In this month’s Ultimate Training Webinar we will be covering “Dodd Frank Acts Impact on Seller Financing for Investors” and when you attend you will learn:
•How the Safe Act and Dodd-Frank will affect seller financing going forward
•Who is the Consumer Financial Protection Bureau (CFPB) and what is the Dodd-Frank Act?
•How to safely grow your business in spite of the new Dodd-Frank Act
•How to properly use the ultimate strategy and be in compliance with the Dodd-Frank Act
•What is the difference between the SAFE Act and the Dodd-Frank Act
•How to Thrive as a Real Estate Investor Under the SAFE Act!
•What you MUST know to use seller carry-back from here on out!
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Dodd frank act impact on seller financing for investors
1. Dodd Frank Act Impact on
Seller Financing
for Investors
with Richard Roop
2.
3. What you will discover
Dodd-Frank impact on
Buying with owner financing
Selling with owner financing
Borrowing from private lenders
Lending as a private investor
How to be exempt
What to do if not exempt
How to capture more profits due to
F.E.A.R. by other real estate investors
and the tighter lending guidelines
4. Disclosure
I am not an attorney
And I do not play one on TV
Seek legal advice as needed
This is not legal advice
These are my opinions
OK?
5. What is it?
The Dodd–Frank Wall Street Reform
and Consumer Protection Act
Commonly referred to as Dodd-Frank
The act created the Consumer
Financial Protection Bureau (CFPB),
to protect consumers from large,
unregulated banks
CFPB works with regulators in large
banks to stop business practices that
hurt consumers, such as risky
lending
6. What is it?
Dodd-Frank also establishes new
rules that impact seller financing
Two exemptions exist for sellers
who finance residential property
containing 1-4 units
The seller finances only ONE property in any
12 month period
The seller finances no more than THREE
properties in any 12 month period
7. GOOD NEWS!
Dodd Frank does not apply to:
Sellers who finance the purchase
of 5 or more units, vacant land, or
commercial properties
Sellers who finance to non-owner
occupants or investors
Hard money and private lenders
who finance real estate investors
8. 1) Impact on Buying
with Owner Financing
NONE
As a real estate investor, you can buy a
property for investment purposes with
owner financing
The Act does not apply to you as the buyer, or to
even to the seller, if you are not going to occupy
the property yourself
So any type of owner financing you get
when buying is exempt including
Seller carry back first liens
Second liens
Buying subject to existing financing
Lease options
9. 1) Impact on Buying
with Owner Financing
The Act does not apply to the seller
because you are buying as an investor.
It only applies to them if they sell to an
owner occupant
And even if they did, they may be
exempt under the one (1) per year
category
10. 2) Impact on Selling to an
Investor with Owner Financing
NONE
You may sell any property you own to an
investor and the Act does not apply
This includes an investor who will rehab, flip or rent the
property.
Your investor buyer can also have the intent to
resell the property with wrap around owner
financing (if you allow that) such as a contract
for deed, agreement for deed, installment land
contact, all-inclusive deed of trust or wrap-round
mortgage.
However the Act will apply to them (not you) if they
resell and finance an owner occupant buyer
11. 3) Impact on Borrowing
from a Private Lender
NONE
A key to buying and investing in property without
banks is funding your deals using private money
If you use the private money as an investor and
secure it with property you will not being using
as a primary residence then the Act does not
apply
Your private lenders are not impacted…
12. 4) Impact on Loaning Money
as a Private Investor
NONE
Buying, holding or creating privately held
mortgages with real investors is a great why to
earn above average returns protected and
secured by equity in a property
If you make loans to investors who will not
occupy the property themselves, then the Act
does not apply
What the investor eventually plans to do with
the property does not change this, as long as
they do not move into it
13. 4) Impact on Loaning Money
as a Private Investor
Making private loans to owner
occupants comes with host of other
rules and regulations (in addition to
Dodd-Frank) that you should follow…
plus other potential pitfalls.
So unless you get familiar and
comfortable will these added
complications it is recommended you
only do private real estate lending
with investors
14. 5) Impact on Selling to an Owner
Occupant with Financing
New rules to follow!
Exemption for one (1) per year by seller is a
natural person, a trust or an estate
Exemption for three (3) per year by seller is a
natural person or organization
Otherwise use or become a licensed mortgage
loan originator
15. Exemption 1
The seller finances only ONE (1) property
in any 12 month period and:
Seller is a natural person, a trust or an estate, and
Seller did not construct the property, and
Financing does not result in negative amortization,
and
Balloon is OK
Financing does not adjust for the first 5 years
Then no more than 2%
No more than 6% total
16. Exemption 2
The seller finances no more than THREE (3)
properties in any 12 month period and:
Seller is a natural person or organization
Corporation or LLC
Partnership trust
Estate
Association, etc. and
Seller did not construct the property, and
Loan is fully amortized
No balloon payment, and
Financing does not adjust for the first 5 years, and
Borrower has the reasonable ability to repay the loan
17. If not exempt
Use a residential mortgage loan originator
Write a “qualified loan”
Wait 120 days before foreclosing
No negative am or balloon
Fixed rate for 5 years
Builders can not offer financing
Consider borrowers repay ability
Consider 8 factors
18. Qualified Loan
No negative amortization
No balloon
Amortized over 30 years or less
No excessive prepayment penalty
Underwritten based on highest interest during
first 5 years
Income, assets and debts verified thru 3rd party
reports
Credit history need not be verified
19. 8 Factors
Current and expected income and assets
Current employment status
The monthly payment on loan
The monthly payment on any simultaneous loan
Current debt obligations, alimony and child
support
Monthly debt to income ratio
Credit history
20. 120 day rule
Wait 120 days to start foreclosure
Loss mitigation
Loan modification
If you do more than 3 deals per
entity, the Act applies
21. Being exempt
1 per year as a natural person or trust
3 per year per entity
LLC
Spouses LLC
IRA
Spouses IRA
Another LLC, etc
Finance non-owner occupants
Private lenders financing investors
Sellers financing investors
Investors financing investors
22. Work arounds
Sell beneficial interest in a trust
Sell an LLC
So up to 14 exempt
Tighten up your guidelines
More money down
Or rent until closed
23. SAFE Act
Passed a few years ago and implemented state-
by-state.
Basically required that you use a licensed
mortgage loan originator to sell properties with
owner financing.
The simplest solution was to hire someone to
handle the paperwork and disclosures, passing
on the cost to as one of your buyer’s closing
costs.
24. SAFE Act
Since then many states have amended the act to
allow a number exempted deals to be done each
year without needing to comply.
For some investors in some states, creating
additional entities made any limits a non issue.
However other states had no exemptions unless
you were selling your personal residence and you
had to be or use a mortgage loan originator even
for one deal.
25. SAFE Act
From a practical matter it seemed that if
you were not in compliance with the
SAFE Act the likely result of being
targeted by regulators was the
requirement to
Get licensed, or
Comply, or
Stop whatever you were doing
Investigate your state’s SAFE act
26. Situations
Buying with owner financing
No problem
Buying with private or hard money
No problem
Selling with terms to investor
No problem
Selling with terms to homebuyer
Must comply!
Or rent until closed
29. Dodd Frank Act Impact on
Seller Financing
for Investors
with Richard Roop
Call Deena at
1-800-557-3171 Ext. 109
Or email
deena@richardroop.com
Or visit
www.RichardRoop.com