SAFE Act in Oklahoma & Lonnie deals
Engineer · Oklahoma City, OK · Member since 2013 · 144 posts · 44 votes
I see John Fedro's post that Oklahoma requires a Mobile Home retailer's license . This has just further confused me. I found a deal to buy a mobile home and the seller is extremely motivated. However I'm hesitating trying to navigate the SAFE Act and how it affects a potential lonnie deal.
Can anyone provide some logical input to help me out? Thanks!
The reality is "it is what it is". Do we have to like it? No. It has personally put a damper on a section of our business. The thing is, we need to adapt. Can we continue to do business the same way we always have. The consensus is no we cannot.
I don't have the answer to the Safe Act, but until we do, we must work in the boundaries of it just like any other laws real estate investors deal with. All of us in this business deal with zoning, inspection, IRS, securities laws and so forth.
If it were easy everyone would be in this business and none of us would make any money. Its not, and the lions share will go to those that persevere and adapt.
May we all be those people.
You should contact your state and get straight answers and not rely on a snake oil saleman.
Joe Gore
Thanks - I'm willing to do the due diligence. I'll follow up in this thread and hope to continue to get replies. I plan on contacting the Oklahoma Manufactured Housing Assoc tomorrow.
You might also want to read this thread. As I'm sure you know by now (after talking to the OK exec) it isn't just about the SAFE Act, or even the dealer licensing act.
opps - http://www.biggerpockets.com/forums/30/topics/49864-investing-in-mobile-homes-after-june-1-hud-safe-act
Thanks for following up @Ken Rishel , I contacted the Oklahoma Manufactured Housing Assoc and they cleared a few things up and made a few more gray.
#1) Apparently in OK on Jan 2014 some Dodd Frank issues will be made law. This has led to a seminar that will be held in the Dallas Forth Worth area to attempt to make clear some of the law.
#2) In OK Mobile homes are considered a vehicle and are titled as one. (Chattel). Apparently there are plenty of dealers still doing owner financing in OK some with a MLO and some without.
#3) The Oklahoma Department of Consumer Credit hasn't itself interpreted some of the effects that Dodd Frank / SAFE will have in OK. I can't find anything on their website (http://www.ok.gov/okdocc/)
#4) Many Mobile Home Parks in OK do buy here/pay here/live here deals on their MH's without a MLO.
The bottom line currently is I'm still confused as to whether this is legal or if I would be required to hire a MLO to originate the loan and then the question becomes would I still be able to carry it myself?
Just to help a little bit.
Dodd-Frank is a federal law of about 2,700 pages. The CFPB have issued over 20,000 pages of regulations and rules from that act. It is not just Oklahoma that will have to deal with those changes in January, 2014 - it is everyone lending in every state.
Manufactured housing was recharacterized from being treated like a vehicle under federal law to being considered almost the same as residential real estate. The industry had started us down that road by seeking an IRS ruling that allowed HUD Code owners to deduct the interest they paid for their chattel loans in the same manner that residential real estate owners were able to do with their mortgage loans. When the SAFE Act came along, we were hoisted by our own petard at the last minute by changing one word in the Act. For the most part, our trade associations were asleep at the switch and the SAFE Act passed with MHI saying it did not apply to us, but, in fact, it did. Suddenly the terms "permanent dwelling" and "permanent residence" began appearing in federal regulatory language and we were stuck.
Then Dodd-Frank soon followed and all hell broke loose. The newly created CFPB was determined that chattel lending on primary residences (another new term) was going to come along for the regulatory ride, which exposed us to a whole new area for most seller-financiers - setting up a Compliance Management System that actually works.
Last year FINCen (Financial Crimes Enforcement Network) joined in the fray and required anyone who retails a manufactured home to have a Compliance Management System that, by extension, requires adherance to six federal laws even if they aren't a seller financier. The due date for having that system up and running was August 14, 2012.
Early in 2013, the CFPB decided that the FTC was not really enforcing their advertising rules so they promulgated their own advertising rules. The FTC, embarrassed by the CFPB action updated their own advertising rules for the first time in years, and started hiring enforcement staff to enforce them. The rules are very complicated because they weave through five different federal laws that all must be obeyed under penalty of law.
The new rules going into effect in January will not allow an MLO operating as an originator to "sell back" loans to an unlicensed person or entity to service. The whole concept of using MLOs to avoid licensure goes out the window in January.
