Lonnie Deals - Then and Now - The original method won't work

Lonnie Deals - Then and Now - The original method won't work

Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes

First of all, I believe Lonnie Scruggs, was a great man who, while he did charge for his knowledge, made a whole lot of people a whole lot of money. I would never try to take that away from him.

Second, through no fault of Lonnie's, times have changed. The federal government of the 50s and the 60s and even the 70s is no longer small business friendly. They know they cannot be cost effective in regulating and taxing small business so they want it gone. Accordingly, they are more and more aggressive in regulating small businesses and building in costs of regulation that make it difficult, if not impossible, for small business to afford the cost of regulation.

Third, I know no one likes change - especially when it requires either spending money they hadn't planned for, or worse, quitting a business they depend on for their livelihood. The problem with the type of magical thinking that appears both in this forum and many other places is it is dangerous. It is akin to teenagers thinking, " I can't get pregnant (or she can't get pregnant) if we only do it just this once without protection".

So, in a series of posts to this thread, I am going to try to outline the dangers for all to see, to at least warn those that read it what they are up against. This will take some time so it won't all show up today or tomorrow, but I will continue to post until all of it is laid out.

Fourth. I do own a national consulting company that helps people with all of this. I am not posting to troll for business. Most of you, I believe, would not be able to justify most of our costs, and I have little or no expectation that all of you will want to engage us. We do quite well working with retailers and community owners who have the volume to afford our services. I will, however, give general ideas of costs when it seem appropriate and try to quantify how much volume it takes to justify compliance.

I hope all of this will help.

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Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y

For clarification, a mobile home is a single family dwelling defined in the SAFE Act, what might be confusing is that while Ken specializes in working in the mobile home industry and those financing them (being "dealers") the same issues apply to conventional housing, 1-4 family dwellings. With respect to the SAFE Act there is no difference for compliance between a mobile home and a SFD sitting on dirt.

So, as Ken and Donna proceed, consider that there is no difference between a ranch style 3/2 and a double wide 3/2 as to the financing arrangement.

The key aspects I might expect will be as to the structure of entities devised to originate financing and in making or funding a transaction and in servicing the loan after it's made. Pay attention as I believe that those who can mirror the entity side of the MH industry may be able to adopt the same structures in other financing transactions. There will still be RMLOs I'm sure as well as mortgage servicers. We will see. :)

BTW, welcome Donna, haven't seen you post, but it looks like it may have hit on a commercial side or something and was removed. :)

See this reply in the discussion

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  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Oh, this is going to be fun! :)

    Ken, as to costs of compliance we might keep it to what should be expected in the market rather than your firm's costs just to ensure it stays out of the marketplace forum.

    But I already know, most members won't be able to afford compliance issues in lending or seller financing as things are now, they need to head for those regulated brokers and originators to get deals done.

    Thanks for the effort in advance Ken, I know what's involved and it can be a huge undertaking! :)

  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    The first Compliance Issue People Paid Attention to - The SAFE Act

    The SAFE Act drug those engaged in the sale and chattel financing into the same world as those engaged in the sale and finance of real estate. More importantly, it created an awareness of the manufactured housing industry among regulators of how we operated.

    Some leaders in the manufactured housing industry believed that every salesperson was going to need to apply for, test for, and get an MLO in order to even sell manufactured homes. Our company was the only reputable source that disagreed.

    We did, and do agree, that an MLO license is mandatory for those who also seller-finance manufactured homes. We also know that those who wish to seller finance manufactured homes need to form a totally separate company to handle the financing. If they do not, anyone who works in sales, will, in fact, need an MLO which as we will post later creates as many problems as it tries to solve.

    Obtaining a license as an MLO is expensive. In most states, the first time licensing will run around $4,000.00, and the truth is, many people selling manufactured homes would never qualify for such a license. In addition to manditory study, an applicant has to pass both a federal and state examination, which is not terribly easy to pass. They have to submit fingerprints and fill out a history form for submission to the FBI to check on their criminal history. They have to agree to a credit check that each state sets its own standards for. Over 1/2 of the states require a FICO score over 700 on the applicant. Then there is the required bonding.

