DODD FRANK FOR TODAY’s INVESTOR
by attorney Harry Borders
PART TWO- RESTRICTIONS ON OWNER FINANCING!!!
Here’s the GOOD NEWS… Investor buyers can STILL get financing from any source they want.
Here’s the TERRIBLE news… Owner occupant buyers now have lots of restrictions place on who they can get a loan from.
These new rules impact “contract for deeds” and “Land Contracts” as well as seller retained mortgages (and, of course, the ever present contract for deed in disguise as a lease-option) and private financing.
So, assuming an owner occupant wants to obtain a loan from a source other than a bank or mortgage company, here are the new rules.
If the lender only lends once in a 12 month period, the lender:
a) MUST be a “natural” person (i.e. not an LLC or corporation);
b) MUST have owned the property (i.e. no private financing, only owner financing);
c) MUST NOT have built the home in the ordinary course of his/her business;
d) MUST NOT have a negative amortization;
e) MUST be for at least 5 years, and if longer and adjustable, must be tied to an index rate, such as Libor
If the lender lends 2 to 3 times in a 12 month period, the lender MAY be an LLC or corporation. But the lender also:
a) MUST have owned the property (i.e. no private financing, only owner financing);
b) MUST NOT have built the home in the ordinary course of his/her business;
c) MUST NOT have a negative amortization;
d) MUST be FULLY AMORTIZED;
e) if the rate is adjustable, it must be fixed for at least 5 years, and it must be tied to an index rate, such as Libor; and
f) MUST determine in good faith that the consumer has a reasonable ability to repay the loan (similar to what a loan officer would do).
If the lender lends more than 3 times in a 12 month period,
all of the above requirements for a lender lending 2 to 3 times in a 12 month period apply and
IN ADDITION, the lender MUST BE A LICENSED LOAN OFFICER.
As you can see, navigating the waters of seller financing has again become tricky.
Please check with your real estate attorney before embarking on a seller financing transaction for a dwelling.
Until next time, peace,
P.S. Your simple solution to stay out of trouble is to never offer seller financing to any tenant / buyer or owner occupant. You can use Seller Financing to sell to other Investors, not owner occupants.