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.
I would love to hear your thougths.
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.
The OP in TN should read this doc. I googled: state safe act, in this case Tennessee safe act
https://www.tn.gov/assets/entities/attorneygeneral...
I could not find an exemption to licensure for any number of loans / yr. So zero may be the correct number one may do in TN under the typically tighter state Safe Act under Dodd Frank. One needs to realize that laws are layers and layers. Reading one statute at the higher layers you'd get the wrong impression. You need to chase your study into the per state regs as well and there may be may regs in those layers. Lending to occupants has the MOST layers and inter locking regs;
FWIW check out the table of contents: https://www.cuna.org/uploadedFiles/CUNA/Training_And_Events/DownLoads/CUNARegtracMortgageLendingSupplementsample.pdf
I'm posting to update this thread since I'm getting requiests for help re folks wanting to do seller finincing as an on-going business model.
Another BP pod cast got naive investors excited by Mitch Stevens (Stephens ??) and Grant Kempt. Both of these guys have gone silent since their pod cast and touting selling to occupants on a note (seller financing). I believe Grant was a TX RLMO/LMO and was touting that using a LMO bumped the investor into the fantacy land of as many non-bank originated loans to occupants in a year as you wanted. This is pure BS, fantacy and not allowed per Dodd Frank at the Fed level and more restrictively the per State Safe Act (MORE RESTRICTIVELY per state every state may be different) with the Dodd Frank at 5 per rolling 12 mo and each states Safe Act which some are 0 (ZERO) some 3 some (??) look up your state's safe act. So Grant/Mitch have since disappeared...
Folks, it is NOT a sustainable / scalable model seller financing houses to occupants.
The worst example I even hear of today from medium sized investors here in GA, as of 2019, is doing the work for equity gig; buy junkers that are not habitable (no heat, or no functional sewer system, or no servicable electric system, or solid roof) and seller financing a $30k house for $50k work for equity. Google "contract for deed preditory lenders" If you want a Cease and Decist leter from your states banking division AND a local TV station with a microphone in the face of one of your borrowers, this is the deal scenario for you...
Yes you can seller finance houses to occupants depending on your state's restriction number, remember some are zero like OH, OR, WA and others.
Yes use a locally licensed and independant LMO/RLMO, AND very importantly sell at a justifyable price (no jacked up price) and the house needs to be in good habitable condition. Your deal needs to pass the "is it a good deal for the borrower" test!!!
Go to this link to see how easy it is for borrowers to complain if they feel they where ripped off:
https://secure.consumerreports.org/ec/alert/aqsurvey?alertId=215420793
This deal scenario is a one off here and there selling to your tenants, not a volumn business model.
Also not mentioned by Mitch/Grant is the tax impilications of selling inventory. The gain on the sale is due in the year of sale. You can only take installment sale gain tax treatment on investment property (a rental) then its wise to rent for 13 mo for long term cap gains. Seller financing deals you buy and fix make no sense re Dodd Frank/Safe Act or from taxation.
IMO BP did not vet that podcast they let Mitch / Grant do some years ago, it slipped by, as this thread has let it slip by. I hope this clarification post is a help for folks considering seller financing as a business model (not).
Curt, how is your business model of flipping DW mobile homes via "rent to own" any different as a practical matter than the straight seller financing model that Mitch Stephens is touting? (Assuming you are still doing that)
I can tell you the IRS is wise to the "rent to own" thing and will treat it exactly the same as a straight seller finance, unless you do it exactly right (which takes away all of the traditional financial benefits of lease optioning).
So will Dodd Frank.
Even holding for 1 year then selling will not get around the installment sales rule if the IRS can show in tax court that your INTENT was to circumvent the law to avoid dealer status.
If you are still selling your dw on land deals on rent to own, where are you finding the funding to pull your cash out of the deal to reinvest in the next property (i.e. "BRRRR")? I cannot find ANYONE that wants to finance or cash out refi on investor mobile home deals.
It's really quite ridiculous, actually.