Archive for the ‘ Legislative Actions ’ Category

New Rules for Seller Fianncing

May 28th, 2013

The Dodd-Frank Act amended the Truth-In-Lending Act and established some new rules and regulations concerning seller financing. These new rules appear under the Loan Originator Compensation Requirements under the Truth in Lending Act that was issued January 2013. Read it here: Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z)

These rules only apply to property that includes a dwelling that the buyer is going to reside in. There are no new rules that effect seller financed transactions that include vacant land, commercial property, multi-family and single family residence where the buyer does not plan to move into the property. Most people only use seller financing a few times during their lifetime. Therefore, these new rules will not have any effect on the vast majority of property owners that offer seller financing. These new rules do not go into effect until January 10, 2014.

If you use seller financing to finance the purchase of a property with a dwelling where the buyer is going to reside you are now considered a loan originator. The following are two exclusions. If you follow these rules then you will not have to become a loan originator.

Exclusion #1

Here are the guidelines for those who plan to sell only one property in a 12 month period.

1. The natural person, estate, or trust provides seller financing for the sale of only one property in any 12-month period to purchasers of such property, which is owned by the natural person, estate or trust and serves as security for the financing. A natural person is in an individual; it is not an entity like an LLC, S-Corp, Partnership, etc.

2. The natural person, estate or trust has not constructed, or acted as a contractor for the construction, of a residence on the property in the ordinary course of business of the person.

3. The natural person, estate or trust provides seller financing that meets the following requirements:

a) The financing has a repayment schedule that does not result in negative amortization. (A balloon payment is permitted),

b) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases and provides for the rate to be determined by the addition of a margin to an index rate based on a widely available index such as US Treasury or LIBOR. An annual rate increase of up to two percent with a lifetime cap of 6 points is considered reasonable

c) The seller does not have to determine if the buyer has a reasonable ability to repay.

As you can see the only thing that has changed for seller financing in the above exclusion is the adjustable interest rate requirement. Most seller financed transactions have always used fixed rates anyway. This just tells you how to structure the interest rate if an adjustable rate is used. This will have very little impact on seller financing.

Exclusion #2

Here are the guidelines for those who plan to sell up to three properties in a 12 month period.

1. The person provides seller financing for the sale of three or fewer properties in any 12 month period to purchasers of such properties, each of which is owned by the person and serves as security for the financing. A person includes a natural person, trust, estates, LLC, S-Corp, partnership, etc.

2. The person has not constructed, or acted as a contractor for the construction, of a residence on the property in the ordinary course of business of the person.

3. The person provides seller financing that meets the following requirements:

a) The financing is fully amortizing. A balloon payment is NOT permitted

b) The financing is one that the person determines in good faith the consumer has a reasonable ability to repay. This regulation does not require retaining documentation of the determination. There is no standard for debt to income ratio or credit score.

c) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases and provides for the rate to be determined by the addition of a margin to an index rate based on a widely available index such as US Treasury or LIBOR. An annual rate increase of up to two percent with a lifetime cap of 6 points is considered reasonable.

If you are planning to offer seller financing on more than three properties within a 12 month period that have a dwelling in which the buyer is going to reside or for further clarification and interpretation you should contact the Consumer Financial Protection Bureau at (202)435-7700 or via email at [email protected]

 

 

I am not an attorney and am not giving legal advice.


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.