(Secure and Fair Enforcement for Mortgage Licensing Act of 2008)

According to the HUD interpretation of the SAFE Act anyone who sells any single family house or 1-4 units and does not live in it as their primary residence, and who wants to offer the buyers the benefits of a seller carryback note is a potential criminal who needs to be watched, regulated, licensed and taxed. This despite the fact that “seller financing,” “seller carrybacks,” “seller-held notes” or any other synonym doesn’t appear anywhere in the Act — Source the paper source

 

 

These property sellers have to have government approval via licensing before they hold a note or even discuss terms of a note with a buyer who is not a member of their immediate family.  If they are not licensed they will be fined.  If they don’t pay they will go to jail. Source the paper source

 

Ok, now that I have your attention we can move forward.

 

We investors and realtors must pay attention to all the laws that are changing in our business daily and the SAFE Act is a great example of this. I have scoured the internet and have spent time with both of my lawyers to make sure I am following the rules.

You need to know that it’s not as bad as it looks. Some people are making it sound like the end of seller carrybacks or seller held notes.  But only the rules have changed and you need to adjust to them, period.

You can find copies of the SAFE Act on the ‘net so I’m not going to talk in detail about it here. Basically the Act is designed to protect consumers from getting loans they can never pay back or from not understanding what they are signing. So the feds have come up with this Act which requires testing and designates who can talk about mortgages and who can discuss terms of the loans. This is where seller carrybacks or seller financing comes into effect.

I want to look at this as an investor first and then as a realtor. As an investor who has used owner financing, I find it’s a good way to sell property and to improve your bottom line. There are a couple ways this could be done. The first is investors loaning money to other investors so they can buy property and the second is investors holding seller carry backs to the end user.

Investors loaning money to investors, according to both my attorneys, is not as a big of a problem as loaning to an end user. But they made the point of saying the investor lender must have on file all the requirements for a standard 30 year fixed mortgage. Yes, that means you need an up to date credit report, a complete mortgage application with documentation and proof of income, and proof the buyers can pay the loan back. And you need to be careful of interest and points charged as well. You must supply a good faith HUD and all required disclosures.  If you use these tools and consult an attorney, follow all the laws and use proper disclosure you should be ok.

Now if you are an investor selling to an end user you have a different set of requirements and you need to take heed. You are the one who has a “BIG TARGET ON YOUR BACK” if you continue to offer owner financing like in the past. At that time some investors just took their buyers’ deposit, gave them a loan with a high interest rate and waited for them to default on payments. Then they would take the house back and sell it again and again with the same deals. I think you’ll agree with me that those days are over, and good riddance.

The law states that you must be a licensed mortgage broker to offer and discuss terms of a mortgage. It doesn’t say you can’t offer owner financing, it says you must have a mortgage license and they (Buyer) must be able to pay for the loan.

So you need to hook up with a local mortgage broker who will handle all the requirements to meet the law. They will need to do a complete mortgage application, as already mentioned. Debt to income ratios need to be in line with standard FHA guidelines. Loan to value ratios should be the same as FHA.  In my opinion it’s going to be hard for the government to say you misrepresented your loan or cheated someone if you used all the same guidelines as FHA. And the loan should be a fixed 30 year with no points or pre-payment penalties. Very important that you own the property free and clear or pay it off when you offer the loan to the new buyer. None of this ‘wrap-around mortgage’ or ‘subject to’ stuff. If you do business that way, then you default and the end user ends up losing the home you’re going to jail quick, fast and in a hurry. Bottom line is that Congress and the banking industry think of us as parasites taking advantage of people and needing to be watched carefully. They’re more than ready to make an example of someone so use your brain.

As Realtors we have special issues to deal with relating to this law and we need to be careful we know all the facts. A good many realtors are unaware of the law or have not taken the time to look it up. Each state has different views and different interpretations. So first thing is to call your local board and get the most up to date information they have. Spend some time on BING and GOOGLE. As a realtor you cannot negotiate a mortgage without a mortgage license. This causes us a potential problem when we are helping our seller and buyer to negotiate a contract and the seller wants to offer financing. The issue here: is this their primary residence (and how long have they lived there -Check for IRS rules here) or are they an investor. Every state will be a little different here but you must know the Federal Law states that a Licensed Mortgage Broker can discuss terms.

My Real Estate attorney says that if he had a Real Estate license the first thing he would do is double the E and O insurance and triple the malpractice insurance.

We Realtors must make sure we do a good job for our clients and steer clear of any part of the seller financing option if there is one. I also think that each broker office needs a disclaimer form that states the law and how they need to proceed with owner financing. I would interview at least 3 mortgage brokers/lenders and find out if they will be offering loan services for owner financing. I would also look up private lenders and get their information so you can offer them to your sellers and buyers.

To summarize: New financing laws and regulations are being put in place frequently and rapidly. We must keep up with them, pay attention to those that affect our clients and our business and make sure we are doing the right thing and also protecting our selves and offices.

Over time the heavy hand of the government will loosen its grip and we will get a clearer understanding of what we can and cannot do. But in the mean time you need to be very careful how you operate your business.

 

 

 

                    

 

Paul J Da Costa

Is a licensed Realtor in Georgia. He is a Real Estate investor, educator, and national speaker.

 

Paul is available for select speaking engagements and can be reached at

941-716-2597

                                 paul@pauljdacosta.com

Real Estate investor

 

Ok, now that I have your attention we can move forward.

??      

