I know there's a lot of threads on Dodd/Frank and Lonnie Deals, However I'd like to hear from anyone who currently does seller financing and what method they're deploying to be compliant.
Ideally, I'd like hear from small investors currently doing these deals.
Thanks in advance,
Dave
Hey everyone,
There have been a ton of posts reported to the Admins in this thread, and I want to address everything at once.
So far, I'm not going to be removing anything. Yes, it's getting heated but it's a good debate - let's just be sure to keep any name-calling out of it. People need to see both sides. But let's be civil or I'll just close the entire thread, as we often need to on these Dodd Frank arguments.
Dodd-Frank is complicated, and as the gentlemen in this debate have shown, open to interpretation since it is so new. I, personally, don't want to be the guy called before the Judge to set the case law, and I doubt you do too. So be careful.
And anyone reading this in the future should know: don't listen to anyone on a Forum at face value. Go talk to a specialized attorney and verify what you need to know.
I guess we could go back to 1939, even before that, for the reasoning behind financial regulatory policies, let's not. I agree with Ken and small business, in fact, the bigger business gets the more I dislike them......generally. That gets off topic.
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There are plenty of us here, myself included who would love to go back to 1939 - The days before the 30 year mortgage, and many of the onerous regulations that made the purchase of a basic need(shelter) far more complicated than need be
Originally posted by @Bill Gulley:
Anyone starting a forum thread on BP doesn't "own" that thread. Folks that want to hear only what they want to should probably open their own site, then you could boot those who disagree with you off the site or just hit delete.
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Anyone starting a forum thread should reasonably expect constructive feedback from those willing/able to give it, not trolling naysayers with an agenda.
Originally posted by @Bill Gulley:
And, lastly, as to Lonnie Deals, the old methods were pure predatory The SAFE Act was the the first federal mortgage law I ever saw that mentioned the name of a person and their methods. But that doesn't beat out Charles Ponzi for his ponzi schemes in other financial laws. That said, Ken is cleaning up the Lonnie Deal techniques to be compliant and I expect that a pretty good method and product will evolve. Those "rinse and repeat" days are over! :)
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I'm sure the vast majority, myself included would disagree with that statement and in fact, find it to be borderline slanderous.
The bottom line, is Lonnie Deals are disliked by the regulators because they entailed a concept they feel threatened by: A simple solution(owner financing) to a big need(affordable housing).
>>I'm sure the vast majority, myself included would disagree with that statement and in fact, find it to be borderline slanderous.
The bottom line, is Lonnie Deals are disliked by the regulators because they entailed a concept they feel threatened by: A simple solution(owner financing) to a big need(affordable housing). <<
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Now, I would like to offer another opinion regarding regulators. I understand the frustration people feel over having to change what they are doing to accommodate changes in both society and the law. I also understand that people become even more frustrated when they learn they need to pay money and invest time to make the correct changes. However, getting angry almost never solves anything and often interferes with logical thinking.
In my opinion, regulators don't feel threatened by owner financing. They do find the task of regulating it difficult because of the number of people engaged in it. There are many aspects of it they don't really understand, and as a result, we end up with illogical legislation, especially in the secondary legislation.
If one looks at the classic Lonnie Deal through the eyes of a regulator and much of today's public, at the very least, they see a potential for consumers to be taken advantage of. Remember that people have different points of view on many things. I can, and have, made a case for pay day lenders because I truly believe them to be necessary. Some of those reading here would feel they are nothing more than legal loan sharks. While I might not fully agree, I do understand that many people would feel the high rate of failure to complete and end up with a home constitutes "churn" and is in fact predatory.
In the workshop for Lonnie Dealers we just held in Chicago, we spent considerable time explaining how to eliminate unplanned churn to the attendees and why it is actually more profitable to eliminate high levels of non performance by their customers. Everyone there, after we explained how to eliminate most of it, and ran through the numbers comparing both methods was enthusiastically in favor of changing many aspects of their operations to lower the non performance of their customers because it is more profitable, and it lowers the chances of unfavorable publicity and regulatory attention.