    At the time the SAFE Act was passed, states were far from uniform in the way they handled chattel lending for manufactured homes. Arizona required no license at all if the loan was originally over $5,000. Other states had very expensive and very complicated licensure. Many states had a special kind of license for seller finance that was cheap and easy to obtain. Unfortunately, the quasi government group that administers the MLO licensing wants MLOs to work for a licensed lender and they refused and still refuse to accept seller finance licenses because they want everyone to work for either a licensed Mortgage Broker (where permitted by state law and function) or a licensed Mortgage Lender. A number of states are still scrambling to change their state laws to accommodate NMLS in their demands, and there are a number of temporary fixes in place until they can accomplish the changes. That does not mean that MLOs or Lenders, or people who are doing nothing, are off the hook.

    Bear in mind, that in many states, lending without a license, is a felony. Most states have prescribed fines that are not minor, and the possibility of a prison sentence is not out of the question. Also bear in mind, while the state may not put very many people into prison, it gives them a very strong negotiating position regarding fines and penalties as was evidenced in a recent state action in Wisconsin as reported in the Chattel Finance Newsletter and also by the Wisconsin Housing Alliance in their member newsletter.

    If you are not willing to obtain an MLO and the appropriate lending license for your state or states, you should not be engaged in Lonnie Deals anymore.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Ken: thanks for starting this thread and for the information. My interest in seller financing comes from re-selling SFHs, not MHs. In 2009 I was all set to go with my plans to re-sell to owner occupants by carrying back the financing. I changed my business model when I couldn't get any clear answers about how to be in compliance with the Safe Act and the CA laws that followed. Several investors I know just decided that as long as they had an MLO originate the loan, they could still offer seller financing. As there was no evidence that was the case, I thought that was magical thinking. There is specific stuff in the laws about "offering" and "negotiating" that only MLOs are supposed to do. If that's the case, even putting "seller will finance" in my listings or ads would be in violation, IMO.

    I've sold several properties since then with seller financing, but only to investors, as I feel relatively secure that those loans are for a commercial purpose and do not fall under the Safe Act.

    I know Lonnie Deals are typically to owner occupants. But do you know if MHs sold with seller financing to investors would also be exempt from the Safe Act and Dodd Frank?
  • Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    12y

    @Donna Rishel - is it fair to say that your expertise, and the subject of this thread, is mobile homes, and that you will not be dealing with the regulatory environment pertaining to seller financing of SFRs? (That is, selling financing SFRs to either owner occ's or investors.).

    I only ask for clarication since the vast majority of investors here deal in SFRs and 2-4 unit properties.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    For clarification, a mobile home is a single family dwelling defined in the SAFE Act, what might be confusing is that while Ken specializes in working in the mobile home industry and those financing them (being "dealers") the same issues apply to conventional housing, 1-4 family dwellings. With respect to the SAFE Act there is no difference for compliance between a mobile home and a SFD sitting on dirt.

    So, as Ken and Donna proceed, consider that there is no difference between a ranch style 3/2 and a double wide 3/2 as to the financing arrangement.

    The key aspects I might expect will be as to the structure of entities devised to originate financing and in making or funding a transaction and in servicing the loan after it's made. Pay attention as I believe that those who can mirror the entity side of the MH industry may be able to adopt the same structures in other financing transactions. There will still be RMLOs I'm sure as well as mortgage servicers. We will see. :)

    BTW, welcome Donna, haven't seen you post, but it looks like it may have hit on a commercial side or something and was removed. :)

  • Professional · Springfield, IL · Member since 2013 · 8 posts · 8 votes
    12y

    The pre SAFE Act Compliance Issues - Rarely Discussed

    Whenever seller financiers congregate, the discussion seems to center around the SAFE Act and how to avoid it. People bring up "answers" that just don't make sense to those that understand there were already compliance responsibilities even if many seller financiers didn't know about them. Given the tenor of the times even a couple of years ago, many people were able to fly under the radar given their small size so few examples were being made of those who didn't comply - a situation that is rapidly changing, in part, due to the SAFE Act, and in part, due to a changed attitude of regulators.

