The SAFE Act: Most Confusing Legislation of 2010?


Today marks my 40th post for the BiggerPockets blog and yesterday I realized that up to this point I am yet to write a commentary.  That changes today.

Pardon my rant, but I think the responses to this post will help a lot of people.

Ok, seriously? I can’t think of anything that has been more confusing as the Secure and Fair Enforcement Mortgage Licensing Act (aka SAFE Act) in the real estate investing community this year.  The Act was first put in place in 2008, but recently there have been some updates made to the legislation (some of which won’t take effect until October 1). Depending on your strategy it may not mean anything at all to you, but as someone who leverages private money lenders and makes offers to homeowners that include owner/seller financing options, the SAFE Act has been a bit of a mind boggler.

I’ve spoken to real estate professionals and have also scoured the web for answers. A Google search on “S.A.F.E. Act and owner financing” or even a BiggerPockets forum search on “SAFE Act” will send your head spinning. So many different thoughts on the legislation.

I still have more questions than answers.  For example,

1) How does it effect seller financing for properties my company wants to purchase? We make cash and terms offers all the time!  If a homeowner wants to sell a property (one that is NOT his primary residence) to me and hold back a mortgage, does he need a license?

Fellow BiggerPockets blogger Clint Coons addressed this in his recent post “Are You Safe to Sell Under the SAFE Act?” and I’m still uncertain, but my take from that post is that the sellers I’m making offers to do not need to have a mortgage license in order to provide seller financing to me as an investor buyer.

2) How does it impact how my company works with private money lenders? Do they now need to have a mortgage brokers license to lend my company funds to purchase properties for long term hold? If so, is there a reasonable workaround?

3) Does each state have its own separate version of how this works and how it will be regulated?

I’m also unsure of how the federal and state governments will enforce all of this.  There seems to even be confusion among attorneys at the title companies regarding what’s ok and what’s not.  Thanks in advance to anyone who can shed some light here on what may be very well be the most confusing legislation impacting real estate investors in 2010.

So? Your Thoughts?

About Author

Shae Bynes is a real estate investor in Sunny South Florida. On her blog,, she provides helpful tips and an inside look at her real estate investing adventures -- obstacles, failures, & successes!


  1. Unknown to most anyone Wisconsin passed the SAFE Mortgage Act as part of its 2009 budget, effective 1/1/10. My notes are at:

    The WRA Newsletter offers this tip for Brokers:

    REALTOR® Practice Tips: A real estate agent negotiating a real estate transaction:

    (1) for the sale of a 1-4 family residential property or vacant land where a dwelling will be built;
    (2) where the seller will provide a land contract, a second mortgage or a purchase money mortgage loan; and
    (3) the financing provided to the buyer is for a personal, family or household purpose,

    then the real estate agent would need to be licensed as a mortgage loan originator in order to negotiate this transaction.

    • This cracks me up “Unknown to most anyone Wisconsin….” That’s part of the problem here. Even the investors in Wisconsin probably have no clue of what the rules are (or aren’t) in their state even though it was passed in January! If there’s confusion among title companies as well, then I just don’t understand how people are supposed to proceed. I guess some will choose the side of caution and others will choose the side of flying under the radar business as usual until something happens that makes things crystal clear (like getting fined or not being able to close a transaction).

      Thanks for the comment.

  2. This is a mind boggling piece of legislation for sure. You say you are clear that a seller does not need a license even if he is selling a property that isn’t his primary residence. I’m not so sure I agree. As someone who has offered seller financing in the past I have sought clarification on this very issue and received conflicting advice. Until the law is clarified to my satisfaction I will not hold a note.

    Complicating matters in my state of Nevada is the fact that this issue hasn’t been acted on yet. They’re supposed to by October 1st but the Legislature doesn’t meet again until next year.

    Our government at work!

    • Rich, I too am getting plenty of conflicting answers. And yes notice my “I think we’re relatively clear”….that statement alone shows my uncertainty still. LOL!

      The other thing is…like you’ve said, your specific state hasn’t acted on it. So what does that mean? You can operate business as usual? Or no, because its still considered a federal issue? I’m confused just asking the question. LOL!

      • “The other thing is…like you’ve said, your specific state hasn’t acted on it. So what does that mean? ”

        From talking to our lawyers the federal version does not affect transactions at this point. However all states must have this in place by March 31, 2011 per HUD. (see link below to HUD doc) So today only if you are in one of the states that has adopted the HUD model statute are you affected. There has been almost no press on the legislation in WI, but a fair amount on the Texas version. I believe four states have adopted so far. NOTE: Of course seek your own attorney’s opinion and guidance before entering into a deal involving owner financing.

        In the Texas and WI versions real estate sales people must hold the mortgage originator license if the are to legally negotiate seller finance deals.

        • Stephanie Thomas on

          I live in Texas and have decided to simply hire a loan originator to negotiate my seller finance deals. I will pass on this “loan origination fee” to the buyer. Does this not suffice, or am I missing something? I, too, would like clarification on the limitations of this act.

        • Stephanie, I wish I knew the answer. Did you run that idea by your attorney? If you’re paying a loan originator who meets the necessary license qualifications it seems that the issues would be addressed, but I’m not sure at all!

    • In Wisconsin you MUST have a license to offer any seller financing, including second mortgages, if the 1-4 unit property will be occupied by the buyer/buyer’s family except if you are selling your own personal residence.

      The part we still do not have a clear legal opinion on is if this affects lease options / rent to own agreements.