Here is a fact. You cannot trust any state, and by extension, their website, to have the answers you want and need. Some states flat out refuse to even talk to anyone other than a licensed attorney assuming you can ever get them on the phone or to respond to an email. Many, if they are open with you, will tell you they are not there to help you and you need to hire someone else to help you through the process. Bear in mind that most of these Federal laws and regulations are very new and the people you talk to are as confused as you are, and they have their hands full making the changes required by federal law. Lastly, states cannot determine what the Federal laws mean. The Federal agencies decide what they mean, subject only to a court challenge.
The fact that many manufactured housing communities are doing some form of seller finance means very little. A recent study showed that less than 10% of the seller financiers in the manufactured housing industry were actually legal and compliant. The leaders in our industry are expecting a blood bath next year when the CFPB finally gets around to our industry. This is why Bill G is so adamant on these boards that Lonnie Dealing in its original form is dead. (see his and my comments on the thread I posted here)
Are there easy answers? No. Are there intelligent answers? Yes, but they do require a real investment of time and money. There is no one answer fits all that works, but there are a number of solutions for different size and volume operators. I hope all of this helps help you sort of understand better than you did before. Please feel free to contact me privately if you would like more information. I hope you joined the Oklahoma association. They are a very good source of information.
It only takes one lawsuit to see where the federal government stand. I am waiting until the 1st of the year, and all the snake-oil salesman will be on every corner selling books on how to stay within the law or loop holes to get round the law.
Joe Gore
Joe - What method do you approve of for people to get their information? Remember also that a whole thread was pulled this morning because of your comments, and unfortunately a number of people had contributed besides you to a legitimate question and their answers were lost as was the original question.
Ken,
A lot of people have contributed to the issue that they think is the right answer but when ask show something from the government like what penal code it is under and people get up tight in a hurry saying it is million of pages. Ken let's be honest have you talk to any federal agency that can shed light on the issue not hear say.
Joe Gore
This may not be a yes/no answer but I'll go for it:
Owner financing may be too much of a risk at this point, however a lease with an option seems feasible. Could I just structure my deals as a lease for 3 years with an option to buy at the end of those 3 years and avoid all these issues until they get figured out Q1 of next year?
Joe- I am on a national Dodd-Frank Task Force and have been for several years. Personally, I have had over 40 meetings with representatives of the CFPB on a wide range of manufactured home finance related topics, and am in constant contact with a number of others who have had additional topics.
In addition to that, I have two Washington DC regulatory law firms on retainer and we are constantly working on analysis and strategies for those engaged in seller finance. We approach these challenges and problems the way it is supposed to happen - we read everything - not only the law word for word - but also the proposed regulations and the final regulations and the internal policies of the regulators.
Your profile says you are from Texas. The executive from the Texas Manufactured Housing Association is an expert on these laws. I know because we share our work and one of the two law firms I retain. Like myself, he is one of the most sought after experts in our industry on these subjects. I am also a member of the Texas Manufactured Housing Association mostly out of support for the great work he is doing and that his membership is encouraging him to do.
If you want low cost access to reliable information, you should join TMHA. While it is not their business to provide solutions as it is mine, they can educate you in a hurry about the risks which are very real.
There is a major fallacy in waiting "until the rules are all done" in part because they will never be done. Laws and rules will evolve and continue to change. Most people own vehicles instead of horses for daily transportation, yet vehicles are always evolving. If they waited until vehicles were perfect, they would still be riding horses. The other problem is it takes more time than most people realize to get their operation legal and compliant. Out of over 5,000 clients we have worked with the fastest I have ever seen it done is 45 days of constant effort by one of the owners with full access to our consultants. Most clients average 6 months because they can't devote the time to the projects they should. We have had some take over a year to have everything in place.
Millions of pages is an exaggeration, several hundred thousand is not. The other problem is since most people do not have the education to fully understand regulatory law (most attorneys don't either) if someone went to the considerable expense of supplying them with all the documents they would need to read, they would end up not really understanding what the real impact of what they read was. The other problem is no one person could read all of that in any reasonable period. That Dodd-Frank Task Force I'm on used over 40 experts to read parts
of the act, and put together synopsis's on what they read and analyzed for the other 39 people who were doing the same thing - and that was less than 3,000 pages - before discussing it and coming to any conclusions.
