Foreclosure Investing Do’s and Don’ts

Are foreclosure properties a good investment? That was the question I was recently asked by a reporter for Investor’s Business Daily in New York. She was doing an article on alternatives to the stock market because, let’s face it, there are other investments out there besides stocks and bonds, right? The subject was profitably investing in foreclosures.

We talked about what it takes to make money in this segment of the market and where the land mines are. Based on an investor’s risk tolerance and experience, I shared the fact that there are basically three ways to buy foreclosure properties:

1. Before the final judgment – any time between the filing of the lis pendens (initial notice of the foreclosure action) and the final judgment whereby the property will be offered for sale at public auction. The most common way this is done these days is via a short sale whereby the banks accept less than the face value of the mortgage. These transactions sometimes involve a realtor and are relatively safe transactions because the investors get to thoroughly inspect the property and also receive a title insurance policy at closing. They still have to know their numbers but get to do their due diligence in evaluating the investment opportunity.
2. At Public Auction (aka Sheriff Sale) – also referred to as buying at the courthouse steps. This is usually the most risky way to buy because frequently the properties are boarded up or otherwise inaccessible so completing a thorough property inspection can be a real challenge. Additionally, the utilities are rarely on if the property has been abandoned. Last but not least the successful bidder is only issued a certificate of title. You get no title insurance and there could be title defects that will need to be cured before the property can be resold.
3. After the Auction as a REO – The acronym REO stands for Real Estate Owned. As in, owned by the bank. These properties were reclaimed by the bank at the foreclosure auction or taken back via a Deed in Lieu of Foreclosure. REOs can be good deals because you can inspect the property before making your offer or once it has been accepted. The buyer also gets title insurance at closing. Depending on your market REOs can be a bargain or sell close to retail so just because it says bank owned doesn’t make it a good deal. Always check comps, repair estimates and know your exit strategy before jumping in to any real estate investment.

In addition we talked about the value of discipline when investing. We use a formulaic approach to evaluate properties in terms of purchase price, repairs and holding costs. If the numbers don’t work, we keep looking. We also look at the location of the property as well as and potential impediments to our ability to sell such as neighbors, commercial areas near residential properties, traffic and noise. We want to maximize the salability of the properties because the one downside of foreclosure investing is the lack of creativity when it comes to buying. When it comes to the foreclosure auction method or buying REOs cash is the only language for buying and that usually limits our exit strategy.

Our exit strategy on deals where we can’t get terms and have to pay all cash is usually to retail the property. With cash transactions we typically buy, fix and sell. This allows us to turn our cash over and produce profits with each turn. It is not my favorite form of investing buy it is a good way to produce chunks of cash.

I was only one of a number of the people interviewed for the article but I have to say it was an honor to be asked and included. I was interviewed on behalf of Homeowner Resource, alongside Sand Dollar Realty and Realty Trac. Thank you Investor’s Business Daily.

I wonder if I could talk them into a sister publication…Creative Real Estate Investor’s Business Daily! What do you think?

You can check out the whole article at: Foreclosure Market Gives Savvy Investors Big Profits

Happy investing!!

Augie

Fed Up – What’s the Fed Thinking?

Federal Reserve Issues Housing Market White Paper

According to the Federal Reserve Board, “There has been much discussion about the pathway forward, and the Federal Reserve has received questions and requests for input and assistance.” As a result the recently published a white paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” in which they call for increased lending to creditworthy homebuyers, a seeming no-brainer. They also recommend more loan modifications, mortgage re-financings and short sales to reduce the rising inventory of foreclosed homes and help stabilize the housing industry.

By all measurements these seem like reasonable and obvious solutions. Improving access to affordable mortgage financing for qualified homebuyers and investors, while aggressively pursuing more loan modifications and short sales would help reenergize the housing market and spur an economic recovery.”

 I think the same things were said by some local kindergarteners.

The Fed white paper says the current problem with mortgage credit “reflects not only a correction of the unsound underwriting practices that emerged over the past decade, but also a more substantial shift in lenders’ … willingness to bear risk.” However, the Fed says that fixing the current real estate market must not simultaneously repeat the mistakes of the past. I’m baffled as to why they feel the need to re-state the obvious. These are supposed to be some of our best economic minds and they sound like we’re in pre-school.

