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Dodd-frank or SAFE act, and balloon payments?

48 posts by 16 users

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Cody C.

Central Point, Oregon

Feb 04 '13, 10:49 PM


I'm a realtor in Oregon. My principle broker last week dropped a bomb on us, saying that balloon payments are going (have gone?) bye bye, and that most people who are going to carry notes on their own properties, will now have to be licensed.

First of all: What? -- In doing my searches of the two acts, I can't find a single thing about balloon payments. Is he confusing these for something else?

Second, Has this impacted your business? If so, how? And what workarounds have you found?



Sabrina Laplante

Real Estate Investor from Squaw Valley, California

Feb 05 '13, 09:51 AM


Hi, you might contact @Bill West, as he always seems to have knowledge and input on this subject. However, a few of the attorneys I have contacted and asked about this say they do not yet understand this law completely, as well as the wonderful guys who created it. Best of luck!!



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 05 '13, 10:06 AM
2 votes


LOL, Under the Act a balloon can't be required until one third of the amortized principal has been paid.

You'll find it contained in the seller financing issues which are about 2/3s of the way through the Act. It's not a large section but puts the brakes on quickly to old ways of doing things.

Homeowners are usually exempt from the act. States may exempt sales to a 2/3 a year, then a license will be required.

If you're doing seller financed deals, better become familiar with the Act. :)



Cody C.

Central Point, Oregon

Feb 05 '13, 11:17 AM


Thanks, @Bill Gulley. I'll look into it... There's something about the Safe act as well, but I'm not sure when which applies.



Chris Weiler

Real Estate Investor from Anaheim, California

Feb 05 '13, 11:25 AM


Does any of this apply to NOO? It is my understanding the Safe Act only applies when a homeowner is involved.



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 05 '13, 11:30 AM
2 votes


The SAFE Act applies to any financing method, by cash or equity, which is secured by properties that are 1-4 single family dwellings, including mobile homes and vacant land zonned for sfd residential use. It does not apply to commercial financing.

There are exemptions for homeowner's selling thier primary residence and some limitations as to the number of loans made in one year by states. If you are in the business of financing RE deals with cash or equity you'll need to address the new requirements and comply, the intent is really aimed at RE operators.

Such financing is more difficult but not impossible as you can go throgh a mortgage broker/originator or an attorney.



Sam Parkins

Real Estate Investor from Charlottesville, Virginia

Feb 05 '13, 12:10 PM
4 votes


Bill Gulley your replies are much appreciated and expertise in this business evident. Are you for hire regarding creative financing options to help others to continue to run business as normal? i.e. How can one obtain your advice regarding compliance with these and other issues in their (my) real estate business. There are very few attorneys with knowledge of this stuff in my area...(Virginia)



Medium_blue_ridge_mobile_homes_logo_225x133_white_backSam Parkins, Blue Ridge Mobile Homes
Website: http://www.blueridgemobilehome.blogspot.com


Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 05 '13, 12:56 PM
1 vote


Thanks Sam, but I'm retired, but don't tempt me, lol

Best way to get my opinion is to post the question here on BP! That's free! :)



F Foster Donor

Real Estate Investor from California

Feb 05 '13, 01:54 PM
3 votes


Come on Bill, there is so much conflicting "STUFF" on BP re D/F that confusion runs rampant. At least tell us what you read to stay current. You are much appreciated!



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 06 '13, 10:19 AM
2 votes


Thank you!

I read through the SAFE Act, studied the verbage pertaing to areas of interest, skipping the banking issues since they don't pertain to me anymore.

I also looked at a few state statutes and an update, I have not seen the final assuming the intent did not change, I'm sure it did not. Just undersatnding that each state will have its own version, but from the beginning HUD was charged with enforcement of the original intent, so sticking to that you can safely assume the states have complied.

It also provided that in the event HUD determined that the state law did not sufficiently address the intent, that HUD would then apply the federal interpretations.

There is no way I can keep up with all the states and what they have done, I suggest that those engaged in such business to look up thier own state's regulation. If there is an issue that is not clear anyone can certainly bring thier question here, specifically and we can address the matter.