    Regulation Z has been in effect since the 1960s, and with it came a plethora of compliance related requirements:

    • FACTA
    • TILA

    These were later followed by:

  • EEOC
  • FACTA
  • TILA
  • ECOA
  • RESPA
  • MDIA?
  • FCRA
  • By 2003 more were added:

  • The Red Flag Rule (not fully adapted until Jan 2010)
  • The Safeguards Rule
  • The Disposal Act
  • Even later:

    • Privacy
    • ?UDAAP
    • ?Escrow?
    • Risk Based Pricing
    • Leasing (includes option for Regulation M)
    • HOePA

    More recently:

    • The Patriot Act
    • OFAC (originally passed 1953 for very large banks)
    • Anti Money Laundering (Rule modification by the US Treasury on 2/12 to be effective 9/12 for not only those who lend, but also for those who sell manufactured homes. This would include Red Flag, Safeguards, Disposal, Patriot Act and OFAC.

    Come January:

    • Many modifications to all of the Rules will go into effect. It is important to understand this is the in effect date. The Rule modifications have already been written.
    • Service of loans and collection of loans will require state licensure as a lender.

    All of these laws and rules require the seller financier to have compliance management systems in place in order to be legal. A compliance management system includes:

    1. A qualified and competent compliance officer
    2. A qualified and competent SARs officer (SARs officers are subject to felony imprisonment if they fail to follow the law.)
    3. Written policy and procedure manuals for each area of compliance that addresses the requirement and how the entity (or individual) plans on achieving compliance
    4. A documented training program for all employees and owners to assure they understand their responsibilities and what they are required to do to assure compliance
    5. A documented audit of compliance systems at least annually.

    All of these apply to "rent-to-own", "lease-to-own", and " lease-option" schemes, even if your state does not require a lending license (most do) or a MLO to so engage. We will discuss these schemes in a later post.


  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    Apparently Donna's first post (which I haven't seen either) was considered commercial. I suspect she went too far in identifying who she was, although I am certain she did not intend it to be commercial. Oh well.

    Now her second post shows up twice.

    Bill did a fine job of discussing SFR and mobile homes. I would point out this is a mobile home sub forum in the greater forum. Most of what we are trying to teach to those specialized in the MH industry should not be new to those dealing with SFR as it is to MH seller financiers.

    That is it for today.

  • Professional · Springfield, IL · Member since 2013 · 4 posts · 5 votes
    12y

    There are many different schemes being proposed to evade the need to deal with the SAFE Act, and most of them carry a high degree of risk with them that goes unheeded or unknown to the practitioners and the advocates of such strategies. Several of them can be grouped into a single category:

    - Rent to Own

    - Lease to Own

    - Rent Exchange

    - and perhaps Lease Option (the format makes all the difference)

    The legality of doing any of these will depend, in part, on state law until later next year. Some states do not address any of these, some states address all of them, and some address one or two and not the others. So, while Michigan considers (currently) rent to own a business that does not require a lending license, Pennsylvania considers all of the above to be activities that require licenses. One must be very careful if entering into this temporary (until the CFPB moves in) process to make sure a state does not require a supervised lending license before engaging in it.

    Anyone choosing one of these methods should be aware of two issues:

    They must still be in compliance regarding:

    - Red Flag - enforcement by FTC and now FINCen

    - Safeguards - enforcement by FTC and CFPB

    - Disposal Act - enforcement by FTC and CFPB

    - Patriot Act - enforcement by FBI and FINCen

    - OFAC - enforcement by FINCen

    - Anti Money Laundering - enforcement by US Treasury, IRS, and FINCen

    - Advertising Rules - enforcement by FTC and CFPB

    - Fair Credit - enforcement by CFPB

    - Reg M - enforcement by CFPB

    The second issue is the danger of recharacterization as a "disguised credit transaction" either by a regulatory agency or court. Based on thousands of actual court cases, the lender loses any monies paid toward the home to the buyer and the home to the buyer, not to mention sanctions, penalties, and fines.

    It is all well and good to believe the risk is worth the return, but actual regulatory actions and court cases prove the smaller operations get run over for a lack of money to defend themselves. If an attorney wants a small retainer of $5,000 to begin defending you and tells you it will probably cost you $50,000 to win a single decision, what would you do? Most people roll over and end up broke and out of business.

