Friday, June 7, 2013

Seller Financing, Dodd/Frank and the SAFE Act

The regulatory landscape relating to seller financing of residential purchases (including land contracts and lease/options) has changed significantly in the past two years.

The NAR has published a helpful summary relating to some of the issues: 
Impact of Loan Originator Final Rule on Seller Financing

As usual with legislation, especially that adopted at the federal level to address an "emergency" or "crisis," people are well-advised to avoid using reasonableness as a guide to compliance.  "How could the solution to the financing crisis possibly involve removing all alternatives to conventional large bank financing," I have been asked.   

In my opinion, the SAFE Act and Dodd/Frank included fixes to largely imaginary problems  - ie consumers getting seller financing through fraudulent means or on unfair terms.  I can offer no explanation for the restrictions on seller financing except that the legislation to "fix" the financial turmoil caused by large financial institutions was drafted by the lobbies for those same large financial institutions.  Asking Dodd and Frank to guard the large bank henhouse probably makes less sense than asking Bernie Madoff to serve this function.  At least his story would make enough sense to fool the public.  There is no factual basis of which I am aware upon which to conclude that seller financing had anything to do with the financial meltdown.

To the contrary, general consensus concludes that the collaboration between the Wall Street investment banks and the mortgage lending syndicates created the home mortgage "crisis."  The financial bail-out, with which I have strenuously disagreed, covered the bets of these firms because they were "too big to fail."

Then, to add insult to our injury, these same firms drafted the legislation that is supposed to cure the problem they created.  Their cure restricts seller financing as an alternative means of purchasing a home.  They even include lease/options in the definition of a home mortgage under Dodd/Frank.

I have been working with clients including home builders, landlords who sell to tenants, and property rehab companies to work through this problem.  If you are considering selling or buying a home using seller financing such as a seller mortgage, a land contract, or an option to purchase concurrently with a lease, please contact me to discuss the implications of your particular facts.

NOTE:  This post, as always, is not intended as legal advice.  Further, this area of the law is in flux, and the author makes no representation or promise to update this information.

Attorney James N. Graham
Accession Law LLC