Here is the very short and very blunt response. When we are talking to a prospective client and they want to actually read all the statues for themselves, we offer to supply everything they ask for - for a fee of $50,000. If they want to trust that we know what we are talking about, we can educate them in depth about problems and solutions for a whole lot less money.
Frankly, I just shut down when people ask me to lead them through all of that because I know they are never going to pay me, or anyone else 50K so they can read what has already been read and analyzed by many, many experts in regulatory law. Yet, that would be a fair fee for what they are asking. I suspect many others are doing the same.
Ken,
You can carry on with what you are doing and wish you good luck I only deal with notes no mobile homes.
Joe Gore
It seems at some point the state of Oklahoma will have to provide the public with the interpretations of the laws. I don't see the need to hire a consultant to enter the market, at some point the law will have to be made clear to investors either by court rulings or clarification at the state level.
Paying any money at all now for consulting seems to be a waste and would do nothing but provide a best guess (even with insider information) at how the law will be interpreted by the courts or at the state level. One could argue federal law trumps state law, however we could look at the current situation of marijuana and see that the states can and do go against federal law.
For now, I'm sticking with mobile homes on actual land. Thanks for the insight @Ken Rishel , however as a disclaimer I feel future readers of this thread need to know you run a consulting service. Also thanks for your insight @Joe Gore
One final thing to @Ken, according to the bigger pockets "rule book" that was sent to me when I signed up you could possibly be in violation. It states, When a question is asked in the forums, simply answer it, and do so by providing complete details
Furthermore, The real estate industry, like many industries that involve making money, is plagued with those who insist that answers must be paid for
there was a thread started awhile back trying to get information on the new SAFE Act. I am sure it barely scratches the surface, but here it is
Please explain the SAFE ACT!!!,
Hope it helps.
David wrote:
Thanks for the insight @Ken Rishel , however as a disclaimer I feel future readers of this thread need to know you run a consulting service.
David - I have never made any secret of the fact I run the largest consulting group in the manufactured housing industry. Maybe it is hubris on my part, but I have assumed that most people involved in this industry already know that. My profile here on Bigger Pockets clearly states that in some detail. Our company website address is part of the profile as well. To repeat that information every time I post might well seem like SPAM to most, including the moderators.
David also wrote:
One final thing to @Ken, according to the bigger pockets "rule book"that was sent to me when I signed up you could possibly be in violation. It states, When a question is asked in the forums, simply answer it, and do so by providing complete details
First of all, I do not remember receiving any rule book, but I do try to practice the etiquette that has been common to all bulletin boards and forums since the beginning of the internet. As to some of the questions being asked or opinions being given in relation to all the new laws and rules, most of the time it is impossible to "provide complete details" for the following reasons:
If that means I should not post in the forum, so be it. I will, as I have in the past, let the forum moderators be the judge of that.
David finally wrote:
By alluding to me that you know the answers and have helped others make their businesses legal, I would argue you're in violation of the "No sales/sleaze" clause by purposely leaving out "the complete details" with the intent of me following up to enter into a consulting type of business.
If you believe I had any intent to "lure" you into doing business with our firm (it normally would not be me directly a client or customer deals with) you would be wrong. That is not even the reason I take the time to post here. 98% of the people who post and read here are not large enough operators to engage us, except for a few, very small, issues. I post here because there is so much wrong information being posted here in relation to the SAFE Act, Dodd-Frank, and lending and I am simply trying to warn people to be very careful. Unless, I read your first post incorrectly, you were one of the people I want to warn. The message is, "It isn't simple or easy to stay out of trouble anymore if you want to do Lonnie Deals", which is the same message that Bill Gulley (who is not a paid consultant - but a retired Bank Examiner is also preaching). The major difference in what we say comes from the fact Bill believes that Lonnie Deals are dead, and, with some reservations about size and volume, I don't. ( we do have two very large Lonnie Dealers for clients - but that is two out of ? (50,000 maybe) ? So, maybe Bill is correct, and I should just tell Lonnie Dealers to stop doing what they are doing.
As to your statement that the real estate industry is plagued (not to fond of that word choice - too biased) with people who want to be paid for helping you - I don't even know what to say. Everyone wants to be paid for their work. I pay 48 employees who would take a dim view of working for free. I pay an accountant, a tax attorney, a business attorney, and two regulatory law firms, none of whom will work for free. I suppose I could go to some forum and look for free help, but what happens when they are wrong, or I misunderstand what they wrote?