Tags: advantage, application, attorney, bank, banking, bottom line, broker, business, buyer, charge, Congress, consumers, contract, credit, Debt, dedt to income, default, deposit, disclosure, documentation, Federal, feds, fha, government, government approval, home, HOUSE, hud, hud safe act, income, industry, insurance, interest, investor, investors, IRS, lawyers, lender, Licensed, loan safe act, loan to value, loans, malpractice, money, mortgage, mortgage safe act, mortgages, owner, paper source, Property, property sellers, real estate investor, Realtor, realtors, rent, safe act, seller, seller carryback note, seller financing, single family, Tax, time, value

 …BECAUSE THEY EQUATE ‘BUSY’ WITH ‘WORKING’!!! How many times have you heard someone say, “I’m just so busy I hardly ever get things done at all, much less on time”?   Most people think being busy is the same as working and it’s NOT.  It’s not even close! Studies show that we spend only 20% of our time on things that produce results (i.e. working), while 80% of our time is spent on things that produce little or no results.   Other studies show every time you get dragged into “Got-A-Minute Meetings” it takes between 15 to 30 minutes to get back to what you were working on. If this happens 6 times a day to you that’s 3 hours a day wasted. You’ve got to find ways to get that time back, and make it productive.   If this is your goal, I highly recommend you read the following books first as they will give you a good foundation. 1) Dan Kennedy NO BS Time Management For Entrepreneurs 2) Dan Kennedy NO BS Ruthless Management of People & Profits   I have to warn you though; these books get to the bottom line, and are definitely not warm and fuzzy.   I got these books because I realized I was spending more and more time on emails, phone calls and other people than I was on things important to me. I was getting over 175 calls per day and 600 or more E-Mails and I was quickly losing sight of the significant things like my family and business.   After reading these two books I worked out a series of steps to fix the situation.   First I kept track of every call that came in. I wrote the name, call time and I set up system to measure the call: 1- Business; 2- Personal; 3- BS. (If you have a person who takes forever to explain something, even if it’s a business call, you must place it in the BS category).   I figured out how much time of the call was spent in each area. If you do this for three months you will be amazed how much of your time gets wasted.   Here are my findings on my TOP FIVE offenders. ( I won’t use their names; I want to protect the guilty). Remember, you must be ruthless. It’s your time, your money and your life.   Time Bandits sorted by offence, May 2010 Subject #1: 62 calls average call 28 minutes. (1) 4 minutes (2) 2 minutes (3) 22 Minutes Subject #2: 48 calls average call 31 minutes. (1) 1 minute (3) 30 minute Subject #3: 38 calls average call 25 minutes. (2) 25 minutes Subject #4: 20 Calls average call 21 minutes (1) 8 minutes (2) 8 minutes (3) 5 minutes Subject#5: 17 Calls average call 16 minutes (1) 1 minute (3) 15 minutes   I found the best people on the phone are the people that charge you for their time (Attorneys, CPA’s etc). Hard to admit this but the lawyers were the best at it. They got to the point fast and were off the phone. So big kudos for the lawyers.   My family times were not counted and never will be. My babies know they can call and talk any time and for as long as they want. All others, forget it.   You now get the idea of how much of your time people waste. And how much of it is costing you money and lost productivity . Next I started to make changes. It took some people time to get on board but they are now following the ‘Da Costa time management program’.   First I changed my voice mail message asking them to leave their question and reason for the call so I can have an answer when I call them back. If they only leave a “call when you can” message I DO NOT RETURN THE CALL. Do this a few times and they get the hint. Also if they are in the top 15 time bandits I usually let the call go to voice mail first and I deal with it on my time.   When I do answer or return a call, I make it a point to say how much time I can take. Once I hit that time limit I end the call politely and go on to the next call or back to work on the next project.   I also set up certain times throughout the day to return calls. First I had 4 times at 30 minutes each, now I am down to 2 call times at 20 minutes each.   With E-Mail I’ve stopped filling out forms for free stuff, or forms that someone sends me, if I haven’t asked for them. If someone sends me an E-Mail that has something to do with my business or my personal life I always thank them but I make it quick. I also only answer e-mails that truly need to be answered. You can see this will take courage on your part to be ruthless with your time but the payoffs are well worth it.   Here are my results: Since I have controlled my calls (both dialed and received) I have been able to reduce my cell minutes from 5000 per month to 2500 saving $175.00 per month or $ 2100.00 a year. That alone has been worth the effort.   My productivity has doubled. I am getting more done in half the time. I also find time for myself now and time for the family. I love to read, and am now getting to read a book a week. If you’re having a hard time getting things done you need to read both the books I suggested and follow the plan. You will see the rewards quickly.   Final thought on this subject: I was in Ohio for the Dan Kennedy Wealth Days. He focused a lot on time and people management, and the bottom line is this: You have to work with difficult people some of the time. But you can limit your exposure to them since they are a drag on your business and your time. And if you have toxic people in your business and personal life you MUST AT ALL COSTS GET RID OF THEM. These people will ruin your business and suck the energy right out of you. And they will think they are doing you a favor spreading their negativity to you.   One of the members of my Real Estate group started keeping track of her time and how she was using it. She was shocked to find she was spending 2 hours a day just on Face Book and Twitter. (How much time do you spend on just these two time bandits?) She also found she was spending more than 3 hours answering E-Mails and voice mails throughout the day. So between the Face Book and other time bandits she wastes 5 hours of the work day on low productivity activities. You can bet she’ll be making some changes! How about you?   Tags: 30 minutes, A-Minute, amp, area, Bandits, BECAUSE, bottom line, business, business call, BUSYâ, call time, category, charge, courage, CPA, Dan Kennedy, deal, e mail, EQUATE, GOOD, good foundation, Happen, idea, IRS, life, losing sight, Management, May, Meetingsâ, minute, minute meetings, money, person, phone calls, productivity, profits, question, real, Real Estate, real estate group, Ruthless, show, significant things, situation, style, Subject, system, thatâ, three months, time, time management, track, Turn, two books, WORKINGâ