>>I'm sure the vast majority, myself included would disagree with that statement and in fact, find it to be borderline slanderous.
The bottom line, is Lonnie Deals are disliked by the regulators because they entailed a concept they feel threatened by: A simple solution(owner financing) to a big need(affordable housing). <<
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Now, I would like to offer another opinion regarding regulators. I understand the frustration people feel over having to change what they are doing to accommodate changes in both society and the law. I also understand that people become even more frustrated when they learn they need to pay money and invest time to make the correct changes. However, getting angry almost never solves anything and often interferes with logical thinking.
In my opinion, regulators don't feel threatened by owner financing. They do find the task of regulating it difficult because of the number of people engaged in it. There are many aspects of it they don't really understand, and as a result, we end up with illogical legislation, especially in the secondary legislation.
If one looks at the classic Lonnie Deal through the eyes of a regulator and much of today's public, at the very least, they see a potential for consumers to be taken advantage of. Remember that people have different points of view on many things. I can, and have, made a case for pay day lenders because I truly believe them to be necessary. Some of those reading here would feel they are nothing more than legal loan sharks. While I might not fully agree, I do understand that many people would feel the high rate of failure to complete and end up with a home constitutes "churn" and is in fact predatory.
In the workshop for Lonnie Dealers we just held in Chicago, we spent considerable time explaining how to eliminate unplanned churn to the attendees and why it is actually more profitable to eliminate high levels of non performance by their customers. Everyone there, after we explained how to eliminate most of it, and ran through the numbers comparing both methods was enthusiastically in favor of changing many aspects of their operations to lower the non performance of their customers because it is more profitable, and it lowers the chances of unfavorable publicity and regulatory attention.
Ken,
I'm glad to hear the workshop was a success. If there was any way, a podcast of key elements or all of it could be created, I'm sure many who couldn't make to trek to Chicago to attend the workshop would appreciate it.
Brian - I'm not sure what you are looking for. The workshop in Chicago ran from 8 AM until 8 PM and had 100s of pages of handouts, including state specific documents for the attendees. None of it was recorded by us or the attendees. All of the material distributed and all of the presentations are copyrighted, with strict controls on who may used them. No one in attendance is authorized to share any of the material. It is for their own use only.
Jackie, who was not in attendance, did a telephone conference call with me which I believe she has posted on her website to explain the problem and discuss what we were going to do in the workshop. I do not know if that is still available.
Janet Dobson, Lonnie's daughter was in attendance.
My business is specifically Dodd Frank compliance and I work with a number of investors that are doing contract for deed and private mortgage. Here we are a year later and there still is no legal precedent that has been set (to my knowledge) and with a new incoming President, the law is up in the air. One thing is for sure, change is slow to come in Washington so you'd better protect yourself until there is a change; if ever. If you're interested in talking further about this, you can send me a DM. We charge just a flat fee that is cheaper than I've seen in this thread and I'll help you fully underwrite the income, credit, debt, ability to repay, so that you have a high probability for a performing note. A lot of MLOs will sign off on anything, but in my experience in lending and the secondary market for notes, it's good to fully underwrite your loans and not take short cuts. It makes for a much more profitable business model in the long run.
I find this interesting, because most states do not look favorably on people motivated by profit to engage in multiple contract for deed transactions to avoid licensure as a lender. What follows is a specific example:
New contract-for-deed legislation passed in the last session of the Minnesota Legislature empowers consumers to make more informed home purchase decisions, requiring disclosures by certain “serial” contract-for-deed sellers and amending the injunction statute as regards cancellation of contracts for deed.
