Seller Financing, Vacant Land, Dodd Frank

5 Replies

I bought a piece of vacant land in 2013.  I am structuring a deal to sell it with some financing.

From my understanding, Dodd Frank, does not apply to vacant land?

Are there any other rules that apply that I should watch out for?

From my understanding you're correct. Dodd-Frank doesn't apply to selling vacant land w/ seller financing. I THINK (though don't quote me on this) it has to do with the language in the actual bill, which refers to "dwellings" (e.g. structures that people can live in). 

Sorry, land where a residential property is allowed IS covered, lots or acreage, in the original Act. It is a consumer purchase when a covered dwelling can be involved, built or to be constructed. 

If it were me, I would seller finance as an investment property making that clear in the note. I would also require the note be paid in full prior to any construction of any kind, any failed project can devalue my collateral if I have to bull doze some shanty or unfinished project!

Perhaps you buyer isn't in the real estate business, doesn't mean they can't invest with an intent to speculate. I'd think that would be the best chance of avoiding trouble.

As to separate entities with the same owner, no, you do not avoid the Act. 

1. having any business entity holding property means you are in business, that means you are a dealer, not an owner occupant and business with a consumer is covered.

2. The D-F Act specifically states that ANY scheme or method used to circumvent the intent of the Act is a covered transaction. Regardless of what might be dreamed up, if consumer transactions are conducted beyond any allowed exemption by a person or entity they are covered transactions. 

3. Clearly, the intent of the Act is to regulate seller financed consumer lending in real estate, the exceptions are for an owner occupant not as to who or what may be in title.

4. Multiple entities do not evade the fact of who is behind the door, who ultimately benefits in a closely held entity or a dozen entities.

5. Another ploy has been using a spouse or family member to sell avoiding the Act, again, any scheme and who benefits, who is behind the door, marital interests, commingled funds, you are behind the door.

6. Better look too toward the Federal Trade Commission and issues with multi-layered schemes where one party or any entity benefits from transactions, they look to "who is behind the door" and how compensation is paid by consumers getting scammed. 

Finance laws are not a solo, it's not like going to a hear a soloist, you are sitting in a concert, the orchestra has several sections, woodwinds, brass, strings and percussion, they are all orchestrated to present the program. Within each section there are different parts played by individual musicians and together they produce the overall desired sound.

If you look at the 1400+ pages of the D-F Act you might notice how many different sections and musicians are involved to orchestrate the desired tone and intent of the law. Seems all the major players (federal agencies) are there, Department of Education, Agriculture, Treasury, SEC, Federal Trade Commission, HUD, Comptroller of Currency, FDIC, and more, playing in concert with the new orchestra director, the CFPB!

On another note:

There might be, somewhere, a RMLO who is an attorney or compliance officer or a very experienced underwriter, perhaps even a past regulator, that is to say there might be some very knowledgeable RMLOs. The reality is, odds are that if you meet a RMLO they will not be the expert in the room. A lady here in town worked at a retail store before getting hired to be a mortgage originator and passing the 72 hour course requirements as well as her test. She doesn't have a clue about compliance or financing, much less seller financing. At least she is sharp enough to admit it unlike some who think they have mastered finance. 

RMLOs are NOT taught about matters concerning seller financing which is different from conventional mortgages. Sorry, but the CFPB had little choice in attempting to define, teach or compose training for a specialty niche of financing at an entry level for loan originators, mostly employed by institutions. To cover seller financing matters, the easy way was to say.....originate with a RMLO.     

Point, be very skeptical of a RMLO taking an entrepreneurial position originating and underwriting privately financed transactions as they are probably not in compliance with aspects of their license with just a RMLO license. You may need to see an RMLO, but they have additional requirements acting independently they may not be aware of. If they aren't in compliance, your note is not in compliance! There are some freelancing types out there. 

My suggestion is to get with a mortgage servicer who will service private paper, they will be in a position to originate as they will probably do loan modifications, which is a new extension of credit. Chances are better too that they will have more experience due to the volume of loans and contracts under management as well as having a legal department in many cases. :)