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Dodd frank act impact on seller financing for investors

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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!

Published in: Real Estate
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Dodd frank act impact on seller financing for investors

  1. 1. Dodd Frank Act Impact on Seller Financing for Investors with Richard Roop
  2. 2. 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
  3. 3. 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?
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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…
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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.
  23. 23. 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.
  24. 24. 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
  25. 25. 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
  26. 26. www.RichardRoop.com Email feedback@richardroop.com 1-800-557-3171 Ext. 109
  27. 27. 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

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