Thoughts on the SAFE Act, Dodd-Frank Act

I've been spending some time studying the consequences of recent federal and state legislation that directly affects real estate investors. I'm referring to the Act and the Dodd-Frank Act.

This Federal legislation is currently in the process of being implemented by each individual state, but my article is not written as an analysis of the federal or individual state laws by any means. These are just some of my personal thoughts that may be relevant to anyone who buys and sells single family homes as an investor.

I'm thinking about this today because sometimes I offer owner financing on single family homes and this legislation is specifically directed towards anyone who is involved in making mortgages on single family homes. The new legislation may impact my ability to sell with owner financing if investors are required to meet the requirements for Mortgage Loan Originators (MLO) that are presently being developed and implemented by each state.

The federal legislation has gone through the normal process of gathering public comment, and naturally the NAR and government agencies lobbied to protect licensed agents and , so they are exempt from the MLO requirements unless they are directly compensated by a lender. And employees of state and federal agencies involved with mortgage loans on single-family homes are also exempt. Let me repeat these two important points: Real estate licensees who participate in mortgage activities are exempt from the law unless they are compensated directly by the lender. And employees of government agencies that participate in mortgage lending activities are also exempt.

Language in the federal legislation is somewhat vague about attorneys, meaning whether an attorney's participation in mortgage lending activities on behalf of clients is exempt or not. It is going to be interesting to watch this issue unfold as the legislation moves into the enforcement phase.

So, we know that real estate licensees are exempt, attorneys may or may not be exempt, but what about real estate investors who offer seller financing? The truth is, we simply don't know yet whether investors who sell a home with owner financing will be required to meet the state requirements as an MLO. The NAR has stated that if an individual provides owner financing on 3 homes or less in a 12 month period he is exempt as well. The intent of the federal legislation is to license people who are actively engaged in making mortgage loans in the normal course of business, not homeowners who sell their one and only home on contract. The limit of three owner-financed homes per year obviously applies to investors, and obviously puts a limit on an investor's business activities. So, those of us who sell homes with owner financing in the normal course of business simply don't know exactly what to do yet.

But there is one thing we do know, sellers who provide owner financing will be responsible for determining their buyer's ability to pay. This is a separate component of the federal and state legislation, distinct from MLO requirements. The burden of determining whether or not a buyer can afford to buy a particular home is now shifted to the seller, and this burden is shifted even for sellers who are exempt from MLO requirements.

At least that's the way I understand what I've read so far. Enforcement of MLO requirements will be carried out by special consumer protection agencies created at the state level, and until various issues are tested in court those of us who sell single family homes with owner financing probably won't know exactly what to expect or what to do.

Visit Leo Kingston at his 18002SellHomes web site for more information about buying and selling homes. Leo is based in Oklahoma City and has over 3 decades of real estate experience.