Seller financing limitations?

11 Replies

Hi All. My question is around seller financing.

Are there limitations around how many properties I can provide seller financing for a year, even if each property is in a separate LLC? Are there any rules and regulations I need to adhere to when financing a buyer?

Any guidance would be appreciated!

Thanks!

@Rohit Jindal No limitations that I've ever heard of, anywhere. You are of course limited by state usury laws in the interest rate you charge, but I can't imagine that there'd be a compelling government interest to limit how many private loans you could sponsor. Check with your attorney to be sure, though.

@Leon D. Thanks for the response.

Any thoughts on how the SAFE Act and/or Dodd-Frank Act apply here?

My reasonably well-informed layman opinion tells me that since you're not a government entity, nor a public or private one that's required to register with Federal or state authorities in order to conduct business, neither of these laws applies to you.

Double check, though.

@Bill Gulley and others have put a lot of information on here about the Dodd-Frank act already. I would suggest you go straight to the source and read the information yourself first though.

Originally posted by @Rohit Jindal :
Hi All. My question is around seller financing.
Are there limitations around how many properties I can provide seller financing for a year, even if each property is in a separate LLC? Are there any rules and regulations I need to adhere to when financing a buyer?

Any guidance would be appreciated!

Thanks!

It's my understanding that the limits in Dodd Frank don't apply to the number of loans you can do, rather the number of originations you are allowed to do if you are not a licensed mortgage broker. Make a hundred loans if you want. But you must be licensed or use a licensed originator if you do more than 3 per year. You must document borrower ability to repay. Putting the origination aside, there are regs you must adhere to when lending to consumers. The regs are quite specific when it comes to collections and defaults.

Read the updated reg letter at the Consumer Protection Finance Bureau. If you are lending to investors for a commercial purpose, Dodd Frank does not apply.

Originally posted by @Leon D. :
My reasonably well-informed layman opinion tells me that since you're not a government entity, nor a public or private one that's required to register with Federal or state authorities in order to conduct business, neither of these laws applies to you.
Double check, though.

Unfortunately your well-informed opinion is way off. Dodd Frank applies to anyone lending to consumer owner/occupants, including sellers providing seller financing. It's a huge issue. There are origination requirements, there are collection requirements and even private lenders must adhere to these regs. There are a few exemptions for private individuals doing one deal per year who are not required to be licensed mortgage originators. But anyone in the business who is providing financing to consumers needs to pay attention to origination and collection requirements for those loans and do what it takes to be in compliance.

It's a good thing I suggested that the OP double-check then, isn't it?

Originally posted by @Leon D. :
It's a good thing I suggested that the OP double-check then, isn't it?

My point was that even a reasonably well informed person's opinion is not relevant to Dodd Frank. DF imposes regs intended for institutional lenders on seller financing. It not sensible or intuitive and it is a burden. But it's federal law with federal penalties so it's not something to make assumptions about or ignore.

Dodd-Frank is a topic in the latest BP Podcast (#70), beginning about minute 42.

@Account Closed Thanks for all the clarifications Marie. Do you think I would meet the requirements of DF if I worked with a mortgage broker to originate the loans? I understand if you don't want to clarify since it really is a real estate lawyer type question.

Thanks!

Originally posted by @Rohit Jindal :
@K. Marie Poe Thanks for all the clarifications Marie. Do you think I would meet the requirements of DF if I worked with a mortgage broker to originate the loans? I understand if you don't want to clarify since it really is a real estate lawyer type question.

Thanks!

IMO, the only way to meet the origination requirements (once you do more deals than allowed for in the exemptions) is to use a licensed originator. Putting origination aside, the servicing and collection requirements are strict and difficult for a private seller providing financing, so you should plan on using a servicer. My last seller finance loan to an owner occupant was in December 2013 and I'm just now switching that over to a servicer.

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