The SAFE Act – The End of Seller Financing?

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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.

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 that it is going to affect the folks who are using my techniques.

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.

“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 the title does not pass, the owner is exempt.”

DFI is the Department of Financial Institutions.

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 Does this Mean 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.

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.

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