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The End of Seller Financing – S.A.F.E Act

Over the past few months I’ve been getting emails from a lot of real estate teachers claiming that the new Federal S.A.F.E Act means the end of seller financing. Because of those emails, I’ve been flooded with frightened questions from my own students about this issue. “Am I breaking the law, Joe?”

 

The claim 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.

This is simply NOT true.

Seller financing is alive and well today for those who understand how to structure deals even if you DON’T have a real estate or mortgage license.

It’s scary enough starting a new business without someone telling you what you are doing is illegal. Today, in this blog post, I’m going to try and ease your fears about this issue.

Here is my take on the new Federal S.A.F.E. Act.

I do not believe it is going to affect the folks who are using my techniques. Here is why…

SAFE Act Info Regarding Selling On Terms

 

This is taken from the Legal Hotline newsletter put out by the Indiana Association of Realtors for Brokers.

It is directed at agents and brokers, but addresses the issue of dealing in Land Contracts and Lease Options specifically.

BEGIN QUOTE
“Furthermore, land contracts will 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 your client wants to sell property under a land contract, there should be no legal issue under this Act.

If title does not pass from seller to buyer, it is DFI’s position that 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.

IN SUMMARY, 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.
END QUOTE

DFI is the Department of Financial Institutions and can be found online at:
http://www.in.gov/dfi

This Is Simply Not True

But keep in mind, all of these regulations are based on the Federal SAFE Act which required compliance in all States. So other than a few amendments here and there, the State by State legislation is not going to be much different anywhere you go.

What this means to me?

The only difference that we have to keep in mind when using the things I teach is that you should no longer sell a property “subject to” if you are not the owner residence of that property. That is not a problem if you use my techniques. We don’t sell “subject to” we BUY “subject to” and then sell with a Land Contract or Lease Option. Once you understand my hierarchy of zero down structures, all this is very clear.

Ultimately, if you do what I teach, you won’t have to worry about this issue or this legislation.

 

And the beauty of having this legislation now – it will probably quiet down the political storm around mortgages for a while and forestall any other more onerous legislation (at least that is my hope).

Hope this answers the question. Keep in mind this very….

IMPORTANT NOTE: I am not an attorney. I do not even play one on TV. Don’t count on my advice as legal advice. One of the things I find is when folks are frightened about a particular issue, it makes them freeze up and hesitate to take action. If you are not comfortable with this issue, be sure to speak with a local attorney.

The bottom line? If being afraid means you don’t action, being afraid means failure.

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31 Comments

  1. March 11, 2012 at 9:24 am · Reply

    Yes, you can sell it with a land contract or contract for deed. Your name stays on the underlying deed and the new buyer makes payments to you. An attorney can set up a simple land contract document for you. This is a good way to sell properties that are not in good condition – if they are – use a lease option – it’s safer for the seller.

  2. March 5, 2012 at 4:19 pm · Reply

    I own two properties in Charlotte NC that I currently rent out. They are strickly rental, I have never lived in either.

    My question is that I have a tenant that would like to purchase one of my rentals. I do not own the properties outright. I am still paying mortgages on both. Is it possible for me to do owner financing on these rentals? If so, how? I am not an LLC, both properties are in my name and I am paying a mortgage on them to a bank.

    Thanks for you help/advise.

    Rich

  3. joy
    September 4, 2011 at 5:08 pm · Reply

    hello i was wanting to know if i purchase subject to the existing mortgage -i dont take the deed to the house in my name right ? how would one close on a subject to property would i just buy on a land contract -then put in a lease option or buy subject to then sell with land contract who gets the deed in there name ? pleae explain a a subject to deal using the safe act thanks

  4. December 15, 2010 at 1:16 pm · Reply

    Thanks Joe! I am glad our company ONLY finances through land-contracts. The SAFE act is making many a note originator quiver. Keep up the great work!

  5. November 5, 2010 at 7:14 pm · Reply

    Hi Sean, I wouldn’t do it this way. It certainly works and you could do it this way – even with the SAFE Act issues because you aren’t transferring the deed, you are just transfering your right to have the deed transferred – that sounded a bit convoluted, but you get the idea. But the problem is, it doesn’t protect your seller very well. When your seller gets hurt, it can cause you pain. Instead, if you are going to control and then sell a property, use my “For Rent” method and control the property with an assignable Lease Option Memo and then sell your right to buy on Lease Option. It’s still a good deal for the buyer and the seller is in a better position if the buyer defaults. Good question, by the way. Take care, Joe

  6. November 3, 2010 at 3:01 pm · Reply

    Hey Joe, thanks for the clarification on this ridiculous policy change.

