Owner Financing Dodd-Frank and the SAFE Act

I have just been informed of the new rules regarding home owners who wish to extend owner financing on their properties - which goes into effect as of January 1st 2014…

This ACT / Law requires homeowners who wish to owner finance to a owner occupant must be one or use a licensed mortgage loan originator to seller financing…

In this discussion - we would like to learn more about this with your responses on how to get around this requirement and or cost associated with this new law… who wants to spend an additional 4-500 bucks on this anyhow…?

Lets start this discussion…

If you own the house, and you’re not doing more than three deals a year, you don’t need to do anything different.

[Except (at least) in California all seller financing to consumers is subject to both the SAFE Act and FranknDodd crap.]

Otherwise, you can finance “investors” only, and avoid those onerous regulations.

You can’t charge more than 8 points above the Federal Reserve Prime Rate, without being an institutional lender, and the rate can’t be adjustable, or have balloon terms shorter than 60 months. However, any other terms and conditions are limited only to what you can negotiate.

Meantime, if you get a big enough down payments, you’ll eliminate the predator borrowers that would take advantage of the ‘Frankendodd’ rules by defaulting, and then suing for all their payments back, etc.

Otherwise, you can simply use a ‘loan originator,’ which is practically the same as using an attorney, to close on your financing transactions, which is more elegant and professional in the first place.

The main issues with ignoring ‘Frankendodd,’ is that it attracts predator borrowers.

Again, you can’t finance homeowner buyers for less than five years.

Buyers have to be deemed as ‘qualifying’ for the loans by a loan originator, and if not, and the buyer defaults, he can claim ‘fraud,’ and subsequently demand all his money back including the down payment, principal and interest paid.

So, either plan on not getting paid anytime soon; having your financing terms and rates dictated by the government; or only offering financing to investors.

Things could change, but that’s my understanding as of today.

[Updated 6/26/14]

I would like to know how the people here at this forum is going to do their owner financing.
I have heard many different ways that they will do it. Some of them tell me that they are going
to do a lease option for one year and then do a contract for deed others tell me that they are
going to do it just like they was before. Also where can you find a loan originator.
And when you do find a buyer and they are self employed and hide all of their money like they should
and they cant get a qualified loan what are you to do, even though you know they can easily make
the payments.
Are you guys going to get loan originators, attorneys, or what I sure would like to know.

Also if you set up a LLC for every 3 deals would you be ok?

I would like to know anything I could about this subject

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I love owner financing! Here in San Antonio, my mentor has retired himself at 30 with owner financing 40,000K homes. That’s all he does. The advantages are 15%+ cap rate and no repairs. Great buy and hold!

Regarding Dodd Frank, you can do three deals in a year, then you need to use a loan originator for each subsequent deal. Big deal, adds $500 in costs to the front end of the deal. The investor still makes out with a 15% cap rate, at least in our market.

My mentor isn’t remotely worried about Dodd Frank. But he has been doing this for years. If you are considering getting into this, make sure you have a good mentor showing you the ropes. I am so glad I met John here in San Antonio. I’ve bought two houses and owner financed them, it works great.

Oh and regarding buyers, if they can’t show legal income, we don’t deal with them. We don’t care if they don’t pay the IRS, not our problem. But if they cannot show pay stubs, w-2s, 1099s or at least bank statements, we don’t deal with them. It’s too risky.