Archive for January, 2011

How the Safe Act and Wall Street Reform Act affect Owner Financing

January 11th, 2011

Reprinted with permission from The REALTOR® Voice, Legal Corner
Volume 13, Edition 3, Third Quarter 2010

First came the fall-out from questionable lending practices, and then came a series of state and federal laws aimed at avoiding a repeat performance.

In 2008, Congress passed the Secure and Fair Enforcement of Mortgage Licensing (SAFE) Act which set forth a minimum standard for the licensing and regulation of mortgage loan originators (MLOs). In defining MLOs, the SAFE Act exempted “a seller who provides financing to a buyer pursuant to the sale of the seller’s own residence.” The SAFE Act gave HUD the authority to usurp the regulation of MLOs from states that did not enact laws that met the minimum requirements for licensing and regulation of MLOs as set forth in the SAFE Act.

In response, in 2009, New Mexico passed the Mortgage Loan Originator Licensing Act (Act). The Act defined MLOs similarly to the SAFE Ace; however the Act exempted from the requirements of licensing a seller who offers seller’s financing on any of his/her properties, not just his/her own residence. While HUD indicated it was not in agreement with this expanded exemption, it has taken no further action. As a side side note, 14 other states have enacted an exemption similar to New Mexico’s.

The latest law to pass that affects seller financing is the Wall Street Reform and Consumer Protection Act (Wall Street Reform Act) which was signed July 21, 2010. This law broadened the definition of MLO, but again carved out an exception for seller financed transactions. The Wall Street Reform Act exempts persons who provide seller financing for the sale of no more than three properties in any 12-month period provided that the loan meets certain criteria: the loan is not made by a person that has constructed or acted as a contractor for consideration for the construction of the residence on the property in the ordinary course of business of such person; the loan is fully amortizing (no balloons); the seller has determined in good faith and with documentation that the buyer has a reasonable ability to repay the loan; the loan has a fixed rate or an adjustable rate mortgage that is adjusted after five or more years and is subject to reasonable annual and lifetime limitations on interest rate increases; and the loan meets other criteria that the federal banking agencies may prescribe.

What does this all mean? We are currently unclear as to how the different exemptions for seller-financed transactions under the Safe Act and the Wall Street Reform Act will be reconciled. Once this is determined, New Mexico will evaluate how to proceed. In the mean time, the only law certain is the New Mexico Mortgage Loan Originator Act which full exempts all seller financed transactions.

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Legal Corner provides a limited and general discussion of some, but not all, aspects of issues that is intended but not guaranteed to be accurate as of the date published. This information may become outdated and is the responsibility of the user to determine if it is current. No summary of the law is a substitute for legal advice with the respect to a particular matter. No attorney-client relationship is intended or implied. If legal advice is required, the services of a competent attorney should be obtained. RANM members are cautioned against engaging in the unauthorized practice of law by advising a consumer of legal rights and obligations or by applying the law to particular facts and circumstances. ©2010 REALTORS® Association of New Mexico.


An Update on the Laws Associated with Owner Financing in New Mexico

January 11th, 2011

At this point in time in New Mexico rules and regulations pertaining to owner financing are the same as they have always been. The State of New Mexico has exempted seller financing from their mortgage loan origination act. You can go to www.rld.state.nm.us. On the left hand side click on Financial Institutions, then click on FAQ. Scroll down to 16. (3) Mortgage Exemptions for Mortgage Loan Originators. (3) An individual who offers or negotiates terms of a real property sale financed in whole or in part by the seller and secured by the seller’s real property.

The federal government has passed two different and conflicting laws concerning owner financing. It appears that sometime in the future it will be up to the states to either adopt these new federal laws or stay with current state laws. 14 states have exempted owner financing to some degree from their mortgage loan origination acts. All states have different rules, regulations, case law and statutes. But, as of now, RANM, my attorneys and I are all in agreement that owner financing is exempt from any of these regulations in New Mexico. I am attaching an article that legal counsel for RANM recently released.