This forum is valuable in many ways. If you look, I do sometimes post here on other topics in manufactured housing where I am not constrained because it has nothing to do with our consulting, and I do share copious amounts of information for free. If you want to discuss factors that create repossessions, or weaknesses of certain MH brand names and I have time, that is something I can and will do. If you want to talk about the difference in risks about financing a home in a land lease community versus private land, and I have the time, I'm willing to do so without charge.
I'm sorry if you misinterpreted my attempt to help. Best of luck to you. I do suggest you seriously consider joining the Oklahoma association. It would be a good source of information for you. The biggest danger comes from not knowing what you don't know.
Thanks for the clarity Ken. I'm new here at biggerpockets so don't take offense to my statements, I just have the rules from the PDF fresh on my brain.
I am planning on joining the OK MHA and attend their meeting this january. Thanks again.
The statement about the Real Estate Industry being plagued with people wanting to be paid large sums is from the rule book here at Bigger Pockets. So I'm assuming that statement comes from Josh Dorkin.
@David Rundle - you could grow old and die waiting for the state of Oklahoma to clarify a complex federal law. We're all going to have to wait for the first lawsuit(s) and see how the courts respond.
With all due respect, can one afford to wait? I am going to start a new thread laying out all of the dangers of continuing to do business without being legal or compliant. Waiting is not the answer.
Ken,
That is a good idea as long as we can verify the info you are providing with a government official.
Joe Gore
Thanks @Ken Rishel for the great comments on several fronts! The frustrating thing about forums is that anyone can post something!
To clarify, I was a bank examiner for FDIC but I didn't retire from the FDIC.
Ken, we really aren't at odds on Lonnie deals at all. I'm saying Lonnie deals are dead as far as an operator doing the deal at the kitchen table between them and a buyer as these deals were done. You can certainly buy an old mobile, fix it up and seller fiance the deal so long as you are in compliance with the new laws.
Considering, IMO, that most of the old Lonnie deals were pawned off on buyers who lacked credit, income, assets or a pot to spit in in some cases, these folks, as great as they may be, won't qualify in many cases in front of a RMLO, just a hunch. Not everyone that walks the face of the earth should be a homeowner, a home of any kind, contrary to some who think they can pawn off a dwelling to anyone that can fog a mirror, make a mark and hand them some money. To those, I'd say Lonnie deals are dead, not an option for them in reality.
There also seems to be some implication that if land is involved with a mobile, it's different, it is not, the Act applies to a mobile home with or without land. It also applies to vacant land where and residential 1-4 family dwelling may be allowed. Yes, the Act applies to raw land if you can build or place a home on it.
Ken, we are on the same page, I'd say that while you specialize in mobile homes, there is not a far stretch at all in these matters to apply what you have said to land or conventional homes, if any at all. I know that you have obtained some modifications for MH dealers, but so far I don't see anything so exclusive to MHs that would not apply to other housing. Great comments. :)
Joe Gore
Joe, why don't you read the SAFE Act, it's on line, you can find it yourself, read it all. I can tell you, as to your concerns (in notes) you can skip about the first two thirds of it as it doesn't apply to most investor types, that cuts out about 1,200 pages for you. Then if you have a question, ask someone with a legal background in finance, like an attorney to explain it. :)
BTW, seems you don't have much in your profile either, how do we even verify you're in RE at all or deal in notes? There hasn't been much expertise demonstrated on BP as to your involvement either, I think you even asked where the 1/3 of income came from in qualifying tenants, that's also used in notes and is pretty much a beginner's topic as a HUD requirement. Just saying, you're hot on asking us to verify yet you're really not keeping to the same standards you seem to be asking others. Fair is fair, don't you think? :)
Ken,
That is a good idea as long as we can verify the info you are providing with a government official.
Joe Gore
Joe,
Just for the record, I find that as insulting as you intended it to be and I suppose that gives you a cheap thrill so have at it.
It also contains a very basic error in thinking. Government officials owe you nothing. The government expects you and everyone else to hire either a consultant or an attorney or both to guide you. Evidently, you have not really tried this approach of using the government as a free attorney or consultant, or you would already know what I just wrote.
I have more important things to do than respond to your childish commentary, so I am going to ignore you from now on.
Joe Gore