    That is especially true, if there are potential criminal penalties involved as there are with the Patriot Act, OFAC, and Anti Money Laundering. That a regulator would actually bring criminal charges is beside the point. If they can they will have a very big club to use against you in getting you to roll over and play dead.

    In our opinion, all of the above are dangerous and risky choices.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Welcome to BP, James! Obviously you work with Ken and Donna. Great! :)

  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    Waiting is not an option for Much of What Has Been Posted

    Do you understand the difference between laws, rules, and procedures that govern the action of regulators?

    A law, like Dodd-Frank passes and then the agencies in charge of enforcing that law (CFPB for Dodd-Frank) is required to promulgate the rules under which the law actually operates, and from the rule procedures for actual operation by the agency are established. They are 3 different animals, but they are all important.

    One of the most common things used as an excuse for not getting compliant, is "the rules have not been settled yet".

    It is true that some rules are still changing. It is also true that many of them are already cast, and that obligations exist for those rules. Just because the definition of Loan Originator has not been nailed down yet, and there is hope that the MHI Dodd-Frank Task Force may be able to get favorable changes does not mean you should wait to deal with Red Flag, Safeguards, et al. They are already in force and if you fit the bill, you are legally required to have a Compliance Management System in place for those Acts.

    Even where the rules are still changing, you have a compliance obligation.

    For those who believe these rules are not being enforced, please consider that when looking at what is being done to larger entities, qualified authorities can easily extrapolate what is going to happen when they come across a small Lonnie Dealer. Further, you may not know who has done what to who, because the size of the action is too small for the media to care about reporting it. The media loves to report on penalties and fines in the multi millions against Bank of America or Wells Fargo, but reporting on a smaller seller financier with 30 loans that was fined out of business with a $150,000 fine and additional administrative penalties just isn't sexy enough for them.

    So, are you sure these laws and rules aren't being enforced against the smaller operations? We know they are, because we have around 85 incidents that we have published in our newsletter in the last 12 months, and we know we are missing the majority of the enforcement actions ourselves.

    Free Advice: If you can't afford, or just don't want, to get compliant, stop doing seller finance. The risks are just too great.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Very good aspects. Ken, you might touch on administrative enforcement by agencies, I bet most think you have to go to court (but you could). And, that the violation of rules may then be a violation of law under the authority given. Great stuff! :)

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Ken: of the 85 incidents you reported in your newsletter, did any involve loans to non-owner occupants? 85 incidents seems like a lot to me. Given that many investors that sell via seller finance have varied note portfolios, I wondering if just the consumer loans are being targeted in these cases.
  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    Ms. Poe

    We are only discussing consumer lending. Commercial lending outside of the depository lenders and SBA loans, et all is largely unregulated.

    Now, a commercial lender that loans money to someone else who in turn makes consumer loans should be thinking about:

    "What happens if I end up with all of these consumer loans"?

    1. Will they be on legal and compliant instruments?
    2. Will they have been legally originated? What proof do I have this is so?
    3. Was there Steering involved and what documents prove there wasn't?
    4. Will they have any resale value?
    5. Do I know enough to handle the transfer legally?
    6. Who is going to service these loans that is licensed and compliant for me?

    All of this applies to note buyers as well.

    Even banks that have been loaning money commercially to seller financiers are starting to pause when they consider the new rules going into effect in January. Remember that just because a loan exists doesn't make it legal to enforce or service. Many banks and institutional investors are just beginning to learn what their new obligations are, and the ones that have learned are starting to view the commercial loans they have out as toxic.

  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    Bill -

    In our September newsletter, on Linkedin, and here also I believe we posted a story about a California operator that rolled over before they even got to court. I am going to try to repost it here and hope the fact it came out of our newsletter is not considered commercial.

  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    The Feds recently settled a fair lending lawsuit against a small California seller financier. This means that, once again, a attempt to use disparate impact evidence to establish that a lender engaged in a “pattern or practice” of intentional discrimination will not be tested in court.

    The amended complaint alleged that there was a “statistically significant” disparity between the way the seller financier charged Asian and non­?Asian borrowers. The contention was over the seller financier’s practice of giving its employees “discretion to engage in subjective decision-­?making and setting interest rates within broad parameters.” According to the complaint, the employees’ discretion “was exercised in a manner that discriminated against non-­Asian borrowers.”

