LEGAL Twist for those doing "Subject To"???

you have to check with your state. i'm in IN and it sounded just like what you are saying, but things were changed or reinterpreted. the attorney for the Indiana Association of Realtors said basically if title doesn't pass, then you can owner finance. with subject to you are passing title, so that may outlaw that. i am working on L/O's which are fine in IN. she also stated if the owner is selling their own residence or if the seller never lived in the home. i guess it's all up to interpretation.

I recently listened to another guru about this very subject and he said that owner financing is excluded from this ruling, so I did some additional research and found this.

Looks like he was correct!

From "THE BIGGER POCKETS BLOG
An Online Real Estate Magazine

Are You Safe to Sell Under the SAFE Act?
by CLINT COONS on AUGUST 3, 2010

Every workshop I teach lately has at least 10 investors who ask me if I am familiar with the SAFE Act (Secure and Fair Enforcement Mortgage Licensing Act) enacted by the Department of Housing and Urban Development (HUD) and does it spell the end of seller financing. Many of you know that in today’s market selling real estate for full price is difficult especially with the amount of bank inventory making its way into the system and the financing restrictions banks have imposed upon would be borrowers. Thus, you can understand why investors, seeking to forego traditional financing arrangements and instead finance the purchase themselves (carryback financing), in order to entice potential buyers to buy, have expressed grave concern over the impact of this Act. Many have even proclaimed that seller financing is dead.

This notion is completely false.

Background on the SAFE Act

The SAFE Act was emplaced in order to aid in the recovery and revitalization of our residential housing market. HUD’s regulations state that "the SAFE Act strives to enhance consumer protection and reduce fraud by directing States to adopt minimum uniform standards for the licensing and registration of residential mortgage loan originators and to participate in a nationwide mortgage licensing system and registry database of residential mortgage loan originators. It sets forth a nationwide minimum standard for the licensing and registration of state-licensed mortgage loan originators." This language is straight forward in its directive to regulate mortgage loan originators and not investors. In fact, a mortgage loan originator is defined in Section 1503 (3)(A)(i) of the SAFE Act as "an individual who takes a residential mortgage loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain." This definition is the cause of much of the confusion amongst investors who think that they can no longer sell real estate and finance the purchase themselves without a license from their state. Again, I think their fear is misplaced.

In carryback financing, the seller acts in place of the bank however, a seller does not receive "compensation or gain" from negotiating loans with buyers. Seller’s compensation is derived from the sale of real estate. To classify this gain as compensation from negotiating a loan is clearly outside the intent of the parties. An interesting thought does occur and that has to do with points charged on the loan. If a seller charges points for the financing then I believe a case could be made for inclusion of the transaction under the SAFE Act guidelines.

Obviously HUD will need to issue further clarification regarding specific transaction to ease the concern of many investors; however, I believe their intent is not to disallow owners of real estate to personally finance their sales. In fact, the HUD has already taken steps to address some concerns by placing a caveat in the SAFE Act specifically for residential homeowners. In situations such as when providing financing to a buyer for the purchase of a homeowner’s residence, a license is not required.

Essentially, as long as you are selling your residential real estate (defined as real estate consisting of 4 units or less), you should not be deemed a mortgage loan originator. One final point, the SAFE Act does not apply to land — that is crystal clear."

Hope this helps!

Karen

"You are here: Home » Duncan's Opinion » Is Owner Financing Dead In Regards To New SAFE Act?

CURRENT ARTICLE
Is Owner Financing Dead In Regards To New SAFE Act?
By Duncan Wierman on Oct 26, 2010 in Duncan's Opinion, In the News

You may have been hearing news recently about the SAFE ACT that became effective October 1, 2010. Maybe you are a real estate investor who is using a "mortgage assignment" technique as a way to make money. Be very careful how you use this method of investing. The gist of the SAFE act is that if you sell a property with any kind of seller financing, you will be breaking the law if you aren’t licensed to do so.

Let's first realize that "Seller financing" is alive and well. However, there are somethings you need to do to protect yourself. You must understand and know how to structure deals if you DON’T have a mortgage license.

Here is how I understand the new Federal S.A.F.E. Act in regards to "selling on terms"

Land contracts do not fall under the SAFE ACT requirements since legal title in a land contract does not pass until the end of the payments. With seller financing, the difference is legal title passes from seller to buyer at closing. If you want to sell a property under a land contract, there should be no legal issue.'

If title does not pass from seller to buyer, it is not subject to licensure. Similarly, a lease with an option to purchase or other agreement where title does not pass is not subject to licensure.

