Seller Financing Is Under Attack – We Need Your Help Now
21. Jul, 2011
24 Comments
Proposed Rules for Seller Financing from the Federal Reserve Could Effectively End This Financing Option for Real Estate Sellers and Deny Buyers This Path to Home Ownership.
Throughout history, the right of a property owner to sell their property on their own terms to a person of their own choosing has been unquestioned. Unbelievably, this fundamental right will be significantly curtailed if not effectively eliminated by proposed new rules from the Federal Reserve implementing the Dodd Frank act. As real estate professionals, if you believe that seller financing is important to this real estate market, we need you to follow the links in this article to learn more about this issue and to make your opinion known. The deadline to officially comment on the rules is this Friday, July 22nd, 2011.
Seller financing has long been recognized as a viable alternative in real estate transactions. With the challenging market today it may become the best solution for turning this market around. One of the biggest trends today is the number of homes that are being sold with seller financing alternatives like lease options, seller carrybacks and “subject to” financing. Sellers are facing increased competition to find a traditionally qualified buyer from an ever shrinking pool.
Short of drastically reducing their selling price, they have to consider alternatives like seller financing to expand the number of potential buyers for their homes. On the other side of the transaction, potential buyers are being kept out of the market because of tightening credit standards and larger down payment requirements. There are large numbers of credit impaired, but otherwise qualified buyers (those with only a short sale or foreclosure on their credit but who still have a good income) who want to buy a home but can’t qualify for traditional financing.
Now, acting in what it calls the best interests of consumers, the federal government has decided that it needs to completely control seller financing in this country. The Dodd Frank Act at first looked like good news for seller financing because it permitted property owners to sell up to three seller financed properties per year without needing to be licensed as a loan originator. Now the proposed rules to implement the seller financing exception under Dodd Frank have been published and they are so onerous as to almost be incomprehensible.
These rules were created for the banks and institutional lenders to follow, but the government has decided in its good judgment the rules should encompass seller financed transactions as well. If these rules are passed without an exemption for seller financing, an individual who wants to sell their own home will be required to understand and comply with rules that span 169 pages and carry significant penalties that could bankrupt a Seller for noncompliance.
I don’t have the time or space to give you more details here before the comment deadline this coming Friday, so I have included several links below for you to learn more about the topic, how you can comment on the rules and also provide you with ideas and suggestions for your comments.
To learn more about the rules and how they will impact seller financing please go to: http://papersourceonline.com/2786/red-alert-seller-mortgages-may-be-outlawed-you-must-act-now/
To submit your comment on the proposed rule, go to the following link and scroll down to the bottom of the page and next to “Comments” click “Submit”.
http://www.federalreserve.gov/newsevents/press/bcreg/20110419a.htm
As real estate professionals who can speak as experts on the importance of seller financing and why it shouldn’t be part of these proposed rules, I urge you to make your voice heard by submitting your comments to the rule. Your opinion as the one’s truly in the trenches today, may carry far more weight than anyone else’s in this debate.
Author
Proposed Rules for Seller Financing from the Federal Reserve Could Effectively End This Financing Option for Real Estate Sellers and Deny Buyers This Path to Home Ownership.
Do not agree with this new Proposed Rules for Seller Financing from the Federal Reserve.
Stop it now.
Please also use the link in the article and submit your comment to let the Federal Reserve know how you feel about it.
The option of removing Seller Financing” from the RE seller is a farce. How are owners/seller supposed to function if they do not have this option. Many properties would not qualify for conventional/bank finance. These sellers/owners will loose everything and compound the current RE problems existing today.
The economy is tough enough, but to take away a buyers only possible option for home ownership is appalling. Soooo many buyers no longer qualify for bank loans with all the foreclosures and bankruptcies. Not to mention the loss of jobs that this would cause, because thousands of Seller Financing service companies would literally close. Seller financing (investing in real estate) is by far less risky than investing in the stock market. I could go on, but I believe I have made my point clear that this is an unacceptable option.
One step forward and two steps back. With all of these rules and regulation we are never going to get out of this housing mess, which by the way was caused by banks and politicians. Enough already. An individual has a right to sell their assets however they want. Who cares on how it is sold or bought or if the owner wants to take small payments, no payments or provide finance assistance. It is part of our freedom to do so. Next thing you know, we won’t be able to flush our toilets more than twice a day. Give me a break!!
I agree with you but unfortunately our government intends to control how how you sell your own home, who buys your home, the interest rate you charge, whether you will have a balloon payment and many other factors that should be your personal decision. Besides the obvious negative effect this will have on the real estate market, it is an appalling assault on our property rights and freedoms.
No surprise here. We are holding on to our slowly eroding individual rights by our teeth. Where is this government taking us? Absolute interferene where government should not go. Wake up American citizens!
The only restrictions that should be placed on seller financing deal with the seller’s underlying mortgage.If they don’t have an FHA,VA or USDA loan they don’t have the option of doing a land contract without FIRST getting an OK from their underlying lender.The only thing that makes me nervous these days is how MANY sellers are selling on LC terms,not making the payments on their own underlying mortgage and letting properties got into foreclosure..all while collecting checks they aren’t sending to lenders.For all the years(35+)that I have been involved in real estate transactions I have stressed to buyers..find out what kind of financing the seller has (if any) AND make your payments directly TO that lender minus any portion above and beyond that goes directly to the seller.So if the seller pays piti to the bank of $400..and your payment is $600..pay the bank directly the $400 and send the remaining $200 to your land contract holder.If they won’t agree to that or at minimum a monthly disclosure to you per their pmt coupon that the payment is being made..find another property to buy because this one is going to leave you sitting on the curb in no time flat.
