What is Dodd Frank?

  • 2010 – Barack Obama signed into law the 2,314 page Dodd-Frank Wall Street Reform and Consumer Protections Act.
  • Dodd-Frank Act (DFA) restructures the oversight of financial regulation and amends the TILA (Truth in Lending Act).
  • These laws effect seller financing deals originated on or after January 10, 2014 and occupied by buyer as primary residence. i.e. Owner occupied.
  • Commercial transactions (which includes rentals, fix and flip, etc.) and the sale of raw land are not effected by DFA.

What is Dodd Frank and how does it effect seller financing?

  • Part of DFA is requirement that a licensed mortgage loan originator (MLO) must oversee originations in which the buyer intends to occupy the property as their own residence. 
  • However, 2 exemptions to this rule are:
      • 1.  “Single property exemption” 
          • Any nature person, estate or trust who provides seller financing to an owner occupant only one time in any 12 month period.  Cannot be a LLC, corporation, etc.
          • Loan can include a balloon and seller does not have to prove borrowers ability to pay.
          • “Single property exemption” restrictions:
                • Interest rate fixed for first 5 years and no negative amortization.
                • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
                • Seller must not be the builder.
                • Seller must have owned the property.
      • 2.  “Not more than 3 properties exemption”
          • Any person or entity cannot provide seller financing to an owner occupant more than 3 times in a 12 month period without using a MLO.
          • The loan cannot include a balloon.   Seller does have to prove borrowers ability to repay.
          • “Not more than 3 properties exemption” restrictions:
                • Interest rate fixed for first 5 years and no negative amortization.
                • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
                • Seller must not be the builder.
                • Seller must have owned the property.
  • More than 3 loans you MUST have a MLO and comply with all the regulations such as:
        • The loan cannot include a balloon.   
        • Seller does have to prove borrowers ability to repay.
        • Interest rate fixed for first 5 years and no negative amortization.
        • Adjustable rate allowed but cannot adjust more than 2% per year or more than 6% over life of loan.
        • Seller must not be the builder.
        • Seller must have owned the property.
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