Real Estate Investors Beware of the New Regulations affecting Owner Financing

Real Estate Investors who offer Owner Financing to credit challenged purchasers or to other investors who had reached the maximum amount of institutionally financed mortgage loans BEWAREYour ability to offer relief to these potential home purchasers has  been caught in the Federal Government’s regulation of the Mortgage Industry.  The Consumer Financial Protection Bureau (CFPB) has issued its Loan Originator Rule to implement the new Dodd-Frank requirements, and you may now be classified as a loan originator under the Rule.

Effective January 10, 2014, this Rule applies to sellers of residential dwellings who finances the buyer’s purchase may be considered a “loan originator” under Dodd-Frank and required to comply with certain Truth In Lending Act (TILA) rules and disclosures, unless the seller is entitled to one of two exclusions in the Rule:
“One Property Exclusion” where Seller finances only ONE property in any 12 month period, AND:
  • The Seller owns the property and is a “Natural Person”, a Trust or an Estate AND
  • The Seller did not construct or act as the contractor for the construction of the residence on the property in the ordinary course of business; AND
  • The financing does not result in negative amortization; AND
  • The financing has a fixed rate or an adjustable rate that does not adjust for the first 5 years and is subject to reasonable annual and lifetime rate adjustments limits.
OR
“Three Property Exclusion” where seller finances no more than THREE properties in any 12 month period, AND:
  • The Seller is a Natural Person or Organization (Corporation, LLC, Partnership, Trust, Estate, Association, etc) AND
  • The Seller did not construct or act as the contractor for the construction of the residence on the property in the ordinary course of business; AND
  • The loan is fully amortized, specifically there is no balloon payment or negative amortization; AND
  • The financing has a fixed rate or an adjustable rate that does not adjust for the first 5 years and is subject to reasonable annual and lifetime rate adjustments limits., AND
  • The Seller determines in good faith that the buyer/borrower has the reasonable ability to repay the loan
The Florida Bar and the Florida Realtors Legal Department have created a Seller Financing Rider (aka Purchase Money Mortgage) Rider to the Residential Contract for Sale and Purchase which is compliant with the Dodd-Frank Act regarding the types of Seller Financing permitted.  The Seller Financing options are clearly outlined in the Rider and NO OTHER OPTIONS ARE PERMITTED under Dodd-Frank. Sellers and Buyers of Seller Financed homes are urged to use a Realtor who is knowledgeable in Seller Financing Rules and utilizes the approved Seller Financing Rider (CR-3 Rev 9/14).
If you are an investor who hold or have held private mortgage notes, you are strongly urged to seek advice of Legal Counsel to determine if you  meet the exclusion criteria and your the financing you are considering offering is compliant with the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This is not, nor is it meant to be a complete list of the qualifying criteria under the Rule.  Even if the investor qualifies under the exclusion, the Purchaser is still a Consumer receiving Consumer Credit  and other compliance issues remain.  It is important to have a competent Real Estate Attorney involved in the closing for the protection of all parties. 
For information on obtaining a real estate license or are considering a career in Real Estate and live in the Tampa Bay area, Contact Nature Coast Real Estate School’s website for our schedule of classes.
Nature Coast Real Estate School offers LIVE CLASSROOM and ONLINE INSTRUCTION for Pre and Post Licensing Classes for Sales Associates and Brokers, as well as Weekend Exam Prep Courses.  We have FOUR convenient locations to serve the Real Estate Licensing needs of Pasco and Hernando Counties:
78 Commerical Way, Spring Hill  
2715 Forest Rd, Spring Hill 
11923 Oak Trail Way, Port Richey
2144 Seven Springs Blvd, Trinity 
For more information on the location and class preparation, call Jeanne Gavish at 352-650-1029 or email me at [email protected]