    In the complaint, the DOJ asserted various theories for its claim that the seller financier had discriminated against borrowers on the basis of race or national origin, violating the Equal Credit Opportunity Act (ECOA). The complaint charged that the seller financier “engaged in a pattern or practice of discrimination on the basis of race or national origin.” It also charged that “the discriminatory policies and practices, “were intentional, willful, and were implemented with reckless disregard for the rights of non-­Asian and Hispanic customers.”

    The seller financier agreed to a $125,000 4ine and to exit the finance business. They further agreed that if any of the principals reentered the business of lending that they would presubmit a written lending policy and procedure manual for government approval before making any loans as well as an automatic annual review of their lending operation, and lending compliance training for owners, officers, employees, and agents of the new lending entity. In March of 2013, the CFPB announced their intent to focus of seller finance operations and this is just the first of many cases the CFPB has referred to the FBI and DOJ attorneys. Many more are coming.

    From the September issue of the Chattel Finance Newsletter - reprinted by permission

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    ECOA was a main concern for awhile in my operations as well, in a city that was about 5% minority! Then we learned that the population would be taken into consideration for enforcement. But in an area where you may have 30 or 40% or more of minorities this can be a head scratch'r ! Not the same thing though.

    And, to the previous post, a #7. that the use of funds actually are used for the commercial venture. If you make a loan to some rehab guy and he fails to sell the property and decides to move in and live there in s short period of time, that may be hard to talk yourself out of, even with disclosures. Or, those funds being wrapped in a future transaction. Not to get off topic but I don't think most dealing as "commercial only" understand what can go wrong, but it's their risk.

    BTW, I'm out of voting ammunition Ken, good stuff again. :)

  • Professional · Springfield, IL · Member since 2013 · 4 posts · 5 votes
    12y

    ECOA

    As Mr. Gulley pointed out, the Equal Credit Opportunity Act is one of the very first things regulators look at after making sure the designated Compliance Officer is competent, qualified, and authorized with enough power to do the job they have been appointed to.

    Seller financiers that decide who gets a loan and who doesn't without a written Loan Policy and Procedure Manual and the Compliance Management System to back it up are, as the article Mr. Rishel shared illustrates, at huge risk. Making gut decisions is a good way to end up gutted by regulators.

    In their (CFPB) internal manual for their enforcement examiners, not only is the existence of a written policy and procedure assumed, it is the third set of documents the examiners are directed to focus on. If such a manual did not exist, I suspect the CFPB examiner would just close the doors of the seller financier while they and their bosses decided how well done they wanted to roast him or her.

    From a small seller financier's point of view, ECOA presents a real challenge as preparing a Lending Policy and Procedure Manual that was actually legal and that was predictive of lending behavior is an almost impossible task for an untrained professional and it is not inexpensive to have done by a competent group (it takes a group) of professionals, especially given the new rules that are going into effect in January of 2014.

  • Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    How can any of this be enforce when the government can not get thier house in order with all the fraud and abuse.

    Joe Gore

  • Professional · Springfield, IL · Member since 2013 · 8 posts · 8 votes
    12y

    Collecting the Money from non-Performing Borrowers

    It has been getting harder and harder over the years to be able to encourage people to pay what they promised, and all of "attitude" by our current POTUS and all of his minions regarding mortgage loans in default has made it harder in my opinion. To get on television and tell people they shouldn't have to pay their mortgages, or that the government will force "the evil lenders" to forgive much of the principal and lower the interest rates is setting a bad example and creating expectations of further largess. To add insult to injury, Dodd-Frank has added to the burden by now requiring licensure of some sort to collect what is rightfully owed.

    Given the changes in the law, a seller-financier is faced with certain choices in relation to collecting what is owed. They can:

    1. Get a supervised lending license (whatever is applicable in the state or state in which they operate).
    2. Avoid the supervised lending license, and get a debt collecting license from their state so they can collect what is owed legally.
    3. Hire a 3d party firm that is properly licensed to service and collect.
    4. Ignore all the laws and hide all their assets (hard to do these days) and wait to get caught.

