OfflineI just received an email newsletter from another forum I read about Cash Flow Notes and while I know that is not the main focus of the DG family, I still believe this information is important.
I will paraphrase as much as possible to keep this post short.
HR 1728 - WHAT IT SAYS AND WHY IT WILL HURT CONSUMERS AND SMALL BUSINESS
The U.S. Senate will soon be considering a bill that will severely restrict the property rights of millions of Americans and the way you do business going forward.
WHAT ARE WE TALKING ABOUT?
HR 1728 was recently passed by the House of Representatives with little fanfare and even less press coverage. Not until it was referred to the Senate did it grow legs and start getting the attention of everyone it will affect.
WHAT DOES IT SAY?
The proposed legislation focuses upon the predatory lending practices of yesteryear and the resulting subprime debacle, imposing stringent requirements on mortgage brokers, servicers, appraisers, etc. Unfortunately, owner financing gets caught up in the dragnet, and the impact could be devastating. The offending text of the bill is in section 101(3)(e), which defines who is exempt from being a 'licensed mortgage originator':
'(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 1 property in any 36-month period, provided that such loan--
(i) is fully amortizing;
(ii) 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;
(iii) 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
(iv) meets any other criteria the Federal banking agencies may prescribe.
WHAT DOES THIS MEAN?
As long as you provide owner financing on the sale of our property no more than one time every three years, you will not be in violation of the statute. Any individual who does sell more than one property every three years via owner financing will be in violation unless they are a 'licensed mortgage originator'. State laws vary, but typically a 'licensed mortgage originator' must have a $25,000 to $50,000 surety bond, three years mortgage origination experience, a physical business office in the state in which the property is located, and continuing education requirements. In other words, very few, if any, Mom & Pop sellers will ever jump through the hoops to become a 'licensed mortgage originator'.
WHAT KINDS OF TRANSACTIONS WILL BE COVERED?
Selling your own home using a land contract or owner-held mortgage with the intent of getting a faster sale, a higher sales price, or higher rate of interest than is available in other investments will no longer be an option (unless that sale is limited to once every three years). Carrying back second mortgages on investment properties you sell will also be a violation of the law. In fact, any kind of installment sale on residential properties (including houses, condos, mobile homes, and residential land lots more than once every three years will be subject to this legislation.
The original bill presented to the House didn't make any exceptions to owner financing. The National Association of Realtors argued to include the exception of one owner financed property every three
years. Without addressing owner financing, many in the House contended owner financing would become the 'loophole' for predatory lenders to continue their exploitative ways.
Okay, Okay, Okay, so much for paraphrasing. I hope this post helps someone.
So dose this mean that investing in property will be illegal if you sale more properties in a three year streatch.