Seller Financing Will Change Nationwide in 2014

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Seller Financing and the Dodd-Frank Wall Street Reform and Consumer Protection Act  (“Dodd Frank”)

The Dodd-Frank Seller financing regulations go into effect January 2014.  There are two exceptions:

  1. Natural Person and not more than 1 residential loan per year meeting all requirements below.
  2. Person or Entity no more than three residential loans in any 12-month period (not necessarily from January to December) meeting all requirements below.

Natural Person – 1 Property

Check List

(read the actual Consumer Financial Protection Bureau’s (“CFPB”) Rules by clicking here, go to page 20.)

  1. You provide seller financing for only one property in any 12-month period.
  2. You owned the property securing the financing.
  3. You did not construct, or act as a contractor for the construction of, a residence on the property in your ordinary course of business.
  4. Your financing does not result in negative amortization.
  5. Your financing has a fixed rate or does not adjust for the first five years.

Person or Corporation – 3-Properties

Check List

(read the actual Consumer Financial Protection Bureau’s (“CFPB”) Rules by clicking here, go to page 21.)

  1. You provide seller financing for three or fewer residential properties in any 12-month period.
  2. You owned the properties securing the financings.
  3. You did not construct, or act as a contractor for the construction of the property.
  4. Your financing is fully amortized.
  5. Your financing has a fixed rate or does not adjust for the first five years; and
  6. The seller has determined that the borrower has the reasonable ability to repay the loan according to its terms per 12 CFR § 1026.43(c). The CFPB states you may use the criteria set forth in § 1026.43(c) or comment 36(a)(4)-1 to comply with the ability-to-repay standard.  (This could include considering earnings as evidenced by payroll or earning statements, W-2s, etc.; other income from a federal, state, or local agency providing benefits and entitlements; and/or income earned from assets (such as financial assets or rental property. The value of the dwelling may not be considered as evidence of the buyer’s ability to repay See in general, The Daily Journal of the United States Government Loan Originator Compensation Requirements Under the Truth in Lending Act (Regulation Z)
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