I agree that banks could prevent further foreclosure inventory increases, by more aggressively modifying loans and keep struggling families in their homes. But the flip side is what happens to the lost equity. Who eats it? Someone has to take it on the chin. Either the lender, the borrower or the tax-payer. I still think the silent second approach while tough on the borrower, will at least help lower their current payment, maintain some cash flow for the lender and promote a recovery and eventual strengthening of values and prices.

Where the Fed paper really goes astray is when it suggests converting foreclosed properties into affordable rentals. Worse yet, there is a hint that banks could actually become landlords. Hasn’t the current economic crisis demonstrated, if nothing else, that banks need to focus on their existing lines of business rather than leaping into yet more unchartered waters from which the taxpayer will have to save them? If you haven’t seen the HBO movie Too Big to Fail, I suggest you find a way to see it!

While it would be nice if banks made it easier for owner-occupants and small investors to get financing, the proposed bulk sales of distressed properties, lead to greater losses for taxpayers and a negative impact on housing values in markets across the country.

“Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery,” the Fed’s white paper concludes. “There is unfortunately no single solution for the problems the housing market faces. Instead, progress will come only through persistent and careful efforts to address a range of difficult and interdependent issues.”

Until the banks are held accountable for their actions, rather than being protected by a taxpayer safety net, there is no way they should become landlords or property managers. This could easily make things in our nation much worse. As for the Fed, shouldn’t it make more sense for them to focus on monetary policy, the task for which our tax dollars pay them rather than jumping on the housing band wagon? Housing policy seems to me to be well beyond the scope of its charter.

Since it is your tax dollars paying their salaries; should the Fed be making or even commenting on housing policy? What do you think?

FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

WASHINGTON – In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting Federal Housing Administration Commissioner Carol J. Galante today extended a temporary waiver of FHA’s anti-flipping regulations through 2012. Read FHA’s anti-flipping waiver.

“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Galante. “FHA remains a critical source of mortgage financing and stability and we must make every effort to promote recovery in every responsible way we can.”

With certain exceptions, FHA rules prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011. The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension announced today is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA. All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions:

All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction;
In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value; and
The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.

FHA research finds that in today’s market, acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

Save Seller Financing – Did You Post Your Comment? Do It Now!

Only a few days remain to post your comment on the proposed rule changes that could be the death knell for seller financing.  You can post your here http://1.usa.gov/pF9Fv0.  The comments I submitted can be found  below:

The SAFE ACT intended to protect consumers from big businesses and I applaud these efforts whenever they accomplish what they set out to do.  My concern is when unintended consequences arise and citizens, American property owners as well as future American property owners, can actually be harmed. I am requesting that private individuals be exempted from the proposed rules changes and submit the following comment.

1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.

Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.
Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans.  It additionally, provides an outlet for properties that do not qualify for conventional or even GSE programs such as older manufactured homes that provide entry level and retirement housing for many Americans.

Homeowners are neither bank officers nor mortgage lenders.  By requiring them (many if not most of whom who take back a mortgage are older Americans) to qualify buyers using bank standards means they will simply refuse to sell with owner financing.  Thus millions of people will be deprived of home ownership.  This will have a near term negative impact on the current economy by reducing the number of sales which pay transfer taxes to our state and county governments and long reaching effects in terms of preserving property rights as well as one’s ability to freely buy and sell property.  Even the Wall Street Reform Act saw fit to allow up to 3 seller-financed transactions per year without MLO requirements.Why should a buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.  Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.  It also deprives American’s, both buyers and sellers, to use their free will to honestly come to a meeting of the minds and transact the purchase or sale of a property in a manner beneficial to the principals (not a 3rd party lender who may have no vested interest).

This also opens the door to an additional risk; predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.  This will jeopardize the ability of many deserving people who may never qualify under bank standards (Federally mandated or not) to ever own their piece of the American dream because no one would accept that risk.