The 2013 Minnesota legislature has passed a new contract-for-deed disclosure statute applicable to sellers who frequently sell residential real estate on contracts for deed. The new legislation, which applies only to residential contracts for deed involving a serial contract-for-deed seller and an unrepresented purchaser, will not affect most contracts for deed.
A companion provision amending the existing contract-for-deed injunction statute, discussed later in this article, applies to all contracts for deed and purchase agreement cancellations. Depending on one’s perspective, this amendment to the injunction statute either eliminates some of the previous uncertainty for contract-for-deed cancellations or creates new uncertainty.
Due in large part to the decline in residential real estate sales prices and the number of homes acquired from foreclosing lenders that are being resold on contracts for deed, there has been a rising concern about abusive or predatory practices by contract-for-deed sellers, their often total lack of compliance with both federal and state laws, and the general public’s lack of understanding about how contracts for deed work. The disclosure statute, effective for instruments executed on or after August 1, 2013 and modeled in part on the condominium/townhome disclosure statute, requires a “multiple seller” of residential real estate selling on a contract for deed to provide certain statutorily mandated disclosures. The statute defines a “multiple seller” as a seller who has entered into four or more contracts for deed for residential property within the past 12 months. Thus, typical mom-’n-pop homeowners and even irregular “flippers” who occasionally sell on a contract for deed need not comply with the statute. In addition, the statute exempts from its ambit any contract-for-deed sale where the buyer is represented “throughout” the transaction by a licensed lawyer or a licensed real estate broker or salesperson. Thus, either due to the fact that the seller has not had at least four previous contract-for-deed sales in the past year or because a lawyer or real estate broker or salesperson is representing the buyer, garden-variety sales will be exempt from the disclosure requirement. Also as noted, nonresidential contract-for-deed sales are entirely exempt.
DISCLOSURE REQUIREMENT
Assuming that the residential transaction involves a “multiple seller” and the lawyer/real estate broker exception does not apply, the statute imposes a disclosure requirement somewhat similar to the condominium/townhome disclosure statute. If there is a purchase agreement that is intended to end in a contract for deed, the seller must affix the statutorily required disclosure to the front of the purchase agreement and the contract for deed cannot be executed for at least five business days following the execution of the purchase agreement. If the buyer does not timely receive the disclosure, i.e., when the purchase agreement is entered into, the buyer has five business days after receiving the disclosure in which to terminate the purchase agreement by notice to seller. However, that right of termination expires upon execution of the contract for deed and failure to give the disclosure does not affect the validity of the resulting contract for deed.
In many of the contract-for-deed transactions targeted by this legislation, however, the seller and buyer do not enter into the normal purchase agreement, but, rather, skip that step and simply go directly into the contract for deed. In those situations, the statute also provides that the required disclosure must be given by a separate document at least five business days prior to the purchaser executing the contract for deed.13 Like the rule applicable to contracts for deed resulting from a purchase agreement, failure to give timely disclosure prior to executing the bare contract for deed does not affect the validity of the contract for deed.
The statutory disclosure (which must be in at least 12-point type and signed and dated by the purchaser) provides information about contracts for deed that may not be known to the typical unsophisticated purchaser from a multiple seller: a contract-for-deed purchaser does not have the protections afforded a tenant or by mortgage foreclosure laws; the purchaser will be obligated to pay homeowner’s insurance and taxes and make repairs and perform maintenance; the purchaser will need to refinance at the time the “balloon” comes due; and the statutory cancellation process can be quick and the consequences severe. The disclosure also makes recommendations to, among other things: seek assistance from a lawyer or the Minnesota Home Ownership Center; procure an appraisal; have the property inspected; and examine title.
