Seller Financing and Need for License?

seller financingIn 2009, Alabama passed the S.A.F.E. Mortgage Licensing Act. We had to do it because the federal government wrote the thing, and then basically threatened all the states if they didn’t pass the law. Alabama, like all the rest, knuckled under. Now we’re stuck with it.

The law says mortgage loan originators have to be licensed. I don’t have any heartburn over that. BUT, it also says that seller financing is a mortgage loan origination. As a result, people who sell their own properties and hold the financing must also have a license, or must hire someone with a license to be involved in the transaction.

There is a tiny amount of “wiggle room” in the law, and the Alabama Banking Department has taken full advantage of it, in order to help out sellers in this state. They issued what is called “The Interim Rule.” It is still in effect.

The Interim Rule exempts “an individual, as seller of his or her own real property, who originates five (5) or fewer residential mortgage loans within any twelve (12) month period from all licensing requirements of the Alabama S.A.F.E. Act…”

The time period is a rolling twelve months, not a calendar year. In other words, on the closing date of any seller financed transaction, you look back twelve months and make sure you have not had more than four other seller financings.

Important: The exemption is for individuals only. If you own property in the name of an LLC or corporation, and sell it while holding the financing, you will need to get a mortgage originator’s license, or hire someone to fill that role for you.