    Choice number two doesn't make any sense at all. The licensure is much harder, and much more expensive that a supervised lending license, and the rules under which a licensee operates draconian to say the least. It also doesn't allow for origination or the act of lending.

    Now, here is some information and advice for those who do get or have, a lending license. Sooner or later the CFPB is going to send you a CID. While, at least for now, you are not technically required to follow FDCPA rules, you should seriously consider modeling your debt collection policies and procedure manuals around it as much as possible.

    Why? Because that is what the CFPB is expecting to see, and much of it actually makes sense in preserving customer relations and to help avoid lawsuits from borrowers. It also helps avoid consumer complaints to regulators - state and federal, and that is the most important thing you can do to protect yourself.

    Another important tip is to never hire a sworn police officer off duty to help with collections and/or replevins. Any good attorney representing your borrower can hand you your lunch if you do. Never even let a LEO hang around when you are collecting or repossessing. There are several things at stake if you do so.

    Do not shut off utilities during a dispute.

    Do not "bump the hitch"

    Do not carry offensive weapons with you when collecting or repossessing, even if you are licensed to do so.

    Always document any collection efforts and keep a record of those efforts for at least two years after the loan is closed.

  • Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    Donna,

    Good post but I don't feel sorry for the low life home owner that try and work the system to get out of paying their debt. Non performing notes you foreclose and put them in the street.

    Joe Gore

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y

    @Donna Rishel and @Account Closed political discussion must be limited to the Off Topic forum. Comments like

    and

    are political and do not belong in this thread. Please avoid such comments.

  • Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y
    Jon,

    Thanks I will abide.

    Joe Gore
  • Engineer · Oklahoma City, OK · Member since 2013 · 144 posts · 44 votes
    12y

    @Ken Rishel the example you gave is about an Auto Sales group. Link: http://www.jdsupra.com/legalnews/doj-settles-fair-lending-case-against-au-25772/

    From what I can tell from the court case, they were NOT seller financing.

    From the article: The amended complaint alleged that there was a “statistically significant” disparity between the dealer markups charged to Asian and non-Asian borrowers; many of the non-Asian borrowers were Hispanic. In addition, the DOJ alleged that the higher rates charged to non-Asian borrowers stemmed from Union Auto’s practice of giving its employees “discretion to engage in subjective decision-making and set overages within broad parameters.”

    The article goes on to say: In March, the Consumer Financial Protection Bureau (CFPB) issued guidance on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act. The guidance targets dealer markups. The CFPB’s focus on indirect auto lenders is likely to generate increased referrals to the DOJ of alleged fair lending violations by both lenders and auto dealers.

    It sounds like a scumbag car dealer got was coming to him/her. I don't see how this relates. If the auto dealer charged the same amount to Asians and non-Asians there would have been no discrimination.

  • Specialist · Springfield, IL · Member since 2011 · 700 posts · 479 votes
    12y

    David - I just read the story at the link you supplied. We gleaned our information from a paid legal service a couple of days before the article you are referring to went up. It had far less information than the article you referred to which is why our story reads the way it does. We know the guys very well at the law firm that put together the article you referred to and we hold them in the greatest respect. Thanks for the heads up.

    It relates because of the "disparate impact" implications. Assuming that they were not engaged in seller finance as it is usually defined here, (which is something that neither article was clear on) an indirect transaction supported by a RIC is, in fact, a convoluted form of seller finance. The dealer, in most states, has a special seller finance license that is usually easy and cheap to obtain, because an indirect lending situation legally means the dealer is the originator of the loan, and thus, the original lender. In this type of transaction, the dealer originates the loan, setting the interest rate when doing so, but uses the credit standards of the buyers of the loan he/she has waiting in the wings.

    Pre SAFE Act, this was how most MH dealers also did business. The SAFE Act made that difficult because in order to continue in that method, sales personnel would be at some risk if they were not licensed as MLOs. Every major outside lender has now switched from RICs (three party contracts that identify the dealer as the original lender) to two party purchase money contracts.

    Regarding the greater question of relevance, we are back to this new method of using disparate impact to measure ECOA violations, and the need by any consumer lender to comply with ECOA. Further, it goes to show how the intimidation factor can, and usually does, cause smaller operators to not pursue all their options through the courts and to just roll over and take whatever the regulators want to dish out.

