clear that the licensing requirement is there... for investors doing more than 5 deals a year. Of course, 99.9% of investors don't do more than 5 deals a year, so they really shouldn't worry about it until they get deal #5 under contract.

For those who are doing lots of deals, one possibility is to find a licensed originator to originate your loan for you, then sell it to you right after closing (just like the banks do).