Good Advice for Buyers. All I would add to your comment is that if the payments are made to an escrow company that forwards the payments to the underlying mortgage and to the seller, you achieve the same protection and also create a paper trail and have an independent third party in the event of a dispute over the payments.
Investors that are buying and then selling holding paper will be effectively out of the market, they will curtail there buying as they will now not spend cash to purchase. What is the point.. this must not pass!
Big brother govt once again knowing out the little guy.
You are right, the investors who buy and sell notes will avoid seller financed notes. This is because the new rules provide that if the seller does not comply with all the legal requirements, that the buyer may have the right to rescind the transaction and recover all of its payments. Anyone who purchases the note from the seller is also subject to this risk as well. Note investors may not purchase these notes or discount them significantly because of the potential for an mistake in the origination of the note by the seller.
We do not need anymore government regulations, that limit Seller’s and Buyer’s options. Too many government regulations and we destroy our freedoms.
Too many properties loosing their values with no way out but to foreclose or short-sale. What do we do when everyone is renting? And the American dream of owning a home is no longer. I do not agree with this new proposed Rules AT ALL.
I would urge those attempting to eliminate yet another tool available presently to both sellers and buyers in a very difficult conventional loan market to reconsider. It is my fear that the unintended consequences of this proposed change would have a much greater negative impact on buyers and sellers than whatever protection is contemplated if this legislation is enacted as proposed. It is ludicrous to expect a private seller to acquaint themselves with the truth and lending laws that conventional lenders have entire departments and legal teams employed to insure compliance. This appears to be yet another “over reach” regulation contemplated in the name of consumer protection.
That is a great argument Tom. Please make sure that you submit that as a comment to the Federal Reserve as well.
This is just bulls***. If seller financing is impeded, it is going to kill rural real estate. During 25 years as a Realtor in small town idaho, approx. 99% of my sales were seller financed. Conventional financing in rural areas is practicially non-existent, even more so in today’s market.
You made an excellent point! That is the kind of information about real world experience that the Federal Reserve needs to hear.
Buyers and sellers do not need their freedom to interact with one another compromised. The banks and lending institutions have their own problems and have brought them to us, the people of this country. We are done with the “bail-outs”. We need to remain “free” to choose and make our own decisions. If we want to borrow from an institution fine but if we want to negoiate with an individual, so be it. Leave us to our own choices.
What we really need is to get rid of the Federal Reserve but that isn’t going to happen.
As a real estate broker our biggest problem with selling real estate in today’s market is the banks. They are simply not interested in cooperating, helping or doing their jobs. Without owner financing even more home and land owners will go down the tubes. This is like a slow water torture. What is the government trying to do, kill us all?
I oppose further government regulation. Our freedoms are being denied if this is passed. The removal of seller financing will certainly cause an all ready poor market to deteriorate further. Where is the common sense of our legislators. Let’s stop this nonsense.
All our rights are being taken away, one by one, in favor of the government being in charge of everyday life. I cannot believe that a seller would not be able to finance his own home, if he so chose.
Often, I find that the financing is even more advantagious to the buyes.
I am a current mortgage broker and previous RE broker owner from the late 70′s until now. I can tell you that the democrats in order save our great nation have lost their minds. I guess its whatever feels right and lets do it. I listened to our President again today with his class warfare Town Hall. I can tell you that with this type of thinking, our real estate market and the professionals working in it, are UNDER ATTACK. Seller financing is the a sellers only hope in many markets. To take away this type of sales incentive for a seller could further destroy what is left of the value and equity of homes today.
Very interesting. I’ve owned Lease Option and Owner Finance Group for 4 years now and have helped hundreds of buyers and sellers. I’ve read all the comments and not much left is needed to be said. But it is very scary since this is one of my main income sources as a realtor, as well a the only means some can purchase in a world of regulated banks. It seems like this only helps those regulated banks make more money by forcing buyers to get a mortgage…first they screw us by offering horrible loans, and then we bail them out and they hold on to the money and don’t lend, and now they are probably pushing for this as well to make more money. So we are putting the people who helped cause this mess now in charge. I created Lease Option and Owner Finance Group to help people take back thier rights by keeping the banks out of the way. So depressing that this is even happening. This has to be something that the NAR can get involved in since Realtors also make a living assisting in these, as do Real Estate Attorneys and Contract Collection Companies.
I really don’t think that the Fed’s have any clue as to how many people seller financing has helped. I have the same suspicions as you do that the banking lobby was behind including seller financing into these regulations. There has certainly never been any significant problems with seller financing in the past that required this kind of strict regulation. Besides those sellers and buyers for whom seller financing may be their only option, there are also many sellers who want to earn a decent return on their equity through a seller financed note that now will have to accept a full payoff from a buyer with a conventional loan. Instead of earning a nice 8% return on their money for their retirement, they will end up having to put their in a money market accounts or a CD paying only 1 to 2% or take a chance in the stock market. I believe that NAR came to the same conclusion that seller financing was going to be regulated by these new rules a few weeks ago and was going to object to including seller financing in the rules as well. Hopefully, there were enough comments on this topic to soften the final regulations for sellers who need or want to finance the sale of their own property. However, we are assuming the worst, and we are working hard to develop legal ways to work within and around the new rules when they are issued.