Do lease options fall under Dodd Frank regulation?

Question

I asked a real estate attorney and he said they did not.  It seems like I have read otherwise on this site?

Dion DePaoli · Answer

The question here can not be answered until the actual contract and terms are reviewed.  A lease option contract may fall under Dobb Frank in the event the contract is treated as a sale transaction and not a lease.  Equity build up, one form noted above is like rent credits but that may not be it's only form, is one of a couple different ideas that may cause the contract to be treated like a sale.  If the transaction is treated like a sale, then the transaction falls under Dobb Frank.  Just to stress that idea one more time.  It is true, rent credits, are viewed as an equity build up but that is over simplifying the actual idea.  Other ideas which deal with the application of payments, the amount of down payment, the amount at the time of option, the sum of all payments, the ratio of payments to option price....you get the point.  There is not one simple metric.While to each, their own, my concern of treating a lease option tenant like a borrower could also be a trigger to treat the transaction under Dobb Frank.  A simple massive error on some of the folks trying to "use" a RMLO to CYA.  While in 'some' cases an RMLO can create a safe harbor, the actual Seller (owner) of the property can be viewed as an originator or lender thus also requiring a license, since they are the ones who supply the actual credit in the form of equity.  Without getting too far in to murky details, what I am saying is I belive most RMLO's in the market helping with SF in any form are probably pretty uniformed about the ramifications of their actions and Sellers are trying to use them as circumvention to the rules, which most often does not work in the eyes of the law.

David Moore · Answer

I would suggest speaking with someone in your local REIA.  Our REIA president has read through Dodd Frank and most of the bill applies to companies that have over $2 billion a year in mortgage business.  I lose no sleep over Dodd Frank.

Priscilla Z. · Answer

No rent credits. They can be interpreted as 'financing'....this is the information I have been given.

Rob Cee · Answer

So no rent credits in LO?

Priscilla Z. · Answer

Don't finance the down payment.

Don't give rent credits.

You should be good....

We run our program similar to @Matt Moger .  We have a mortgage broker that works with us and does a "pre-qual" to let us know how long it will take for them to qualify, and we have a paper trail of the downpayment as well as the rents.  Unlike other investors, we want our tenant buyer to be successful in buying the house...but in the end it's up to them.  They have to do the work to get qualified.

Ben Leybovich · Answer

Yes they do!

Matt Moger · Answer

A Real Estate Attorney is a good place to start. Having said that, we do our best to put lease option tenants through the ringer to qualify, similar to what a bank asks for. Tax Returns, pay stubs, references, etc. The more qualified they are, the better we can prove their "ability to repay." Besides the fact that they will be more likely to succeed as a tenant buyer. The whole purpose of Dodd-Frank is consumer protection, and if we can prove that our business is providing a service verses trying to make a quick dollar on the first person with a tax return for an option fee, then there's no question as to what we are trying to do.