Seller Financing Has New Rules - SAFE Act Implementation
UPDATED 6/6/2010
If either the seller (has used it as a residence) or buyer (will use it as a residence) the property can be owner financed without a license.
See the Texas Real Estate video excerpt (Center Attorney at Law Judon Fambrough explained it all at the recent Real Estate Center Land Conference in San Antonio.).
Seller financing has become more popular on South Padre Island over the past
couple of years as the lending rules have become stricter. However, did you
know that as of May31, 2010, a Seller
must be LICENSED in order to finance a property for a buyer??
Back in July of 2008, President George W Bush signed into law the SAFE Act,
Secure and Fair Enforcement for Mortgage Licensing Act. The SAFE Act
was to be implemented on the state level within one year, and in Texas, that
was done during the 2009 legislative session.
There are two exceptions to the new law.
- The
first one is if the home is currently the Seller's residence or will be the Buyer's residence
- The second is if the Seller is financing for a
family member.
What does this mean?
This means that Investors that own multiple properties and like to seller
finance for people who have less than stellar credit, or even people with good
credit, can no longer provide this service without being a licensed RMLO,
Residential Mortgage Loan Originator.
As
could be expected RMLO’s are ready and willing to profit from the new law.
Texas Mortgage is already offering
the service for $450.00. So the bottom line is it’s going to
cost the buyer or seller another $450 minimum to close the transaction. Whether
it would be worth it for a seller to obtain a license will depend on how many
properties he has to sell and liability issues.
However, it is important to keep
several things in mind.
- First,
the SAFE Act does not prohibit all types of seller financing. It does require a licensed mortgage originator be a part of
certain seller financed deals.
- Commercial
transactions are exempt. The SAFE Act only pertains to residential
mortgages. Always view the transaction from the buyer's perspective when
deciding whether the deal is residential or commercial.
Playing it SAFE … new licensing
requirements
Edra Anderson an
associate counsel for the Texas Association of REALTORS®." Noted the following:
On July 30, 2008, President George
W. Bush signed into law the Secure and Fair Enforcement for Mortgage Licensing
Act, commonly referred to as the SAFE Act. Contained within the federal
statute was a requirement that all states enact uniform legislation
implementing the SAFE Act within one year. In Texas, this was done during
the 2009 legislative session.
The primary purpose of the SAFE Act
is to place minimum licensure requirements on all mortgage-loan originators,
and it requires state agencies to participate in the Nationwide Mortgage
Licensing System and Registry. However, the SAFE Act also contains a small
provision that expands licensing requirements to a larger segment of the
population. To seller-finance a one-to-four-family residential
transaction involving property other than the seller’s residence, the
seller must now be licensed as a residential mortgage loan originator
(RMLO).
The five-transaction exemption is
extinct
Under the previous statutory
framework, there was something called the de minimus exemption. This allowed
sellers of one-to- four-family residential properties to seller-finance up to
five transactions in a single year without having to be licensed. The new statute
does away with that exemption.
Now, the only licensing exemptions
in this context are for the sale of the seller’s residence or if the
seller is extending financing to a family member.
To be clear, seller financing is
still allowed in Texas. However, now you must be licensed unless you meet one
of the exemptions described above. According to Texas Savings and Mortgage
Lending Department Commissioner Douglas Foster, people who intend to
continue seller financing properties other than their residence (or it will become the buyer's residence) must complete
the licensure process prior to May 31, 2010. Seller-financing these
transactions without the appropriate license is a misdemeanor offense in
Texas.
You will need an RMLO license, too,
if you provide seller financing
Becoming licensed as an RMLO entails
a process similar to obtaining a real estate license. Applicants must complete
education, submit fingerprints for background checks, pay associated fees,
sit for an exam, etc. An additional requirement is that applicants must
demonstrate some level of creditworthiness. At this time, there is no
reciprocity or exemption for other professional licenses, so real estate
licensees must also obtain an RMLO license to conduct seller financing.
If you, as a real estate licensee,
are representing a seller intent on seller financing, be sure to share this
article with your client and refer them to the Texas Savings and Mortgage
Lending Department for further information. Otherwise, that seller’s hope for a
fairy-tale ending could turn into a nightmare.
Realtors should advise clients in the special provisions clause to be clear in the offer on a property involving owner finance, who will pay for the additional fee.
Read "How SAFE makes us feel so insecure" - including links to resources about the act and licensing.
We can help with seller financing on the Island, contact us and we can let you know about properties and sellers who are willing and able to seller finance.