Upcoming REC Class

Posted by Lance on May 28th, 2013

Hitters REC Class
Wednesday, June 5, 2013 8:30am – 12:30pm
Coldwell Banker Legacy – 8200 Carmel

Please note: You do not have to be a Coldwell Banker broker to attend this class. All are welcome.

Learn about this frequently used creative financing tool in Real Estate. This course answers the questions most frequently asked by your buyers and sellers about real estate contracts and owner financing. Receive step-by-step instructions from listing, to offer, to title company, to escrow company, to end of contract. Learn how to structure a real estate contract to maximize its value for future sales. Registration required.

4 CE Credit Hours
[email protected]
(505) 237-8518
$45 – Cash or Check only. Pay at the door.


New Rules for Seller Fianncing

Posted by Lance on 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.


Ways Buyers Protect Themselves When Using Real Estate Contracts

Posted by Ric Thom on July 5th, 2012

There are four basic ways that buyers can protect themselves when using a real estate contract to purchase property.

  1.  Use a Title Company.  A title company can tell the buyer if the property they are purchasing is in a legal county approved subdivision.  If it is not, then the buyer does not want to purchase that property because chances are they will never get a clear title.  The title company will let the buyer know if the seller actually has the right to sell that property.  They will also let the buyer know if there are any liens or lawsuits that affect the property that the seller did not disclose.  The title company will provide the buyer with a HUD (Housing and Urban Development) closing statement which defines who pays for what and prorates property taxes.  It will be very helpful for tax purposes when the buyer goes to sell the property.  They will also issue title insurance which helps resolve any misrepresentations and defects in the title that were undiscovered at the time the buyer purchased the property.  The title insurance policy that the seller received when they purchased the property does not cover the new buyer.  The new buyer needs to get their own new policy.
  2. Record the Contract.  It is STATE LAW that you must record any document that transfers property with the county clerk.  When you enter into a real estate contract the seller has just transferred equitable title to the buyer.  You record the contract to “put the world on notice” that you have purchased this particular property (legal description) from this particular seller.  It lets the County know who the new buyer is so they can assess the property and send tax notices to the new buyer.  It will prevent the seller from selling the same property again to an unwitting buyer.  It provides the title company with a clear chain of title so they can issue title insurance.
  3. Use an Escrow Company.  This is not an option.  New Mexico case law (Montgomery vs. Cook) requires deeds to be placed with an escrow agent.  The New Mexico Appellate Court said that if the seller does not deliver a deed into escrow, the buyer does not have to make any payments and can even ask to rescind the contract and ask for all their money back.  By placing the deed in escrow you also have a third party that will prevent the seller from improperly foreclosing on or terminating the contract.  The escrow company will also provide an accurate accounting of all the buyer’s payments so the buyer can receive the deed from the escrow company upon the completion of the contract.  The buyer then records that deed with the County Clerk which puts the world on notice that they paid off the real estate contract.

Use a Realtor licensed by the New Mexico Real Estate Commission who is familiar with seller financing.  The Realtor will provide standard forms produced by the Realtor’s Association of New Mexico.  The buyer doesn’t want the purchase agreement or the contract handwritten on the back of a napkin.  The Realtor can also supply an approved seller’s disclosure form that requires the seller to disclose in writing everything from available utilities to any defects in the property.  The RANM real estate contract is a highly evolved document designed to protect both the buyer and seller that has been jointly crafted by attorneys, escrow companies, title companies and the Realtor’s Association of New Mexico using over a half a century of NM case law.

By following these four simple steps, two of which are required by law, a buyer will be well protected from any unscrupulous seller when using a real estate contract to purchase property.


25 Million Dollar Commission

Posted by Ric Thom on February 15th, 2012

In 2011 in the Albuquerque area, Bernalillo, Sandoval, and Valencia Counties there were 1431 real estate transactions closed using seller financing.  The average sales price was about $150,000.  If you assume every sale involved a realtor with an average commission of 6%, then there was about $12,879,000 in commissions paid in the Albuquerque area on seller financed transactions.  If the other 30 counties combined had as many transactions as Albuquerque, then the total number of transactions in New Mexico would be around 2862 and total commissions would be about $25,758,000.

Are you telling your buyer or seller about owner financing?  Send them to www.securityesrownews.com.  Do you want to learn more about real estate contracts or refresh your memory?  I instruct a 4 hour CE course called Practical Application of Real Estate Contracts.  Please check the class schedule.


$1,000 Security Escrow Scholarship

Posted by Ric Thom on February 2nd, 2012

Has someone in your family expressed the desire to be in the Real Estate profession?

If yes, please encourage them to apply fo rthe $1,000 GAAR / Security Escrow Real Estate Scholarship! This scholarship is awarded each year to help pay for required classes and the state exam to become a Real Estate Licensee.

To be eligible, the applicant must be 20 to 24 years old and a relative of a REALTOR® member of GAAR.  Along with a simple application form, the applicant must submit a short essay (2 – 3  paragraphs) that answers just one question – Why would a career in real estate be a good fit for you?

The deadline for submitting the application and short essay is February 8, and the recipient of the scholarship will be recognized at the GAAR Awards Gala, February 17, 2012.
This is the perfect opportunity for someone in your family to get started in a great profession.
Don’t delay! Mail, email, fax, or hand deliver your application to GAAR by February 8.
DOWNLOAD APPLICATION