By not allowing a property owner to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. Many seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30-year investment. The Dodd-Frank Act does the same thing insurance companies do that sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.
The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Act community banks are allowed to originate fully amortizing loans with a five-year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.I have heard the suggestion that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.  As I am sure you can see, the unintended consequences of these proposed rule changes, if accepted “as-is” without exempting individuals will negatively impact millions of American families.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

My mother is 80 years old and owns two properties; a condominium and a co-op.  Neither of these will qualify for bank financing in the current market.  At some point she may need to sell and convert these properties into an income stream to provide for her long-term care unless she can find a cash buyer.  A cash buyer will likely force her to accept a substantially lower price because she’ll have no other option available to her and she’ll be at risk that for up to 3 years, that a case of buyer’s remorse could reverse her sale.  Is that in her best interest?  Additionally, as her and many other seniors in a similar situation exhaust their reduced assets, the government will be forced to pick up the tab for her care, further exacerbating the federal debt or reducing the quality of life for America’s elderly.On behalf of my family and families across America I am asking that you clearly distinguish between banks who are lenders who actually lend money and property owners who are principals in negotiating an installment sale in order to collect their equity in the sale of a home.  In a seller financed transaction both parties are consumers neither of whom need be disadvantaged by these proposed rules.

Please feel free to contact me directly at Augie@PACTProsperity.com

Your decisions will impact millions of American families. Thank you for your consideration.

Your Property Rights Under Attack – Action Required NOW

This just in from The Paper Source Journal – Proposed changes to Regulation Z could threaten the future of property ownership in the United States.   Imagine selling a property and giving the buyer three years to change their mind?

RED ALERT — Seller Mortgages May Be Effectively Outlawed…You Must Act NOW!

by W. J. Mencarow

July 13th, 2011

From THE PAPER SOURCE JOURNAL, July, 2011:

The Federal Reserve, which received sweeping new authority under the Obama regulatory reauthorization, wants to effectively eliminate seller-held (a.k.a. purchase money) mortgages. It will do this by enacting a rule for the Dodd-Frank Act prohibiting property sellers from taking back a mortgage unless the buyer essentially can qualify for conventional financing!

What’s more, Ma and Pa Homeowner, who create 95% of seller-held mortgages, won’t be able to qualify buyers under the same underwriting standards that banks are required to perform, and therefore the cash flow notes won’t be created.

If this is enacted it also will remove access to housing for millions of Americans, because seller “financing” is the only way people who can’t qualify for conventional loans can buy a house.

Moreover, it would allow a buyer a three year right of rescission (they can cancel the sale) if the seller did not properly qualify them. The right of rescission also applies to anyone who buys the note.

We have precious little time to try to stop this. The deadline to comment is FRIDAY, July 22. See the information below, then go to snipurl.com/AbilityToRepay Please do it TODAY!!

(Thanks to Ric Thom [www.SecurityEscrow.com] for alerting us.)

Submit your comments at snipurl.com/AbilityToRepay — scroll down that page for the comments link.

THE DEADLINE IS FRIDAY, JULY 22!

Here Are Some Points You Can Make In Your Comments:

  • Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans.
  • Homeowners are not bank officers or mortgage lenders.  By requiring them (many if not most of whom who take back a mortgage are elderly) to qualify buyers using bank standards means they will simply refuse to sell with owner financing.  Thus millions of people will be deprived of home ownership.
  • Why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.
  • Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.
  • This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income-to-debt ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.
  • By not allowing them to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.
  • The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. A  five year balloon is predatory lending. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.
  • There are a lot of small builders that have a spec house or two that they can’t sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank, which does not help housing or the economy.
  • It has been said that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.

My Comments To The Federal Reserve

By Ric Thom, www.SecurityEscrow.com

The Dodd-Frank Act does not exempt property owners who wish to use seller financing (installment sale) even though no money is lent, there is no table funding, and under the Truth and Lending Act they are not considered creditors. The Dodd-Frank Act (ACT) does exempt property owners who offer seller financing from having to become Mortgage Loan Originators (MLO) provided they only sell 3 properties or less in a 12 month period and they follow the restrictions below. Yet, the Act subjects the property owner to the same liability as an MLO:

Title XIV Section 1401 (2) (E)

1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.

Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.

The following is a breakdown of these restrictions. I listed them in order of greatest impact on property owners, buyers and the economy:

The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan. The implication is that the seller must use the ability-to-repay underwriting requirements when offering seller financing consistent with the Dodd-Frank Act which amends the Truth in Lending Act. This new, proposed rule is 169 pages long: snipurl.com/fedrule

The Consumer Financial Protection Bureau has spent a lot of energy developing a new, easy to read, two page mortgage disclosure form. It is unreasonable to expect sellers and buyers to fully understand and apply this 169 page rule. If buyer’s and seller’s negotiations deviate in the least the buyer has up to three years to rescind the sale and demand back all money paid to the seller, or anyone that the seller might have assigned rights and interest to, or any bank that takes the note as a collateral assignment.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

Unlike banks and mortgage lenders, both the buyer and seller are consumers. They should both be equally protected. The buyer is purchasing real property and the seller is investing in/creating a financial product where they receive their equity over time. The seller is relying on the buyer to make monthly payments and maintain and protect the property. Terms are not dictated to either party, but rather they are negotiated between the parties.

Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.

Furthermore, why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.

This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income-to-debt ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.

The SAFE Act does not put in place the ability to repay requirements, or any other requirements, unless the individual habitually and repeatedly uses seller financing in a commercial context. It is HUD’s position that Congress never intended under the SAFE Act to restrict private property owners from using seller financing, unless they did it as a business.

The loan is fully amortizing (no balloon mortgages allowed). By not allowing them to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.

The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. Obviously the Act does not recognize that a five year balloon is predatory lending. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.

The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps. This restriction is reasonable, but it will eliminate the ability for any buyer to wrap an existing obligation that has an adjustable rate even if they believe they can afford any rate increase. This is again inconsistent with the SAFE Act.

Moreover, if the seller does not know about the ability-to-repay requirements and that they are not able to have a balloon, they certainly will not know that you have to have a fixed interest rate for the first five years.

The seller did not construct the home to which the financing is being applied. There are a lot of small builders that have a spec house or two that they can’t sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank, which does not help housing or the economy. There is also that group of unemployed construction workers who built their own homes when times were good and now need to sell. This takes away their ability to use seller financing.

Builders are in the business of building; not of originating loans.

Using a mortgage loan originator to facilitate a seller-financed transaction creates additional risk and expense for both the buyer and the seller. It has been said that a seller financing the sale of his or her own
property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.

Furthermore, there is no provision in a MLO’s errors and omission insurance that covers seller financing. None of the continuing education classes or the exams that an MLO must complete has a single chapter or question regarding seller financing.

Who is supposed to pay the MLO? MLOs can charge a flat fee or up to 3% of the transaction. The only advertisements I have seen so far advertise a flat nonrefundable fee of $450. This fee has to be paid in advance, which makes sense, because why would a MLO spend hours and hours on an installment sale transaction which might not close? If the buyer pays the fee, then this is a forced origination fee never before imposed on buyers seeking seller financing. Why should the buyer have to pay money just to have an offer presented to the seller?

A lot of buyers use seller financing because they are low income individuals, and seller financing, up to now, has been an inexpensive way to purchase property. If the seller pays they will have to pay money for the simple act of the MLO forwarding them the installment sale offer. If the seller receives multiple offers this could easily run into thousands of dollars in MLO fees just to sell their property.

A lot of sellers are also low income individuals. The MLO will have to be a part of every offer and counteroffer because the sale and terms of an installment sale are one and the same and cannot be separated. For instance, the buyer might be willing to pay a higher interest rate if the seller is willing to come down on the price and down payment.

A lot of seller financing takes place in rural areas that are underserved by mortgage lenders and banks. It is going to be very difficult to find a MLO in those areas who are also willing to take the risk facilitating a seller financed transaction.

This has the potential of pushing seller-financing underground – not a desirable result.

