I’m apparently still stirring up hornets’ nests with my newsletter article stating that people who sell “dwellings” and hold some or all of the financing will need a mortgage loan originator’s license unless they are selling their own personal residence.
I feel very strongly about my opinion. But, everything is just an opinion right now. No one except HUD knows for sure.Why does HUD matter? Because they are driving this bus. Here’s an excerpt from their website:
- The SAFE Act’s licensing and registration standards for mortgage loan originators are minimum standards. (See section 1505(b).) Legislation enacted or regulations promulgated by a state may exceed the minimum standards of the SAFE Act. States may not, however, enact legislation, promulgate regulations, or otherwise impose requirements that would frustrate the objectives of the SAFE Act, keeping in mind that the SAFE Act’s primary objectives include provision of a comprehensive licensing and supervisory system with uniform application and reporting requirements. (Reprinted from http://www.hud.gov/offices/hsg/ramh/safe/cmsl.cfm
The National Association of Realtors asked HUD to give an exemption for more than just seller financing of the seller’s own personal residence. NAR asked HUD to extend the exemption to people who don’t do this very often, maybe only 5 or 10 times a year. HUD (or the Senate) listened, and the final legislation gave an exemption for people who seller finance only 5 times a year. HERE is the NAR letter. Unfortunately, Alabama’s law was limited to seller’s own personal residence. As long as the Alabama law is more restrictive than the federal law, we have to use the Alabama law in Alabama.
But all of that is just reading tea leaves right now. What REALLY matters as far as the mortgage loan originator’s license goes is, what does the Alabama Banking Department think? They are going to be the ones enforcing this. So, I’ve sent an email to them, asking two questions:
- Does seller financing require a license if the dwelling being sold is not the seller’s personal residence?
- Will a bond for title or a contract for deed be considered a transaction covered by the S.A.F.E. Act?
As soon as I receive an answer, I will share it with everyone.
With that being said, don’t let that lull you into a false sense of complacency about other federal requirements. Truth in Lending is a big problem lurking out there for people who engage in seller financing of dwellings. This is an area where you should not skimp on legal fees. Ask a lawyer for written advice, get a lawyer to do your documents for you, or hire a licensed and bonded mortgage loan originator for your paperwork. As many lenders today are learning, sloppiness is okay as long as everyone is making money hand over fist and making payments on time. When the economy turns downward, though, all our past sins in documentation come back to bite us on the you-know-what.