A seller will be exempt from this Act if:

1.) Owner is selling own residence vs. a rental property;

2.) If the seller never lived in the home (investor), seller is still exempt if the property is being sold on a land contract or lease with option;

3.) If title does not pass, owner is exempt.

In summary, what does that mean to you as an investor?

If you are taking over a mortgage "subject to" and then assigning it , you will get in trouble.

If however, you take out an option to sell the property on a Lease Option or a Land Contract, you will be okay. You should no longer sell a property “subject to” if you are not the owner residence of that property. So REMEMBER THIS .... Don’t sell “subject to”!!! You BUY “subject to” and then sell with a Land Contract or Lease Option.

I am not a lawyer and you should check with your own local board of Realtors to find out what they think."

OK, so now we are back where we started!! Legal or not?

Karen

Looks like this would be a good subject for one of Dean's blogs!

Dean, HELP!

Karen

Michael . It will take more research , but I went to a real estate web site where brokers hang out to get information on legalities of ways and means plus other reasons such as finding agents , buyers , etc from them and I too did not like what I heard/read . It seems regulations are tightening up . I'm new to this but not totally new to real estate . Giving the lady at DG support her due today that she may not have understood me . From my call today to DG support I was unable to get answers on 3 legal topics (of which this is one ) or directed to someone who could without paying for a coach ! The SEC and Secretary of States through Lawmakers are getting real busy about plugging holes in the dike for real estate . Being in the position I'm in I can not afford , trouble or DGs advice of getting a real estate Attorney ,outside direct help is not free , but that is the advice you'll get . Not fear just good research and prudence to proceed forward . Right, wrong or biased understanding from 12 hours of research licensing is required . Anyone know better ????? A week ago my other part started signing up to get licensed . Humm .

William Bronchick (spelling?)a nationally known RE attorney and investor says the way I interpreted the SAFE act is correct! This guy helped author the Colorado Foreclosure Protection Act. He is the president of the largest REI club in Colorado and has written at least 10 books on RE investing. He also runs a law office. He knows the law! Lease/purchase looks better all the time. He says the way the law is written land contracts can go either way and there will most likely have to be a settled case before we will know how land contracts go. Every one be careful out there and seek legal advise before you do a subject to deal!!

Michael Mangham
MD Home Acquisitions LLC

Karen- Your articles are spot on. Lease/options are the safest way to proceed with any property you control as title does not pass. So if you buy the home "subject to", be safe at this point (until further clarification)and do a L/O. That's what we have done since 1/1/10 to be on the safe side and to get our programs down.

Michael- William B is a smart cookie and that is why we have been following his information for years.

helpme2 - Just be careful from where you get your advice and make sure the advice is intelligent and unbiased. People always talk their own book and bias it with their own liimited world.

"The gist of the SAFE act is that if you sell a property with any kind of seller financing, you will be breaking the law if you aren’t licensed to do so."

Not exactly.....in section 101 of HR 1728 where they establish definitions,......from page 6 (mortgage originator)

(E) does not include, with respect to a res-
9 idential mortgage loan, a person, estate, or trust
10 that provides mortgage financing for the sale of
11 1 property in any 36-month period, provided
12 that such loan—
13 (i) is fully amortizing;
14 (ii) is with respect to a sale for which
15 the seller determines in good faith and docu-
16 ments that the buyer has a reasonable abil-
17 ity to repay the loan;
18 (iii) has a fixed rate or an adjustable
19 rate that is adjustable after 5 or more years,
20 subject to reasonable annual and lifetime
21 limitations on interest rate increases; and
22 (iv) meets any other criteria the Fed-
23 eral banking agencies may prescribe.

http://www.rules.house.gov/111/LegText/111_hr1728_txt.pdf

so basically, mom and pop can do it once every 3 years but the investor who uses seller financing as part of his business model may have a problem. You can have sellers provide you with financing on every transaction you want. As long as the seller hasn't done it more than once in 3 years, you don't need a licensed mortgage originator. However, if you as the seller are going to offer seller financing, if you do it more than once in 3 years you will have to go thru a licensed mortgage originator.

The above is opinion and should not be construed as legal advice. As such, one should seek competant licensed legal advice for their own affairs.

You can sell as many properties as you want with seller financing. No one is saying you can't do seller financing. SAFE act just says that if you do, it has to go thru a licensed mortgage originator. Just another member you need to add to your team and one more finger in the pie cutting into your profit margin. As far as qualifying for the loan, you just have to see that the buyer has a "reasonable ability" to pay off the loan. No more "I'm a checker at Target and I make $86,000 a year."

I am still buying this way, But I do a rent to own. I do hold the title.

Randy