Where there has been a failure to timely give the statutory disclosure (either at the time of signing the purchase agreement or at least five business days prior to signing the contract for deed where there is no prior purchase agreement), the statute imposes liability on the part of the multiple seller in favor of the purchaser as a private right of action in an amount equal to the greater of actual damages or statutory damages of $2,500, plus reasonable attorney’s fees and costs. Moreover, if there is a “knowing” failure to provide the disclosure, the multiple seller is liable to the purchaser for treble those damages. While the statute is silent on the subject, a defaulting purchaser facing a statutory cancellation by a noncompliant multiple seller might seek to apply these damages as an offset against outstanding delinquencies. Under longstanding case law prohibiting the use of unliquidated claims as offsets (discussed below), however, a buyer should not rely on such a claimed offset as curing the default without a judicial determination of seller liability or a temporary injunction against the cancellation.
INJUNCTIONS AGAINST CANCELLATIONS
Separate from the disclosure mandate for serial contract-for-deed sellers, the 2013 legislation amends Minn. Stat. §559.211, dealing with injunctions against cancellations. That 1980 statute, a codification of prior common law,19 authorizes a district court to enter an order temporarily restraining or enjoining further proceeding to effectuate a termination of a contract for deed or purchase agreement “at any time prior to the effective date of termination of the contract” and provides that that if an injunction is granted, the contract cannot terminate until 15 days after the injunction is lifted.
A series of cases, particularly Thomey v. Stewart,22 have interpreted the language referencing procuring the injunction “prior to the effective date of termination of the contract” to mean that if the purchaser does not obtain an injunction prior to the period set forth in the cancellation notice, then the purchaser may not subsequently raise any defense to the cancellation, including a defense of waiver. Even prior to the enactment of Minn. Stat. §559.211, there was a series of cases, commonly known as the Olson rule, holding that a purchaser cannot raise an unliquidated claim of fraud or misrepresentation as a defense to cancellation and that, if the purchaser does not procure an injunction prior to the running of the notice period, no such defense can even be litigated.
A blanket rule that a defense to cancellation can never be raised unless an injunction under §559.211 is obtained prior to the end of the notice period is, however, inconsistent with another line of cases, mostly decided prior to the enactment of the injunction statute, invalidating cancellation even though no injunction was either sought or obtained prior to the end of the notice period. Thus, although the cases do not directly address the point, cancellations have been invalidated, notwithstanding the failure to procure an injunction prior to the end of the notice period, in cases where the claim was the notice understated the statutory time for cure, the purported contract for deed was in fact an equitable mortgage,26 there was no unpaid amount due, there was lack or insufficient service of process, or where there was a waiver of the cancellation by reason of acceptance of partial payment before (or after) the running of the notice period.
Further, in Coddon v. Youngkrantz,30 decided after Thomey, the Minnesota Court of Appeals
1) invalidated a cancellation based upon the fact that the default was an immaterial single payment, and
2) reversed the trial court’s ruling that it lacked jurisdiction to invalidate the cancellation due to the purchaser’s failure to seek judicial relief prior to the running of the notice period.
Similarly, in the recent case of Dimke v. Farr,32 the Minnesota Court of Appeals invalidated a purported declaratory cancellation of a residential purchase agreement on the ground that there was no unfulfilled condition so as to permit use of that procedure under Minn. Stat. §559.217, subd. 4, despite the fact that the purchaser did not seek an injunction prior to the running of the notice period.
Since the cancellation statute, which codified the common law right to an injunction against cancellation and allowed purchasers the added protection of a 15-day second chance to cure if the defense proved meritless so as to avoid litigating at one’s peril, was intended to benefit purchasers, it would seem somewhat incongruous that the statute should be interpreted to bar post-cancellation claims that were allowed prior to the enactment of the statute. Finally, the Thomey rule presents an insurmountable problem for a purchaser where the basis for the otherwise valid defense, such as waiver, only arises at the last days of the notice period (or after the cancellation period) when there is no time left to obtain an injunction.
