Investor · Gallatin, TN · Member since 2013 · 8 posts · 4 votes
Hi,
Thanks to the Dodd Frank Law my real estate investment strategy has really changed over the past year.
I've moved away from seller financing but have been thinking about partnering with an individual mortgage loan originator so that I can again seller finance my properties. The originator can facilitate the seller financing process for a fee and I will be compliant with the law.
My strategy is to purchase C class homes for cash and offer seller financing over a ten year period.
Anyone else doing this or have worked with a MLO in this capacity? If so, I would love to hear more about it.
Yes, I know that I can OF to other investors and will do it if the deal is right, but I also want the ability to OF homes to end buyers without having to become a MLO myself.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
11y
If you, the person who extends credit by cash or by equity, do more than allowed in the state, then you are acting as a lender and will need a license. Holding yourself out to the public to provide financing is a licensed activity.
Most MLO's simply do not have enough experience to really know all the in's and out's of the law. The newer the license, the less the likelihood. There is still a ton of side line chatter all containing misconceptions of the rules as well.
In Tennessee, it's not clear what state you plan to operate, there is zero exemption from license to provide Seller Financing. ANY Seller who plans to provide a residential mortgage loans to a person or family for household or personal falls under license. In addition, the state license law requires MLO's to work for a licensed Mortgage Lender or Mortgage Broker, meaning the person with a license is not enough, said person must be employed or sponsored under a business which is also duly licensed. The MLO can not operate independently. I tend to get a sense there are rogue MLO's running around trying to find contract work.
A MLO in any state is not authorized to practice law and can not create or prepare loan documents without a state bar license. The same laws also prevent title companies or agents from doing the same. The documents need to be prepared by an attorney who is state licensed.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
11y
DF limits the investor to 3 OF's per year and some wording that I lost track of said homes must be held in the name of a "natural person".
DF wanted to put what you are wanting to do out of business. They nailed the poor builder who would owner finance their houses. Specific languange in DF targeting builders. No weasel room for builders.
I feel your game plan is also is exactly what they wanted to out law. I agree your doing the community a service but that's not the topic. :(
You're use of a LMLO does not give you an exemption to do as many deals a year as you want. You are still limited to a number. My reading believes its: 3 per year per natural person. There's a few lawyers out there that give different numbers. There's no case law so who really knows. What I do believe though is that you haven't described a viable DF compliant business. Sorry!
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
11y
If you, the person who extends credit by cash or by equity, do more than allowed in the state, then you are acting as a lender and will need a license. Holding yourself out to the public to provide financing is a licensed activity.
Most MLO's simply do not have enough experience to really know all the in's and out's of the law. The newer the license, the less the likelihood. There is still a ton of side line chatter all containing misconceptions of the rules as well.
In Tennessee, it's not clear what state you plan to operate, there is zero exemption from license to provide Seller Financing. ANY Seller who plans to provide a residential mortgage loans to a person or family for household or personal falls under license. In addition, the state license law requires MLO's to work for a licensed Mortgage Lender or Mortgage Broker, meaning the person with a license is not enough, said person must be employed or sponsored under a business which is also duly licensed. The MLO can not operate independently. I tend to get a sense there are rogue MLO's running around trying to find contract work.
A MLO in any state is not authorized to practice law and can not create or prepare loan documents without a state bar license. The same laws also prevent title companies or agents from doing the same. The documents need to be prepared by an attorney who is state licensed.
Real Estate Lender · La Jolla, CA · Member since 2014 · 54 posts · 26 votes
11y
Hi Lori,
We do these deals as a MLO in Ca and Washington and can be licensed in 40 states. If you are an investor buyer you are absolutely and completely exempt from Dodd Frank. If you are a consumer buyer (going to live in the home) then Dodd Frank applies.
Based on this statement I thought using a MLO would allow me to OF more than 3 with a MLO. Perhaps I'm interpreting it work so I appreciate your insight.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
11y
@Curt Smith you must have been posting at the same time.
Dobb Frank is a federal rule. Dobb Frank gave us the federal SAFE Act. The Federal Safe Act gave us a guideline and deadline for states to incorporate their own version of the SAFE Act. All states have implemented the act most under a relatively same name but a couple it's a little different. For instance in Tennessee they call it Tennessee Residential Lending, Brokerage and Servicing Act (Tenn. Code Ann. §§ 45-13-101). Other states call it SAFE ACT like Texas which is Texas Safe Act.
I think confusion stems from folks misunderstanding how a state law came into affect and thinking the law prevails from the federal level down. It does not really, it prevails from the state down. Each state can be different in details and many are indeed different. Not because of the act, but because of the license structure they had previously. SAFE Act did not create one uniform application for all states rather said, there is your guide, make it work in your state, sort of thing.
There are several states with zero exemption from license. It has nothing to do with litigated body of law, this is not up for litigation, the rule is the rule. Other states have from 1 to 5 exempt transactions. You have to look to the state where the subject property is located to determine what applies. Be careful getting advice from folks who are grouping everything into the same bucket, not all things are the same.
