Requirement to register with state after too many owner finances?

9 Replies

This isn't a pressing issue for me, but want a bit of clarity before logging it away to memory for future sake. I'm working on my Florida real estate pre licensing courses, and one sentence that was sort of glossed over without the law cited stood out to me: "Property owners who sell and carry the loan on more than two properties in two years may need to register with the Department of Agriculture as loan originators" While this has very little to do with being a commission agent, I'm also planning to build a personal investment portfolio. I know owner finance is always an exit strategy to consider down the line, but would doing it three times suddenly cause all sorts of red tape being a "loan originator". If so, it seems a bit excessive since you aren't actually transferring any funds anywhere. It would be easy to just simply ensure you didn't owner finance more than two in two years, but it's a detail I'd never heard mentioned before in owner financing on the sellers end. Thanks in advance for helping my curiosity after a few hours of study!

Can you please give more info on this? I am not familiar with it. I know DF can have pitfalls, but your post is news to me. What book are you getting the info from? Thanks. 

Yes, it’s intended for RE investors doing the Lonnie Deal type business. The 2 in 2 years limit helps the average homeowner doing an occasional owner finance. BTW, getting the MLO license is only like a 30-40 hour course.

Is this a federal requirement or specific to Florida? And I'm guessing this is outside of still have to have underwriting for the two?
I posted something about DF last night and was kind of wondering where that left regular homeowners that offer seller financing out of necessity to sell a house.

Different states, different rules. Someone correct me if I am wrong. The Feds limit you to 3 originations a year without a license. GA, if you are an individual, you can buy one a year I believe. If you are a business, then you need to register. Costs about $3,000. KY, you have to register and get big bond. Cost about $30,000.  See how that comma moved? Indiana, you just need to register as a foreign entity. Ohio, Michigan, nothing. IL, you need a license. WA, you need a license, but it is only a couple hundred dollars. 

Here is where you register. It is also where you get all the rules per state. I'm working on my GA registration right now. 

And that's not getting an MLO. That's just registering with the state as one who buys and sells. Getting your MLO is different.

Thank you all for the responses! I wish I had more info to offer, but I believe some other responders covered the key points. My original post is as much as I know about it personally. Definitely something to be conscious of and to know whether it is a minor sub-$1000 expense or a major game changer. It could be something brand new as the courses are always updated to be current. I'll definitely dig deeper if I'm ever at a point of owner financing several. @John Thedford I'm taking FL prelicensing courses online through real estate express. It has me read sections of the law and then backs that up and goes more in depth/detail in the textbook. This specific item wasn't covered in the portion of law I read with it and was more mentioned in passing to express that that path has more to it than just collecting payments. I love BP and how much info is readily shared. thanks guys!

@Russell Holmes  I would think you could do two in your name and, if you are married, two in your wife name....

You'll need to be a loan originator (or use one) and become a licensed sales person/broker to do more than a couple of seller financed deals per year in Michigan.  You (or the originator) will also need to follow all the Dodd-Frank rules for determining the buyers credit worthiness, etc.

FYI:  The Poverty Law group in Michigan is pressuring law makers to enact new laws to seriously impede seller financing with land contracts, lease to own or leases with options to buy.  Our state lobbying group, which I'm part of, is fighting these draft bills...just be aware that the spotlight is on you.  The group's main concern is buyers being unaware of back taxes owed, liens and/or the condition of the property (per the housing code).  They claim the unsuspecting buyers are not sophisticated enough to understand the process of due diligence, and--even though they qualify for the $5,000 price tag of the home under Dodd-Frank--they are unaware of back taxes owed, outstanding liens, condemnations by the municipality and the how much work would be needed to bring the property up to code--not just remodel it to their standards as the homeowner.  So, in some cases, these buyers put down a chunk of change, start the remodeling process only to lose the property under the contract/lease for failure to comply with tax payments and/or commitments to remodeling and repairs conditions.  In these cases, the buyer is unable to recoup any equity since mortgage/note financing was not used.  (These land contracts/leases/lease with options are typically done without the involvement of a title company which would discover these issues on behalf of the buyer.)

To avoid future issues (and accusations about your intent), at the very least, if you're going to do these types of deals, I recommend following a best practice of:

  • Qualifying the buyer using Dodd-Frank rules.
  • Disclosing back taxes/utility bills to the buyer.
  • Disclosing any known outstanding municipal notices/condemnations and where the buyer can find out how to get the property back into compliance.
  • Using documents/contracts written for use in Michigan.
  • Record the land contract/lease/lease with option.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here