Seller Financing Real Estate

by cmoneyspinner

January 2014, is the effective date that Seller Financing will officially become safe for Mr. or Ms. Consumer. Tip: Consider using your IRA for real estate investing.

Dodd-Frank and SAFE Acts are two pieces of legislation aimed at protecting the American consumer or average home buyer from mortgage fraud. Both impacted the business of finance and in particular, seller financers or private lenders. Per Investopedia, a valued and respected authoritative reference for all things business, seller or owner financing is defined as "A real estate agreement where financing provided by the seller is included in the purchase price."

Before the SAFE Act and Dodd-Frank Act financial reforms, there were no restrictions on the amount of times a private party selling real estate could create or offer owner financing to another private party who wanted to buy a home. Now there's a limit of 3 real estate note transactions within a 12-month period. That has changed this type of transaction, along with other things.

The Secure and Fair Enforcement Mortgage Licensing Act, or SAFE Act, which was passed by Congress in 2008 as part of the Housing and Economic Recovery Act (HERA) established standards for the licensing and registration of state-licensed mortgage loan originators.

The effective date of the Dodd-Frank (Dodd-Frank Wall Street Reform and Consumer Protection Act) amendments to the Truth in Lending Act which pertain to seller financing rules is January 2014; but many have already taken or are taking action to comply.

Seller Financing Survived!

It's Still Legal for Owners of Real Estate to Offer Seller Financing

As a result of both Acts, the definition of who is a mortgage loan originator (MLO) is much clearer; and the registration and licensing requirements plus restrictions placed on Seller Financers should prove to be more than adequate protective measures for all parties involved in the real estate transaction.

The initial immediate concerns or complaints that limitations on being able to offer seller carryback financing would tie the hands of private investors have been addressed.

Even though private mortgage transactions are now more stringently regulated via the SAFE Act and the Dodd-Frank Act, owner or seller financing remains a real and viable alternative for those buyers who can not obtain bank financing. So at the end of the day, guess what? Despite dire predictions that the efforts of meddling lawmakers would result in the end of seller financing, information gathered by reliable industry sources indicate that private parties are still selling real property by using this creative financing strategy.

Not only are these private lending arrangements still deemed safe for both Buyer and Seller, but Note Investors also still consider them as safe investments and will pay the Seller top dollar for these secured negotiable instruments.  Tip:  Consider using your IRA for real estate investing.  Buy or create private real estate notes.

Buyer and Seller Confidence Checks

On the Plus Side ...

houseSo after all the "voices" were heard, private lending has not been severely handicapped. On the plus side, Seller Financers can now point potential Buyers to specific federal and state rules with which they are in compliance, as a sort of check-mark for consumer financial protection assurance. Though there are signs that the economy and in particular, the housing market may be improving, many cash-strapped buyers can not meet the eligibility requirements to obtain a bank loan. Seller financing is a viable means for them to make their dream of home ownership a reality; and there quite a few sellers who offer owner finance homes for sale.


Additional Information

For More Details About Seller Financing, Check With These Reliable Sources

Seller-Financing - - Mortgage and real estate terminology explained.

Seller Financing: Safe Act and the Dodd-Frank Impact  - - A PDF summarizing the impact of these two federal laws on seller financing.

Seller Carryback, new rules for 2013 The Dodd Frank Act - - Informative article by Spirit Messingham, full-time licensed Realtor based in Tuscon, Arizona.

How Dodd Frank Mortgage Laws Apply to Seller Financing - provides their understanding and insights.

Suggested Reading

It's History Now! But If We Don't Learn From History ...

Richard Bitner is a a former subprime lender who has written a book about the housing crisis that reads way better than fiction.

Sure! It's history! But If we don't learn from history then we know what is likely to happen. Again and again and again.

Bitner offers an Insider's recommendations for fixing a broken mortgage industry.

Useful for contrast and comparison to the reforms and fixes that have been implemented.

Using Your IRA to Create Seller Finance Notes

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My Perspective

As a former federal employee whose duties used to involve drafting regulations, legal rulings, policies and procedures to implement law, etc., unless the actions taken by Congress were wholly unreasonable, after people take a few deep breaths, they usually settle down, carefully examine the new rules, evaluate what the necessary changes are that they need to make in order to bring themselves into compliance, and then they do it!!

We are not all investors, but we are all consumers. NO CONSUMER = NO ECONOMY. So if you are an investor / seller financer and you had to make a few changes to follow the new rules concerning promissory notes, but you can continue to build wealth or your retirement nest egg, that's not so bad. Is it?  I'm still deciding on whether the changes deserve a Thumbs UP or a Thumbs DOWN.

Feedback Welcomed: Your Thoughts on These Changes Impacting Seller Financers?

Mom and Pop investor? Individual private party providing funding to those who don't qualify for bank loans via your IRA to increase your retirement savings? Little Guy Investor? If you built your personal wealth selling real estate by offering seller fin
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Updated: 03/26/2015, cmoneyspinner
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cmoneyspinner on 11/13/2013

@ologsinquito - Thanks!

ologsinquito on 11/05/2013

Hopefully this will put curbs on the nefarious practice of house flipping during real estate run ups. Great article and I'm pinning it.

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