      I have been an investor – landlord of single families and duplexes for thirty some years now. I stuck with small properties as early on I thought my exit strategy would be to slowly sell out using owner financing and targeting my sales to tenants or other potential owner occupants. Lots of advantages from taxes to better than average return on your investments. Plus a good chance for buyers who may not otherwise qualify to get into a home of their own.

      Well that plan suddenly is off the table, just as the AARP is starting to send me membership applications on a regular basis. 🙂

      • Hey Tim, that’s nuts. Let me ask you this… what is you were purchasing an investment property from a motivated absentee landlord. The landlord offers seller financing to YOU as the buyer but YOU are not going to reside in the property….you’re just going to be renting it to a tenant.

        In Wisconsin, does that landlord need a license in order to sell a problem non-owner occupied property to YOU with seller financing?

        This is a part I’m really unclear about. How does your state handle this?

        • “In Wisconsin, does that landlord need a license in order to sell a problem non-owner occupied property to YOU with seller financing?”

          No, nor in the federal version.

          Investor to investor is exempt
          Owner occupant to any buyer is exempt.
          The problematic area is investor to owner occupant. (be careful as this may encompass for example you selling a place to a father who is buying it for his daughter to live in.)

      • If that’s the case, then private money lenders shouldn’t have issues either. They are an investor providing financing for another investor. I never even thought this was an issue covered by S.A.F.E. Act, but I noticed a number of people questioning the ability of private money lenders to continue business as usual.

        • ” I never even thought this was an issue covered by S.A.F.E. Act, but I noticed a number of people questioning the ability of private money lenders to continue business as usual.”

          This is not my area so I can’t say with certainty, but believe that hard money lenders working with investors would be exempt. CHECK WITH AN ATTORNEY (or at least don’t yell at me if you get into trouble)

        • LOL! No worries Tim. This is definitely on my list of items to check with the attorney about next week. Thanks for sharing what you’ve learned there in Wisconsin and I wish you the best with your specific situation!

  3. In every version of the SAFE Act that I have read the requirements apply to a residential mortgage loan; that is, a loan primarily for personal, family, or household use.”

    Based on this:
    :Sales from homeowners to investors would be exempt
    :Sales from investor to investor would be exempt
    :Hard money and private loans would be exempt

    Essentially, any transaction which does not result in seller financing to an owner-occupant seems to be exmpt from licensing.
    So, Shae, I agree with your assessment that the sellers you are making offers to do not need to be licensed to offer you seller financing since you are buying as an investor. Now, if you were buying as an owner-occupant – that’s a whole ‘nother can of worms.

    Second, your private lenders do not need to be licensed to lend you funds since you are not borrowing funds “primrily for personal, family, or household use.”

    Third, yes, each state may have its own version of the SAFE Act. The federal version sets “minimum standards,” and some states (such as TX) have enacted more stringent rules and regs.

    • Having read the rule in depth I concur, adding homeowner to homeowner is exempt and with the clarification below on hard money and private loans.

      My read: if a private loan is for a 1-4 unit property that will be occupied by the borrower or the borrower’s immediate family, the the mortgage originator licensing law applies. The same would also apply to seller financed vacant land if the borrower were to build a personal residence on it.

      Our attorney is suggesting that for all seller financed deals for 1-4 unit buildings, mixed use buildings with 1-4 residential units and vacant land that the seller obtain an affidavit from the buyer that the buyer will not occupy the property, stealing the precise language from our (WI) statute.

  4. I don’t know if it is possible to edit your commentary but I believe the statement below to be incorrect. Clint Coons was not correct in his post. Alot of people will just read the article and not the comments. You should try to fix erroneous info.

    “I believe that my fellow BiggerPockets blogger Clint Coons has addressed this in his recent post “Are You Safe to Sell Under the SAFE Act?” and my take from that post is that the sellers I’m making offers to do not need to have a mortgage license in order to provide seller financing to me as a buyer. I think we’re relatively clear on this issue (or not?). “

    • Hi Eric, thanks for the comment. Notice that even within the comments there are those who both agree and disagree with Clint’s post. I attempted to indicate my uncertainty within the commentary, but will make a small additional edit to make that uncertainty clearer to avoid confusion.

      • Actually I don’t see anyone who says they are confident Clint is correct. Either people are confident he is incorrect or they are uncertain. And those who are uncertain appear to have not actually read the law.
        If you read the law in full, it is actually very clear. Clint is not correct.

        • Hi Eric, see Bill Walston’s comments above which seems to address my question #1 (which ties into at least some of what Clint talked about). It’s not my intent to argue with you about whether Clint’s entire post is correct or incorrect, but I’ve seen and heard (even from those in the legal profession) opposing opinions on whether a seller (an absentee owner/landlord specifically) who wants to sell to me (an investor/non-owner occupant) via owner financing needs a license or not.

  5. Maybe the comment thread has gotten too confusing. That is why I advocate changing your original post and not relying on people reading/understanding the comment thread to get the truth.

    Bill does not agree with Clint. Bill is correct. Clint is incorrect.

    Here is Clint’s summation statement “Essentially, as long as you are selling your residential real estate (defined as real estate consisting of 4 units or less), you should not be deemed a mortgage loan originator.”
    This is incorrect because in the case that you are selling to an Owner-occupier who is not closely related to you (most seller-financed transactions), you must be licensed.
    As Bill correctly points out much depends on who you are selling to and what their intent is. In the case of selling to a NOO, you are always exempt. In the case of selling to an OO, you are only exempt if it is your primary residence or selling to a relative.
    Although, each state can be slightly different, this part has been pretty consistent across states and this stuff is not that new. Some states have had this in effect for well over a year.

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