    Finally, their alleged practice of charging one ethnic group a higher interest rate based solely on ethnic origins is neither uncommon, nor limited to the car business. If the allegations are true, I sincerely doubt the motivation behind those actions were necessarily motivated by dislike or hate of a particular racial group. I would be more likely to believe they charged a higher interest rate because they believed the Hispanics would be less likely to question the APR than their Asian customers. They perceived an "opportunity" to increase their income, and were either unaware of the risks involved in doing so, or they thought they could fly under the radar like so many Lonnie Dealers do every day.

    The truth is, many seller-financiers in manufactured housing do similar things every day. When a seller-financier decides they are not going to make a loan to single mothers, or that they are going to require a higher downpayment from her to make the deal, they are, in the way the law views it, doing exactly the same thing. If they decide they can charge a member of a protected group a higher interest rate because that person will stand for it, they again are doing the same thing.

    All terms, including interest rates, length of term, required down payments need to be formalized in writing in a Lending Policy and Procedure Manual, including the conditions for differing terms that are legally acceptable. It is obvious this dealer had not done that or they might never have had trouble.

    Rather than focus on the fact that it was an auto dealer or the verbiage was about auto dealers, or even your distaste for their alleged methodology of setting interest rates, more can be learned by focusing on the facts of why it happened and the end results for the dealer. Those are very instructive to those in the manufactured housing industry as well. The CFPB knows about the chattel lending that is going on in the manufactured housing industry and they are very aware of the seller finance operations including Lonnie Dealing. They have repeatedly said we are low hanging fruit and have repeatedly stated their intention to regulate (read prosecute) the lending that goes on in our industry as well. They will finally have the rules they need to do so in January which is what they have been waiting for, and many of us in our industry have been dreading.

  • Investor · Central America, Panama · Member since 2010 · 423 posts · 293 votes
    12y

    Starting January 10th things change a lot when it comes to Seller Financing.

    An attorney in Texas said, " the SAFE Act is like Kindergarden compared to the new Dodd-Frank rules"

    You can listen to this one hour coaching call with attorney Bryan Dunklin and mortgage broker Mindy Henderson to learn more about the big changes coming in January

    http://www.cashflowdepot.com/home/replay.aspx

    They have nothing to sell. Just providing information. (well, Mindy was teaching a 1 day seminar for $25 but that has already come and gone. I sure would not want to post the link before the seminar because you would think it is highway robbery to charge THAT much for this important information.)

    One of the biggest changes with Dodd-Frank, starting in January, is that the buyer, even after 3 years, can claim that you did not properly vet their qualifications to buy the house. If the court decide in their favor, you have to give back all the money they paid you for 3 years + any improvements + attorney fees. If you win the case, you still get to pay your attorney probably $10,000 or more. Either way, you lose.

    You can be sure that anyone who bought with seller financing who later gets a foreclosure notice will be bombarded with letters from lawyers claiming they can get all the money they paid for 3 years back.

    You absolutely have to use a qualified mortgage broker to discuss finance terms with your buyer. You cannot do that yourself. The mortgage broker has a long list (840 pages) of things that are required to qualify a person. Debt to income ratio has to be at least 43% Document the vetting process and keep that paperwork forever.

    The other biggie, is that you cannot charge more than 5% over the going Fannie Mae interest rate (currently 3.2%), there can be no balloon in your note, and the interest rate you charge has to be fixed for the first 5 years. (no more lonnie deal interest rates) (there goes the note business)

    There are restrictions on how many transactions you can do in a year. Only 3 in most states. Only 1 per year in some situations. And doing transactions in different entities or trusts will not solve the problem.

    There is more...much more. You can listen to the call to learn about the new rules starting January 10th.

    While this puts a damper on selling with seller financing the way we have done it in the past, it opens up many new opportunities too.

    This law does not apply to an owner occupant selling their own home with seller financing. The law does not apply if you are selling a property to an owner who will not occupy the property (ie investor)

    At the end of the call, you will hear my suggestion about how can do Lonnie Deals... a new way and still stay compliant.

    The most important thing you can do is KNOW THE RULES and make sure you follow the rules.

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