The Dodd-Frank Act allows a property owner to use seller financing without having to become a mortgage loan originator as long as they don’t use it more than three times in a 12 month period and comply with the above restrictions. In the SAFE Act there are no restrictions to the number of times seller financing can be used as long as you are not in the business of being a mortgage loan originator. The coauthor of the Dodd-Frank Act, Representative Barney Frank, sent a letter to HUD on July 22, 2010 urging it to place the maximum amount of seller transactions that an individual could do before becoming a MLO, or
having other restrictions on them, at five in a 12 month period. I would propose that the Dodd-Frank Act adopt that same number and place no restrictions on seller financing until 5 is surpassed. The only restrictions that should apply to 5 or less are those restrictions that the states already impose either through state statute or case law.

Under The Act loan officers at community banks do not have to become a Mortgage Loan Originator if they originate 5 or less transactions in a 12-month period. The rationale is that this is burdensome, costly and there is not enough volume to create a systemic risk. Ma and Pa on Main Street should be granted those same allowances. The Act puts more restrictions and risk on Ma and Pa than it does on financial institutions.

In watching the debates in Congress last summer it was repeatedly said that the Wall Street Reform and Consumer Financial Protection Act would not negatively affect or over-regulate Ma and Pa on Main Street. If this doesn’t negatively affect and regulate seniors, minorities, and lower income individuals on Main Street I don’t know what does. These restrictions will all but do away with seller financing, which will have a negative impact on housing, existing property owners, those desiring to be property owners and the economy.

Ric Thom is owner and president of Security Escrow Co. He is recognized as one of the leading authorities in seller financing on real estate contracts. www.securityescrow.com

Many thanks Bill Mencarow and Ric Thom and to all of you who submit comments seeking protection to property owners who are also consumers and who also deserve to be protected, not penalized for providing seller financing.

When Banks Won’t Lend

One of the greatest challenges facing agents, investors and even the general public today is the fact that qualifying for a bank loan has become increasingly difficult, if not down right impossible for many American families.  In spite of historically low interest rates many deserving families are being turned away.

What if we didn’t need the bank’s approval?  What if there was another way we could help sellers sell and buyers buy?  How would that impact your bottom line?  Not to mention, start a housing recovery that will lead this nation out of the current economic mess.

So the $64,000 question is, “How do we do it?

Answer:

  • Stop letting banks kill your deals
  • Stop letting bogus appraisals kill your deals
  • Learn legal, ethical alternatives to bank financing that work

There are alternatives to banks.  Don’t get me wrong, they are a good solution for some people but in today’s economic climate they aren’t the solution for a great many.  My grandfather used to say the only time you can borrow money from a bank is when you don’t need it.”

I’m excited to tell about a great Alternative Financing Workshop that is being offered in Celebration, Florida on July 28th at The Bohemian Hotel. With more loans getting declined than approved, NOW is the time to learn the tools, tips, strategies and techniques for buying and selling houses using alternatives to bank financing

As a result of this workshop you will be able to:

  • Pre-screen sellers who are able to provide financing alternatives…even when they weren’t aware of it!
  • Offer different buying solutions, even when the buyer cannot qualify for bank financing today
  • Earn commissions on a new set of transaction types
  • Close more deals!

Take action now and register at www.alternativefinancingworkshop.com :

Using these very same techniques I have bought and sold hundreds of houses and have become a nationally recognized speaker, author and real estate trainer.  Because I believe there is more than enough opportunity for everyone I have trained thousands of agents and investors across the country.

Most recently, I was honored to be designated as the national trainer for the CARI designation, Certified Agent for Real Estate Investors, by the National Real Estate Investor Association. In spite of all of this, my primary business remains houses and I continue to use these very same techniques day in and day out.

So take control of your business and join me for the Closing More Deals With Alternative Financing workshop and go to www.alternativefinancingworkshop.com.

You’ll be glad you did!

To your success…

Augie

PACTProsperity.com is a well-known and well-respected company specializing in Home Study Programs, Seminars and Workshops aimed at helping Real Estate Agents and investors succeed in today’s market.  We are here to help you take your results to a whole new level!

Please visit our website for additional information www.alternativefinancingworkshop.com.