    Here’s my question:

    An investor signs a contract with a owner occupied buyer and agrees to purchase “subject to” the existing loan. Then lines up a buyer, investor or owner occupied, to purchase the property”subject to” with a larger down payment.
    The investor then assigns his contract to the buyer for an assignment fee. (spread between the two downpayments)
    The result, the seller, being owner occupied sells the property to the buyer using the “subject to” method.

    I understand you’re not an attorney and I do have my attorney looking into it but your thoughts are appreciated.

    Thanks

  7. October 31, 2010 at 10:57 am · Reply

    Hi Kaiholo, Hopefully you understood the point I was making with this article. You don’t have a worry unless you sell a property that was not your principal residence. Then, it’s only an issue if you transfer the deed. This is not something you’d want to do anyway if you want to keep control of the property. Most investors are NOT selling their principal residence, so as long as they don’t sell by transferring deed, they are okay – it is OKAY to buy and get the deed from a home resident (which we do a lot of). Hope that helps. Joe

  8. October 30, 2010 at 7:31 pm · Reply

    Whoa, I really have to look more into this. I was about to list my home with seller financing!

  9. Joe Crump
    October 27, 2010 at 3:57 pm · Reply

    Hi Michelle, You should talk to your legal hotline at your board of realtors and keep in mind that I can’t give legal advice, but here is what I’d do. You could buy leads from anyone – they don’t have to be licensed. You cannot give commissions to non-licensed people. So – with that said, think through the process on how you can legally and profitablly pay someone for leads. Once you get the leads, you can call them. Most Realtors I know buy leads one way or another. Good luck. Joe

  10. October 27, 2010 at 11:18 am · Reply

    Thanks Joe. Very interested in becoming a licensed agent, but I don’t want to interfere w/ my ability to use bandit signs. Having to put a Broker’s name & Agent’s name on a bandit sign will definitely decrease response rates for these signs. You said that some of your agent students get around the issue by using a non-licensed partner.

    If I had a partner join my business, could I talk to the folks who call off my signs — or would my non-licensed partner have to do that?

  11. October 26, 2010 at 3:01 pm · Reply

    Hi Jason, Whenever you have legislation, you will have interpretation of that legislation. Use the interpretation from the legislative body who would enforce that legislation. If you do that, you won’t go afoul. Their interpretation is that Land Contracts and Lease Options are not included because the property deed is not transferring. Call them up if you think it will make you more comfortable – the info I gave you in this article was a direct quote from them. One thing I find is that most new investors let fear of legal issues like this keep them from moving forward. Don’t let that happen to you. Remember, if you can’t find a way to do business in this country, you just aren’t looking hard enough. I’ve been in this ever changing business for 25 years and I’m here to tell you that there is ALWAYS a legal, ethical way to make it work. Hang in there, my friend. Joe

  12. October 26, 2010 at 1:08 pm · Reply

    Maybe I have missed something, but I went to the DFI website mentioned above and was able to navigate to the following quote. “(23) “Mortgage transaction” means:
    (a) a loan; or
    (b) a consumer credit sale;
    that is or will be used by the debtor primarily for personal, family, or household purposes and that is secured by a mortgage, a land contract, or another equivalent consensual security interest on a dwelling or residential real estate.” It came from this site http://www.in.gov/legislative/ic/code/title24/ar4.4/ch1.html. I just goggled IC 24-4.4. I hope that I found old info b/c I am trying desperately a way to legally seller finance without being licensed.

  13. October 25, 2010 at 10:14 pm · Reply

    Hi Harry, If what you are saying is that the SAFE Act applies in all States, I agree. I would not agree if you said that it affects Land Contracts and Lease Options. The rulings that I have seen exempt those and several other types of seller financing as long as the deed is not transferred (which is how a Land Contract works). Joe

  14. Joe Crump
    October 25, 2010 at 10:11 pm · Reply

    Hi Michelle, If you are an agent, you have to follow the rules of the Board. They require that the Broker name be on the sign – AND that your name be on it as well, but smaller than the Broker (hmmmm, wonder who wrote those rules?). One of the ways some of my agent students get around this issue with bandit signs is to use a non-licensed partner. And “yes,” agents are also subject to the provisions of the SAFE Act. The information I gave you was from my local Board of Realtors – I have held a Broker’s license for almost 25 years and I will continue to keep my license current. Joe

  15. October 25, 2010 at 7:58 pm · Reply

    Hey Joe, this ABSOLUTELY affects real estate in Kentucky and any other state where a land contract (a/k/a contract for deed) transfers title to the property to the buyer (i.e. Kentucky, Tennessee, Illinois, Florida, and many more). In these states, title transfers and thus, the SAFE Act applies.