On another related topic, the newly formed Federal Consumer Protection Board may have more far reaching actions that may pertain to RE. While congress is holding up all they can with the new agency they have already acted in several areas. They will be able to act in individual transactions and enforce any federal law appropriately.

@F Foster, I appreciate the feed back, thanks, I realize that I'm the unusual one here on BP with a different mindset and that it is not always welcome, telling people why they can't do something or what might be wrong. I received a recent PM where someone told me that it finally dawned on them why I was so negative and thanked me for my regulator style of thinking. I have seen several on here change thier original thinking in some aspects over time as well, :). I'm not always correct on a detail but I'm confident I will be in general aspects, at least to the intent of how something should probably be accomplished in good faith. Thanks again!



F Foster Donor

Real Estate Investor from California

Feb 06 '13, 11:02 AM


@Bill Gulley You are my crystal ball that tells me were to be cautious. I am too old to go to prison or loose what little I have. If memory serves me, the Federal Consumer Protection Board is lead by a friend of Senator Elizabeth Warren, one smart lady who knows how the cow ate the cabbage. I don’t think she will be taken in by Dodd-Frank or Safe Act. Do you know of any case law that has occurred re: Dodd Frank or Safe Act?
Regards Foster



K. Marie Poe

Real Estate Investor from Central Valley, California

Feb 06 '13, 11:23 AM
1 vote


@F Foster I too am interested in an CA case law in regards to Safe Act/Dodd Frank. I'm not too concerned about selling with seller financing to investor buyers and have done so since the acts passed. My understanding is that those are "commercial" enough to keep me out of trouble. But never say never when it comes to a defaulting borrower and what strategies they or their attorneys will use. To be honest, at this point I doubt I'd be wiling to offer selling financing to someone I didn't already have a business relationship with.

Starting in about 2006 or so, it was my long-term plan to buy, rehab and to sell to owner occupants. That's off the table now until we know more the legal definitions and we see some case law. CA's version of the Safe Act is silent on seller financing. The ideas thrown around out there about a seller using a licensed broker to originate to be compliance don't seem well thought out to me. "Offering" and "negotiating" according to the law are supposed to done my LMOs only. If that's the case, I don't understand how I can even suggest to a buyer or advertise in my listing that I'll carry back a loan with 25% down (or whatever). Is that not "offering" a loan and "negotiating" terms?

Anyone with seller financing/Safe Act case law examples, please chime in!



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 06 '13, 11:28 AM
1 vote


You are correct about Warren, a very sharp and hard nosed looker I might add (lol). She is not against these Acts, they are right down her way of thinking and she will be supporting them 100% I'm sure.

The only case that I have heard of was one in RE where they used the Postal Inspector General to nail a mortgage investor/broker scamming investors and nailed him for mail fraud. That's what I meant, that by intergrating various agencies and using the laws on the books the FCPB will have far reaching effects.



Ted Akers

Private Money Lender from Denver, Colorado

Feb 06 '13, 11:59 AM
3 votes


Bill,
You have several compliments here, but I'll throw you another one. You are great for detailed replies and staying in bounds, or out of the grey areas. It is a blessing to BP that you are retired and have the time to assist other here. Thanks!


Edited Feb 6 2013, 12:05 by Ted Akers


Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 06 '13, 12:12 PM


Thanks Ted, I was typing and missed your post. Seems i get into alot of grey sometimes, lol...

@K. Marie Poe I think you are taking a wise approach, especially in CA with its recent MB statute that seems to be in the mill.

If any state does not adopt specific aspects of the SAFE Act, the federal Act prevails, if CA is silent they must simply be assuming the federal version alone.

The term "offering" is confusing, there is a split there, offering specific terms and conditions is for the MO or attorney after due diligence wich is the intent as mentioned, it specifically allows a seller to say they will consider financing or make an offer to finance but not as to specific terms as the seller is not qualified to originate terms necessary for any borrower. Might think of it as an initial offering and the final "offering of terms and conditions".

And, it may be years before you get to read case studies on any seller financed matter. I suspect you'll see it in CA before many other areas if it's left up to the states to enforce matters on the front lines.

