SAFE act / Dodd Frank, seller financing, "de minimis" exception

15 Replies

Hello everybody!
I would like to understand the "de minimis" exception in SAFE act and Dodd Frank.
My understanding I can do three residential transactions with seller carry backs (I am the seller) per year without going through licensed loan originators... is it correct?
Basically these three transactions could be done on private terms? I wonder how flexible I could be with my contract terms?
Do I have to fulfill the "ability to pay" requirement in these first 3 transactions?

Anything specific on SAFE act in Arizona?
Thank you

You may also have your state regs to contend with besides Dodd-Frank. I suspect you would still have to comply as to the terms of your loans but as Brian stated, Bill Gulley would probably have your answer. 

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

"(g) the seller must determine, in good faith, that the consumer has a reasonable ability to repay, and while the sellers are not required to formally document how they made their good faith determination that the buyer had the ability to repay, a prudent seller should keep records in case the analysis is ever called into question. This could include current or reasonably expected income or assets, income tax returns, employment, monthly payments, debt obligations, debt to income ratios, credit history, etc."

http://barneswalker.com/seller-financing-restricti...

I would follow the walk like a duck rule You may the the exemption but if if you violate the guidelines you can still be liable There is a growing marketing campaign of attorneys advertising for owner financed buyers and bringing  lawsuits on the buyers behalf  . 

Sounds good. Thanks for the links. Will check out Bill Gulley.
So, how do you do seller financing these days: private or with licensed loan originator?

The "bust" for not properly underwriting an owner financing occupant (w an RMLO) is 

36 payments (so if OF monthly payment = 1000 per mo, thats 36K)

Down Payment

Court Costs for Buyer

Attorney's fees for Buyer

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= lots of cash for Seller to pay if court sides with Buyer.

Regardless, doing any financing where the borrower isThe Fair Trading Act governs real estate dealings, anyone along the way in a real estate transaction must not mislead or deceive, intentionally or even unintentionally in what they say, agree to or act upon. The relevant Sections of the Act are 9 and 14 (1) (b).

Section 9, is rather simple, “No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Section 14; “(1.) No person shall, in trade, in connection with the sale or grant or possible sale or grant of an interest in land or with the promotion by any means of the sale or grant of an interest in land, -

Make a false or misleading representation concerning the nature of the interest in the land, the price payable for the land, the location of the land, the characteristics of the land, the use to which the land is capable of being put or may lawfully be put, or the existence or availability of facilities associated with the land.”not qualified having the ability to pay as agreed is also predatory lending, you can get shot from that as well as Dodd-Frank, so exempt or not, follow the mortgage origination requirements. :) 

Ability To Repay consideration is mandatory for all loans.  Period.  Failure to follow can result in large fees and penalties and other legal outcomes.

Qualified Mortgages are one way to ensure ATR is followed but not all loans need to be QM loans.  There are non-Qm loans.  QM loans have a presumption that the borrower has the ability to repay and thus it is difficult for them to use that as a defense to foreclosure.  

SAFE Act is not the same in every state.  Exemptions to licensure requirements will vary widely from zero loans exempt to 5 or 6.  The exemptions generally allow for an owner to make a loan on real property they own or with their own funds but they may not have any intention to sell that loan off.  Further, they must not be considered "in the business" of making loans.  So holding yourself out to the public to make loans is more like being in the business.  Buying property specifically intended to create loans is more like being in the business.  An example to the contrary would be attempting to sell said real property but resorting to creating a loan, with no premeditated intention per se, in order to create the sale.  

Further, there is massive misconceptions about the use of RMLOs as a circumvention to licensing and compliance.  The spirit of the requirement for licensing is for the licensee to act and function like a lender.  So an RMLO taking application and underwriting would not absolve the actual funding investor from lending license requirements.  In that sense the RMLO acts solely as a loan originator, taking application and processing it.  In most states that type of person is not allowed to act on their own for compensation or gain making loans. They can not be paid from an unlicensed or non-exempt person/entity.  They work for mortgage broker business, brokerage, lender or bank.  They are prohibited from acting on their own.  YOU are acting as a lender, the RMLO is simply acting as a broker to you.  As such, you will still be required to be licensed as a lender. 

Moral of the story, there really are not any loopholes though folks attempt to conjure them up.  If you want to be a lender (even in equity) - go get your license to lend like you are supposed to.  

@Dion DePaoli thanks for your insightful post. Bear with me I'm still new and curious but your post drummed up a number of questions for me. It's my understanding (though it may be incorrect) that many commercial deals involve some form of seller financing. If there's a general understanding that selling in the commercial world will likely involve seller financing and the law claims that premeditated lending should be performed only by licensed individuals than are/should most commercial sellers be licensed to lend?

@Odie Ayaga

I do believe commercial deals are exempt from Dodd-Frank. Also vacant land. As a HML, all my loans are done to business entities on properties that are investments-not owner occupied units. Dion may have some thoughts on this.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

The law states if you do it "habitually or repeatedly." As is common, what that means will likely be a matter of case law. I personally wouldnt want to be the case that HUD charges to let the courts create the case law to decide what "habitually or repeatedly" means.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635
Originally posted by @Odie Ayaga :

@Dion DePaoli thanks for your insightful post. Bear with me I'm still new and curious but your post drummed up a number of questions for me. It's my understanding (though it may be incorrect) that many commercial deals involve some form of seller financing. If there's a general understanding that selling in the commercial world will likely involve seller financing and the law claims that premeditated lending should be performed only by licensed individuals than are/should most commercial sellers be licensed to lend?


States will vary on licensure requirements.  Some states require a commercial lending license such as Arizona.  Other states do not.  

I wouldn't say there is a general understanding that selling commercial assets usually involves seller financing.  I don't think that is true.  The universe of commercial assets is pretty big and more deals close without seller finance than with.  

Perhaps what clouds these waters for you and others is the idea that because the loan is made to an LLC for business purposes on an otherwise residential property they can claim an exemption to licensure. In example, a loan on a 2 to 4 unit property where the buyer is non-owner occupied. This is one of those things where in some states this will be OK with no license and in other states this will not be OK. For instance my Arizona example above. That state requires residential and/or commercial lending license so no transaction is exempt. Texas on the other hand does not seek to stand between two business doing business (quote from DOF) and they do not require a license if the use of the property is investment in nature and not residential/consumer.

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