In order to address this conflicting authority and to avoid such practical and theoretical problems, the 2013 legislation added language to Minn. Stat. §559.211, subd. 2 to provide that, subject to other statutory provisions that create a prima facie presumption that a statutory cancellation has been effectuated,33 the injunction statute itself does not bar a court from determining the validity, effectiveness, or consequences of a statutory cancellation under either §559.21 or §559.217, or granting other relief in connection therewith, despite the fact that the purchaser did not seek or obtain relief under the injunction statute prior to the end of the notice period. Thus, the new legislation reverses the rule of Thomey and prevents the running of the statutory notice period from being an irrefutable presumption of termination of the contract.
REMAINING UNCERTAINTY
Since the new legislation reverses only a judicial interpretation that the injunction statute itself bars all challenges to a cancellation if an injunction was not timely procured, the new statutory language should not be read as permitting post-notice period challenges to cancellations where they were not allowed prior to the enactment of the injunction statute. Thus, Olsen v. Northern Pac. Rwy. Co.34 and its progeny, which bar post-notice period challenges to a cancellation or unliquidated claims against the seller based upon fraud or misrepresentation or other claims under the contract unrelated to the cancellation itself, still remain good law and those defenses or claims cannot be raised unless an injunction is procured prior to the running of notice period. The extent of the reach of the Olson rule has always been open to interpretation and that uncertainty will continue with the new amendment. As a result, both because a purchaser’s right to litigate a cancellation without the benefit of an injunction will often be uncertain and because an injunction provides a second chance to cure the default if the defense fails, purchasers will still almost always be well-advised to, if possible, procure an injunction in connection with contesting the cancellation of a contract for deed or a purchase agreement.
Every state has different laws, and some don't even allow contract for titles in the case of manufactured homes being sold and financed sans real estate.
@Dave C. Bill Gulley (and a bunch of us discussed till we are blue some years ago...)
I'm a MHP / community owner, was licensed as a dealer in AL (but dropped it, too much AL paper work). I live in GA and I get notices from GA's banking division's cease and decist orders some going to MH dealers / communities doing seller financing of MHs. Some notices to investor/ lenders of houses too. There's amazing ignorance or blatant disregard of the power of state Banking Divisions!!!
I've gone to the MH / MHP South East trade show SECO / https://secoconference.com/
The speakers there suggested a lease / option tactic that avoids "if it quacks like a duck then its a duck" financing by another name. IE lease / options that amortize out and transfer home title after some number of years,,, is actually financing to an occupant and covered by Dodd Frank.
The gist of the Dodd Frank avoiding tactic: 6-10 yr lease and option to buy. Normal home rent for your area. Small option fee like $500. The purchase price is the depreciated value of the home that number of years into the future. Some small amount, $2k-$3k ish. Mobile homes depreciate / drop like a rock are the main reason why this tactic works. Then at the term of the option period a new note is created for 4 payments to pay off the residual value. 4 payment notes are exempted by Dodd Frank (the actual max number of payments escapes me) and 4 payments is under State Banking regs / UCC requirements. So this tactic does not require any banking / lending license...
What makes the above work is the rapid depreciation of the home value to a small number that the tenant buyer can afford to pay of in only a few payments...
Also; 21s Mortgage's CASH Dodd Frank financing terms for financing of Clayton mobile homes is very high in fees and the monthly payment was way WAY higher then the tenant buyer could afford and compared to the lease/option term (7 yrs for our lease / option vs 15 yrs for 21st MOrtgage's note) the tenant buyer is getting a much MUCH better deal from our park via our lease / option program then a fully compliant note and mortgage from 21st Mortgage. So the intent of Dodd Frank to protect buyers/borrowers which I support, is in fact NOT being delivered (via the dodd frank compliant product) and the buyer is getting a better deal, lower total payments, lower monthly payments via a lease/option program. When the tenant / buyer wins they are happier and actually do end up owning their homes. The 21st Mortgage sale failed and we had to forclose and take back the home. We lost a bunch via lost lot rent and our costs to take the home back. Much lower costs to take back a lease/option MH, but they rarely fail so its not in play.