did this pass and does it kill land contracts also?
Not yet.
Apparently something like this got passed in MS a couple years ago. We were at the closing table last week for a house we were getting owner financing on. My atty informed us that the seller couldn’t take a note on it. The only way we could do it was rent to own where he kept the deed until the house was paid in full. There were a couple exceptions for taking a note, but it was stuff like if the seller had lived in the residence and we were related to him.
http://www.hbam.com/ccmfiles/LegislativeBulletin82011.pdf?site=15
This link addresses directly the Mississippi SAFE act law…
The state of MS is in the process of redefining the ‘illegality’ of seller financing, and the state is not pursuing any violations.
The issue is effectively over control of all notes, private and public (how Statist and anti-capitalist can things get?). However, the pending legislation at the Federal Level effectively would make it illegal to write up adjustable rate notes with a balloon. So, if it goes through as-is, a seller can only finance a home using a licensed mortgage originator and must agree to finance the buyer for a full 30 years with no balloons. It’s ridiculous.
This legislation does not negatively effect Sub2 transactions, when buying or selling. It’s only IF we create a ‘wrap’ note for our equity, or a second mortgage…that this impacts us.
However, if this crap goes through as proposed, it will just mean that we seller finance using a lease with an option that just mimics the short term loan we would have made originally. That’s not hard to do.
However, the buyer won’t be able to deduct mortgage interest and depreciation from his taxes ( I don’t think…). As far as I’m concerned my buyers will simply be motivated to get a new loan faster, especially if the lease option rent is more expensive than a new loan payment would be (adjusting for taxes, insurance, etc.)
Another con to this legislation is that the lease/optionee will not be able to apply for refinancing on the property as an owner, but will be forced to apply for purchase money financing. Of course the latter is somewhat more difficult in this market. And…then we’re talking about the buyer/optionee proving down payments, etc.
OR…perhaps, we can create a straight note with the buyer, not secured by the property, with a standard 3-year fuse, and bypass the SAFE act crap …since we’re not creating a mortgage note…?
OR…perhaps we can actually give the buyer an option to buy with the right to possess the property as part of his option (without a lease), with the option consideration being paid monthly and mimicking a standard 36-month mortgage note and interest?
Meantime, the great thing about options is that the consideration is deductible to the buyer…! And equally great is that the option consideration is NOT taxable to the seller until the option is either abandoned or exercised.
Imagine…
- deferring taxes on say twenty or thirty thousand dollars in option consideration each year until the option is abandoned or exercised…
- option consideration that does NOT apply to the option price…
- continuing to deduct depreciation from our income taxes during the option period…
- continuing to deduct mortgage interest from our income taxes during the option period…
There’s a way around these progressive, anti-capitalist jack-asses. Yes, there is!
No bill is 100% fool proof.
:banghead wow, There are probably additional layers of crap to this that isn’t even understood. I will definitely write my guys here in AL and try and talk to my friends about the Socialist agenda being pulled over their eyes. it will be hard cause they are worried about green vaginas and OWS as being the new hippie movement. useful idiots…