Does anyone know about a new federal law, part of the new anti-predatory lender regulations that puts the same credit verification burden onto private sellers?
So that if the seller fails to do proper credit checks, income verifications, etc. and the buyer goes belly-up, the buyer can sue the seller?
This could really limit us landlords selling homes to those credit-challenged buyers. Those buyers who want owner-financing due to divorce, previous unemployment or sickness.
I just heard this from my Realtor daughter. She said her broker has stopped owner-financed listings due to the liability.
Subtitle A – Residential Mortgage Loan Organization Standards
A “Residential Mortgage Originator” is defined as any person who either receives compensation for or represents to the public that they will take a residential loan application, assist a consumer in obtaining a loan, or negotiate terms for a loan. A residential Mortgage Originator is not a person who provides financing to an individual for the purchase of 3 or more properties in a year, or a licensed real estate broker/associate.[187] All Mortgage Originators are to include on all loan documents any unique identifier of the mortgage originator provided by the Registry described in the Secure and Fair Enforcement for Mortgage Licensing Act of 2008[188]
For any residential mortgage loan, no mortgage originator may receive compensation that varies based on the term of the loan, other than the principal amount. In general, the mortgage originator can only receive payment from the consumer, except as provided in rules that may be established by the Board. Additionally, the mortgage originator must verify the consumer’s ability to pay. A violation of the “ability to repay” standard, or a mortgage that has excessive fees or abusive terms, may be raised as a foreclosure defense by a borrower against a lender without regard to any statute of limitations. The Act bans the payment of yield spread premiums or other originator compensation that is based on the interest rate or other terms of the loans.[189]
I did owner financing about 10 or 12 times. If the liability is that you don’t vet the buyer before you sell to them then that is not a risk. It is not just take on all comers, you still run the person’s credit, verify employment and rental history. Maybe I was different but my owner finance was never if you have $9,000 you move in. That is a great way to get your walls kicked in. I did not owner finance anybody whose credit profile didn’t look like they could refinance with a fanny mae mortgage within a year or 2.