Tennessee, as I said, there are zero exceptions. As I also said, in many states, you may qualify for exemption by the number but disqualify for holding yourself out to the public to finance. Details matter.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
11y
I am not going to read that whole blog but glancing at it. The author did not understand it either. He took the guidance given by Dobb Frank for state SAFE Act adoption and assumed it would flow that way into each state. It did not. Variations of the recommended act exist amongst all of the states. Do not fall into this misconception.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
11y
Lori, another thing I'm reading into your plan, really is buying crappy houses and selling them to people willing to buy them under an OF deal. Now, in reality, who would those folks be? My bet is you're not selling to an educated buyer, with good credit, model employment histories, most likely they have little options, the are not sophisticated buyers nor are they in financing matters, really, who would buy a cheap house like that? So, your real business plan is much the same as some of the sleeze balls who did OF deals that was much of the reason why the law was passed in the first place.
Regardless of the DF issues, there are also predatory lending practices designed just for those sellers thinking along these lines, over priced dumps, no appraisals, OF usually with limited means even if they do hit ratios for high priced mortgages.
Not suggesting much more than I read. Buy homes in price ranges and condition that any bank in town would finance, sell to a 'higher class" buyer who isn't far off from qualifying for conventional loans. Otherwise, you're "trapping" a buyer.
As Dion mentions, exemptions apply in certain circumstances, not for dealers in the business and being in the financing business means being licensed as a lender, someplace you don't want to go.
I'll say what Dion mentioned in a more straight forward way, new RMLO have no business originating seller financed deals, you need someone with underwriting experience and even at that, it's a different approach than what those trained in secondary market environments were exposed to. You can find a RMLO that was a used car salesman 3 months ago, just because they may meet legal requirements doesn't mean they have a clue. And, again, Dion is correct in that RMLOs doing such deals are probably moon lighting as their sponsor won't have the background, and may not be covered as to insurance and bond requirements in generating OF deals.
Step up to a more qualified property and target market or I'd suggest just finding a different strategy in RE. :)
Investor · Gallatin, TN · Member since 2013 · 8 posts · 4 votes
11y
Hi Bill,
Thanks for your response and I certainly appreciate your perspective. I'm not in interested in predatory practices and certainly do not want to be perceived that way, so I value your insight and will re-evaluate my options. :-)
Thanks for your response and I certainly appreciate your perspective. I'm not in interested in predatory practices and certainly do not want to be perceived that way, so I value your insight and will re-evaluate my options. :-)
If you offer quality homes, not dumps, then there is nothing predatory about that.
Concord, CA · Member since 2014 · 5 posts · 0 votes
9y
Hi everybody,
Any seller buyers notes in Bay Area, Concord, Walnut Creek, Pleasant Hill, Martinez, I am new to owner finance, and I will love so guide, any info is really appreciated.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
9y
@Jared Crouch Call around to a bunch of RE attorneys / title offices asking for who originated seller financing. The title offices know who the MLO's are. Ones I've talked to, 1% to 1.5% origation fee, min $750 to $1500.
NREIA has a lobbyist working on changing max 3 to 24, will be interesting to see how the per state Safe Act limitations stay or not given a federal change for investors.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
9y
An actual occupant seller financing their own house (and being their 1st origination) to another occupant has an exemption from using an MLO. A best effort needs to be given to ATR / full doc / DTI etc. Is my recollection.
Lender · Point Lookout, NY · Member since 2017 · 88 posts · 22 votes
9y
@Jared Crouch If you are still looking for a reliable and ethical MLO in the Austin area, i would recommend Ethan Papaserge with Royal United Mortgage. Fantastic professional who would be glad to assist you if you are still looking for help in these regards.
Does Dobb Frank only apply to residential properties? I've just starting investing and was able to get a great deal on a piece of vacant tax forfeited land in Minnesota. My hope was to seller finance it but this thread has me questioning if that's a good idea. Or does anyone have a link/information to Minnesota law regarding Dobb Frank?
Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
9y
Dodd Frank does not apply to transactions solely made for investment. Purchase in an LLC your fine. The vacant land might be exempt, but your safe for sure if you buy it as an LLC.
Rental Property Investor · Knoxville, TN · Member since 2015 · 82 posts · 35 votes
9y
I'm late to the party (and not an attorney), but some of the info above is outdated.
Title 45 Chapter 13 of Tennessee Code Annotated is known as the “Tennessee Residential Lending, Brokerage and Servicing Act,” as mentioned elsewhere in this thread.
Under § 45-13-201 License Required -- Exceptions (links to LexisNexis), you can see who is exempted from the requirement for a license. Many of them are new. Of relevance is this addition:
So, you can actually owner-finance five properties per year as a "person."
Again, I'm not an attorney, but it appears to me that you can owner-finance five properties per year without a license, and you can do it with an LLC or any legal entity.