It's just my guess that HUD has other things to do and it would have to be a serious infraction before they would go after a seller/originator of a single home (especially since so many exemptions have been adopted) Most likely it will be some dealer, selling several units as thier business before HUD would be turning up. And, most likely it will only surface if deals start blowing up and complaints are filed.

The recent FCPB issue was on the local news here and it was a MB in Mo. Ar., the guy got 3 years and was ordered to repay the losses. Sounded like he just got in over his head to me, he may not have had the intent to defraud investors originally, but couldn't cover losses...JIMO.

Here is another issue too as to case studies, HUD prefers to slap hands out of court quickly and efficiently, many issues don't go to court, they plead out to a closed hearing or agreement, pay fines and go on the HUD naughty list and the public may never hear of the issue. At least that seems to be the SOP for the midwest region out of KC, Mo. I've had several meetings and casual opportunities with the past Regional HUD Dir. and he spoke softly and carried a big stick but was keen on PR and the political nature of the office as well.

So relying on past convictions to form any views on the matter could take years to get a clear picture.

Seems like we had a discussion here on BP about CA Real Estate Broker/agents being exempt from the offering issues when act in the presentation of and representing clients of a transaction. I'm clearly understanding that they are not MOs authorized to originate loans off the street, but as to the transaction they are related to.


Edited Feb 6 2013, 12:25 by Bill Gulley


Ben Leybovich

Residential Landlord from Lima, Ohio

Feb 06 '13, 12:15 PM
1 vote


Thank you @Bill Gulley !



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E-Mail: [email protected]
Telephone: 1.888.508.9643
Website: http://www.JustAskBenWhy.com
Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Cody C.

Central Point, Oregon

Feb 06 '13, 12:41 PM
2 votes


Hey @Bill Gulley, You seem extremely well learned in the area of real estate law, and just wanted to say thank you for giving us a (considerable) chunk of your time answering questions!

I also hear you when you say that if we (I) are to get into seller financing, it's important to become familiar with the acts in question. That said, it seems to me that it is a big couple of documents, and reading through it line by line would take a while. Do you know of any site or publication that breaks down the two acts into digestible formats?



Bill Gulley

Real Estate Investor from Springfield, Missouri

Feb 06 '13, 01:35 PM


Cody, I have been searching for you and really have not found an appropriate information site other than HUD-SAFE Act Requirements. But that's no short cut.

I also went to a note investor site, but it is rather slanted IMO.

I have also found many updates and some info that HUD appears to have changed or is taking different views on but not sure if they have been adopted or are current.

I see it's a real mess!

Seems like conflicting info as to exemptions, owner selling thier own OO home or is it a NOO home, 1 deal in 12 months, 5 deals in a year and then in 3 years, then contractors being exempt, then not, and

A scary three year right of recession for the buyer to resind the deal if the lender failed in due diligence in ascertaining if the note was affordable, hitting on the ability to pay, if the originator failed to prudently originate the note the borrower get all thier money back! I wouldn't have a problem with this but new investors aren't me, don't mean to brag but they are saying the deal has to be underwritten prudently, that's an impossibility for a first time seller unless they get help.

I mentioned no balloon until a third of the principal had been paid, ooops, looks like no balloon, then no balloon in the first 5 years, so I guess that's up in the air from the original version.

I also see note investors are pulling thier hair out, as I mentioned here in the "What do you want Mr. Note Buyer" thread here on BP.
The future note holder can be at a loss if the note was improperly originated!

Guess I'll start studying the SAFE Act again and get with HUD.



F Foster Donor

Real Estate Investor from California

Feb 06 '13, 01:51 PM


Marie Poe-Thank you for your comment re: "commercial." You make me consider that any buyer who will not be an occupant, may be "commercial" and the more active as an investor, there more "commercial" he may be. Thank you. I had not considered that.

Bill Gully-I tend to disagree with you that Senator Warren would support these Acts 100%. I refer to her book, "The Two Income Trap". She will oppose any part of the Acts that she feels are unjust. Safe Act and D/F lookout!



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