Doing Lonnie Deals and the SAFE Act?

Question

I have read through the Illionis SAFE Act and I really dont understand how it will affect doing Lonnie Deals? I plan on trying them out, but while reading back articles on them, I see that SAFE act being brought up.

What affect does it really have?

Bill Gulley · Answer

Yes, as I mentiomned, use a mortgage originator or use an attorney, but I'm finding it's harder than thought initially. I made a few calls here in town and I'm not finding any independent MB that do seller financing notes or contracts. I have told one that I might provide the education if they were interested in doing such deals, but their attorney didn't like the idea of them doing them (nothing about me). There is a lender liability involved and if I were doing them it probably wouldn't be for 200 bucks and I would require servicing for every deal. As to the exemptions of doing three deals, check again and make sure that covers non-owner occupied. Each state version must be within the scope, purpose and intent of the federal act as viewed by HUD. If a state fails to provide a sufficient provision then the federal law applies. The SAFE Act specifically addresses property owners selling theirown homes, owner occupied for exemptions leaving the non-owners to comply if they are in the business of selling properties, as a dealer and that can be applied to the first deal. I have read some attorney blogs and questions concerning the Act and the exemption for attorneys is there but limited in that they must do the origination and underwriting and that staff may take care of adminstrative duties but not undertake these issues. I have not found an attorney in my area who is willing to go there. Lonnie deals are usually very skinny deals, not much money involved and buyers usually don't have a pocket full of cash for lending expenses, that's why I was saying it's probably not worth the effort. While I'm "working on" a couple of ideas to address the issues, the SAFE Act is very comprehensive in that it states that "any transaction or arrangement that effectively provides financing" (or very close to that) is covered. That means that if you came up with a way to secure the life of a first born and didn't take a security interest in the property, it would still be viewed as an arrangement to circumvent the law.....BAM, they got ya! My thinking is to use the exemptions and structure the deal as a pass through transaction, but a third party providing that pass through would likely need a license.....more later maybe.... I have also heard that Lonnie is still giving boot camps and promoting such transaction, I don't know, but I'd like to hear how the SAFE Act would not apply to what he does.....especially since MHs are specifically mentioned. Seems the SAFE Act was almost made just for Lonnie !

Bill Gulley · Answer

Ken is correct concerning looking back to the dates when compliance goes into effect, there is no limit. For a new company, the exam date will be the date any regulatory bunch shows up back to the date the company started, including affiliate and subsidiary entities. The next time they show up they will go back to the last examination date and one order of business to check on defficiencies and violations found in the last examination. And, just as the IRS can go back to the day you were born in violations of law, so can they. Money laundering is a very serious matter, BTW, and while you may skate around SEC regulations with qualified investors ordoing deals with no more than three investors, the source of money needs to be verified. You could partner with any drug dealer and wash it through rehab materials and payroll pretty eaisly. As Ken mentioned, a large dealer may profit, but for the average starting out type investor, Lonnie Deals are pretty dead in the water to start with. Many of those deals are less tha 5K, without renovations and the time and money involved getting a 2K deal done and messing with is not a profitable use of time.....especially if you have gone to the time of learning and expense to comply with laws. If you become a MO, it just wouldn't be worth the effort to put a 15K note with a wrap and net 2K. There are more profitable avenues for a MO, like brokering notes and originations. I understand that Ken's group teaches compliance and I'm sure others do too, but teaching a newbie would certainly take awhile and I bet he or others can't teach all there is for $500.00! So, unless you're going in as a dealer on a larger scale, find something else.

Ken Rishel · Answer

Second. There are 17 states in which paying a properly trained MLO to originate and sell the loans back to you to service either is prohibited (Illinois for example) or has barriers like limiting the interest rate to 7% ( like Michigan for example), or requires a debt collectors license to service the loans (many states). In the other states, the deal must be structured properly to be legal. Most MLOs do not know or understand how to do that unless someone has trained them specifically in that function. There are some MLOs doing it right because RCG personnel have trained them for some of our clients. A couple of MLOs have sought us out for specialized training and are doing a land mine business for community owners and a couple of Lonnie Dealers. The training is imperative or they will end up getting both themselves and the dealers in trouble. Why? The SAFE Act is only the tip of the iceberg. While long time Lonnie Dealers have a great deal to worry about regarding the SAFE Act, they should not ignore the other areas of compliance that goes with lending money. For example: Antil Money Laundering This rule extension goes into effect on August 13, 2012 and requires that anyone selling a manufactured home on any kind of credit set up a Compliance Management System and have it operating by that date. The penalties are severe for not doing so, and the Treasury Department has stated they intend to "back look" to the date of required compliance no matter when someone shows up to examine compliance. If they show up five years later, someone who is not compliant will owe 5 years worth of fines and penalties that will be doubled for not getting into compliance. The cost of getting the help to get AML compliant can range from reasonable to very expensive depending on the choices made of how much of the grunt work you are willing to do for yourself. [i]If you want more information on this feel free to email me.[u] As Bill Gully and others have written, there are also other issues. Despite what anyone tells you, being a Lonnie Dealer is more complicated than it use to be, and requires more capital to get your business legal than it used to. You don't have to like it, but it is what it is, and no amount of whining or magical thinking will change it. For those who have the time and resources, this changed business model will present huge opportunities. There is already one semi national Lonny Dealer stepping in to fill gaps left by those who are leaving and by all accounts they are making money by the buckets. Some will say this is just another case of a little guy losing out. Just remember Obama is your friend - he is square for the little guy like all liberals- just ask him. The solution of course is to get large enough to react and respond.

Bill Gulley · Answer

Good point Chris, you need to find a privately owned mortgage company, as a licensened lender and the broker/owner type business who will have the originator's license, then they need to have enough interest in doing this aspect of origination. When the average loan origination is a couple grand conventionally, it might be hard to ask them to use their time to make a few hundred bucks. The corporate, investor owned companies won't likely be interested and those employed won't be moonlighting.....

Will Barnard · Answer

Agree with Jason, just get a licensed mortgage broker on board.

J Scott · Answer

Or you can just hire a licensed mortgage originator to handle the loan paperwork for you. For a couple hundred bucks, he can do everything legally, and you shouldn't have to worry about the SAFE ACT. Unless I'm missing something with the SAFE ACT, that is...

Bill Gulley · Answer

Tyler, dealers are probably conforming to the new requirements. You might be seeing an ad of a homeowner selling their own MH, they are exempt generally to some limitation. A Lonnie deal is pretty well out as you would be a non-owner occupied seller unless you use a mortgage originator.....not worth trying in my opinion unless it's a nice home and I'd want land as well....

Account Closed · Answer

Actually, according to the Division of Housing in the state of Colorado, any company or individual who sells any new or used manufactured home, that is not their own property, must register with the State of Colorado. There is a maximum of one personally-owned home per year that can be sold without requiring registration. I only know this to be true because I'm a licensed manufactured home dealer in Colorado.

Joseph Ball · Answer

I tried to start doing "Lonnie Deals" in Florida, and found the regs to be excessive. The State requires you to own (and they inspect) a commercial lot of sufficient size to hold mobile homes. This is obviously a reg written by the industry to keep little guys out. My conclusion? You cannot effectively do "Lonnie deals" in Florida. Perhaps that is why Lonnie does not reside in Florida

David Niles · Answer

Thats a bite, Lonnie Deals are how a lot of us got into the business. I quit doing them many years ago but sucks for the people who are new or enjoy doing those. Anyone know if NYS has an exemption like Chris Martin posted for NC?