    Peace, Harry

  16. October 25, 2010 at 4:51 pm · Reply

    Joe, as usual your ability to explain something in simple, easy to understand terms eliminates the mystery and fear.

    And your timing couldn’t be better. Just yesterday I was thinking about this issue and guess what? The answer showed up in my inbox this morning!

    Thanks!

  17. JC
    October 25, 2010 at 4:34 pm · Reply

    Thanks for helping clear that up Joe!

  18. October 25, 2010 at 4:10 pm · Reply

    Hi Joe. Thanks for your thoughts on the SAFE Act. I’m curious about becoming a licensed real estate agent. If I were to become a licensed agent, would I still be allowed to post signs that say…

    Rent to Own
    You Can Move In Today!
    (999) 999-9999
    24 Hours

    I’ve been told that real estate agents are required to disclose the company they work for on all signs. Is this true? Are agents subject to the provisions of the SAFE Act?

  19. Joe Crump
    October 25, 2010 at 3:47 pm · Reply

    You are correct on all counts, Jerrie

  20. October 25, 2010 at 3:38 pm · Reply

    To clarify, my statement on “Subject to”:
    Owner Occupied that is, is why you can NOT sell on “Subject to” because you might be the owner, but not the Owner Occupant !!

  21. October 25, 2010 at 3:35 pm · Reply

    Thanks Joe…
    Great Article and Insight….

    According to what your saying and researching and interpetation of the S.A.F.E. act, and with your Zero down Structures…
    Does this look correct ?

    Buy Sell
    Subject to = Yes Subject to = NO
    Land Contract = Yes Land contract = Yes
    Lease Option = Yes Lease Option = Yes

    You can NOT sell on “Subject to” because the Deed would transfer and you are NOT the owner…

    Correct ?

  22. October 25, 2010 at 12:48 pm · Reply

    Good note, Van Michael. I agree. Sometimes it’s just easier to hire someone than to try to get the license yourself. On the other hand, most of the time you would never need this if you use the techiques I’m teaching. Joe

  23. October 25, 2010 at 12:17 pm · Reply

    @Ed Kearns –
    I’m not now a resident of NC, but do invest there. My research thus far shows that NC has pretty much adopted the federal rules and regs as far as the SAFE Act is concerned. Lease Options DO NOT fall under the SAFE Act. Why do you feel that seller financing and RTO is no longer available in NC as of 10-1-10?

  24. October 25, 2010 at 11:50 am · Reply

    Hi Joe,

    Thank you for your insight into the SAFE Act.

    I also understand that you could use the services of a licensed mortgage broker who has met the latest federal requirements on fee basis to draw up a TD and a Note. This way, you’re still seller financing a non-owner occupied property using a qualified mortgage broker’s services.

    You can do the same when its time for a renter to exercise his/her option.

  25. Joe Crump
    October 25, 2010 at 11:24 am · Reply

    Hi James, That isn’t the way looks to me. It doesn’t seem to be who you sell to, but who the seller is. So if you are an owner occupant, you can sell “subject to” but if you are an investor who has not lived in the house, you cannot. In that event, you just use the other zero down and financing structures that don’t require transfer of title. Again, and I hate to sound like a broken record, I’m not an attorney, but this is coming from the legistative body that I referenced in the blog article. Joe

  26. Joe Crump
    October 25, 2010 at 11:21 am · Reply

    Hi Morrion, Absolutely. What you should not do is sell properties that you have not lived in “subject to.” Use the other zero down structures I teach instead. I never sell “subject to” anyway because I want to protect my sellers. Joe

  27. Joe Crump
    October 25, 2010 at 11:20 am · Reply

    Hi Ed, it’s all based on the same Federal regulation, so even though there are minor differences in each State, the implementation will be be the same. Joe

  28. October 25, 2010 at 10:35 am · Reply

    This had me very worried thanks for clearing this up for us. I’m going to check what the low down is in my city. I liv in Denver

  29. October 25, 2010 at 10:33 am · Reply

    To my understanding if you Only sell your properties to investors,(you can bypass this problem) who will be buying the property and taking title in their corporation or LLC name as the Safe Act only applies to individuals.

  30. October 25, 2010 at 9:35 am · Reply

    How does this apply to NC? As of 10-1-10, no more seller finance or lease to own (as we once knew it, anyway).

  31. October 25, 2010 at 9:35 am · Reply

    Joe,
    I need a little clarification. So can we continue to purchase homes subject to without having to be licensure?

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