Things To Know About Seller Financed Loans
Many people see getting financing from a traditional bank or lender, to be difficult, arduous, time consuming, and too dependent on credit. And many sellers may not like it either—sellers know that their closing is conditioned on the buyer getting the financing from the lender, as a contingency to the closing.
Seller Financed Loans
That’s why some sellers who are able to do it, may opt for seller financed loans. As the name says, this is where the seller isn’t just selling the house—the seller is also loaning the money to the buyer. The seller thus sells the house, but remains as the mortgagee, the same way that a bank would.
Sellers may also get extra money from this; on top of the purchase price, the seller is ultimately realizing interest on the loan.
But there is one thing that can’t be avoided, even with seller financed loans: The requirement to follow the Dodd Frank laws.
Dodd-Frank laws are complex governmental regulations, that make you go through a number of steps, before you can loan money to anybody with a seller financed loan.
Exceptions to Following Dodd-Frank
There is one big exception to Dodd-Frank however: It doesn’t apply if you are selling your own property and you only provide seller financing one time every year. If you limit yourself to this amount, you are not a loan originator, under the definition provided in the law, and thus, the governmental regulations don’t apply to you.
Want to seller finance more than 1 property a year, and not have to follow or worry about Dodd-Frank? Well, you can finance up to three properties every year, so long as:
1) Over the entire term of the loan, it will not increase in percentage more than 6 points
2) The interest rate will not increase more than two points in any 12 month period
3) The loan cannot have any component that would lead to negative amortization
As you can tell, these are characteristics of adjustable rate mortgages. So, if you have a fixed rate loan, you are safe doing seller financing up to three times in a year (there is a requirement for fixed rate loans that they reset every 5 years, however).
You cannot be a builder; builders or contractors can never be exempt from Dodd Frank, and you must actually be the owner of the property being sold, to take advantage of the exceptions to Dodd-Frank.
Be Careful Not to Ignore Dodd-Frank
Unfortunately, to push closings to close, many realtors will give advice about whether or not Dodd-Frank applies, or needs to be followed. You should also get the advice of a real estate attorney, before opting to ignore Dodd-Frank under the assumption you are exempt.
Closing without following Dodd-Frank in a seller financed loan, can lead to the inability to foreclose, or get your money paid to you, along with other serious legal penalties.
Call a West Palm Beach real estate lawyer at The Law Offices of Larry E. Bray today for help with financing, real estate closings, and the law that will apply to your closing.