Seller financing may become illegal - ACT BEFORE JULY 22, 2011

Real Estate Agent with Sand Dollar Realty Group, Inc. BK627826

When the Dodd-Frank Wall Street Reform and Protection Act was passed, it made sweeping changes to the lending, credit card, and mortgage industry.  One of the provisions is that a seller could not do more than 3 seller financing deals in a year without needing a mortgage loan originator license. The law also has provisions that such seller financing provisions must meet certain other criteria. 

Here is a direct link to the Fed proposed rule available for your comments: *** Fed's propsal - make comments here. ***

Below is some exact language regarding this provision. (If you want to read the whole passage on this law, you can follow the link above and click on the "enrolled version" under #6 and go to the very bottom of the page under Title XIV Subtitle A- Residential Mortgage Loan Origination Standards.)


Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding at the end the following new subsection: (cc) Definitions Relating to Mortgage Origination and Residential Mortgage Loans-

... (2) MORTGAGE ORIGINATOR- The term "mortgage originator"-

(A) means any person who, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain--

(i) takes a residential mortgage loan application;

(ii) assists a consumer in obtaining or applying to obtain a residential mortgage loan; or

(iii) offers or negotiates terms of a residential mortgage loan;

... (E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 3 properties in any 12-month period to purchasers of such properties, each of which is owned by such person, estate, or trust and serves as security for the loan, provided that such loan--

(i) is not made by a person, estate, or trust that has constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of such person, estate, or trust;

(ii) is fully amortizing;

(iii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;

(iv) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and

(v) meets any other criteria the Board may prescribe;

Well now the Fed is making their interpretations of this law.  They are seriously considering making homeowner's and small investors fully qualify buyers using conventional underwriting standards, 20% down payments, and no ballons (fully amortizing) in order to receive seller financing.  This will in effect kill nearly all seller financing.  And Washington wonders why the economy will not recover from this recession/depression???

Thanks to Papersource Online for highlighting this new rule and getting the word out.  Papersource goes into great detail of important items you can mention in your letters to Washington.

Below is some of the actual language in the Fed rule:

The revisions to the regulation, which implements the Truth in Lending Act (TILA), are being made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans).

Consistent with the act, the proposal would provide four options for complying with the ability-to-repay requirement.

  • First, a creditor can meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the consumer's income or assets.
  • Second, a creditor can make a "qualified mortgage," which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization; the fees are within specified limits; and the creditor underwrites the mortgage payment using the maximum interest rate in the first five years. The Board is soliciting comment on two alternative approaches for defining a "qualified mortgage."
  • Third, a creditor operating predominantly in rural or underserved areas can make a balloon-payment qualified mortgage. This option is meant to preserve access to credit for consumers located in rural or underserved areas where banks originate balloon loans to hedge against interest rate risk for loans held in portfolio.
  • Finally, a creditor can refinance a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment. This option is meant to preserve access to streamlined refinancings.

They are taking comments up until a deadline of Friday, July 22, 2011. 

Please spread the word, make your comments on their website, and notify your Congressman and 2 Senators of this anti-business, anti-real estate rule.


Mortgage / Finance
Silent Majority
Florida Real Estate Investors
Tea Party
seller financing illegal
seller financing outlawed

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Marco Giancola
Beachfront Realty - Miami Beach, FL
Realtor (305)608-1922, Miami Beach Florida

Hey Rob-this seems like somewhere where the Feds need to just stay out of. How could they really control this?

Jul 16, 2011 06:29 AM #1
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

I am willing it is the banks lobbying for this action.   Even tho they don't want to lend to 'good' people.

Jul 16, 2011 06:35 AM #2
Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

The government, at all levels, has become so intrusive and so restrictive that it is absolutely obscene.

Jul 16, 2011 06:47 AM #3
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

I've had people ask me how could they really enforce this.  It is actually easier than you think.  2 ways to enforce it.

1.  Some jealous person files a complaint.

2.  When the seller who did the financing starts filing foreclosure, the buyer hires an attorney who then puts up this law as a defense to fight the foreclosure, get the seller in trouble, etc.


Jul 16, 2011 06:47 AM #4
Ron Brown NMLS #270845
NMLS ID: 40831 - Federal Way, WA
Rob, thanks for the heads up. This is just one more example of government gone wild. I will be offering my comments, and forwarding this to as many as possible.
Jul 16, 2011 12:42 PM #5
Roseville Rental Properties - Homes & Condos For Rent in Roseville / Placer County, California (916) 408-5500
Roseville Rental Properties - Roseville, CA
Property Management and Tenant Placement Services

Rob, I agree 100% with what Lenn Harley said above in comment #3. I suggested this and will re-blog it.

Jul 17, 2011 08:06 AM #6
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

That Dodd-Frank bill has caused more chaos in our industry than any other legislation in history.

Jul 17, 2011 08:15 AM #7
Daniel H. Fisher (704) 617-3544 - Charlotte, NC
MCRP - Charlotte Real Estate, NC or SC

There are always loopholes and unintended consequences with all legislation.  It seems that a smart attorney could structure a lease so it was effectively seller financing.

Jul 17, 2011 09:59 AM #8
Dale Terry
Yadkinville, NC

Who does this help?  More power to the government in our lives,  more power to banks, and it continues the undermining of small businesses, owners, etc... to be successful.  Where does the NAR stand on this I wonder. 

Jul 17, 2011 11:50 AM #9
Phill Grove
REI Maverick - Austin, TX

It seems like Government regulation is being used more to weed out competition for big business; in this case the banks.

Jul 19, 2011 09:37 AM #10
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Rob Arnold

Metro Orlando Full Service - Investor Friendly & F
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