How’s Your Investor Tool Box?

Transaction engineering for the real estate investor is akin to a carpenter having a well-equipped tool box or a surgeon having all the necessary operating instruments to get the job done correctly, safely, and in a way that everyone involved benefits. In our business it includes acquisition, property management, asset protection, negotiating, and tax planning to name a few. Today I want to introduce 10 no-money-down techniques (note: no-money-down means none of your money) that you can use alone or in a combination because no two real estate deals are alike.

I encourage you as you read this to think “how many techniques, how many tools, can I add to my tool belt that will allow me to deal with every opportunity that comes along?”

Don’t be a one trick pony…

Many investors use the same technique to do every deal that comes along – they are doomed. Only occasionally can they find an opportunity where they can employ the one technique they’ve learned.

When other investors don’t know what to do, you’ll be able to pull a different tool out of your tool belt, a different technique or a combination of techniques, and be successful when they weren’t. And when you master these techniques, you’ll recognize opportunities and complete transactions others can’t!

Build your buying machine…

To begin building your buying machine you need to learn how to generate leads, identify motivated sellers and then buy below market with deep discounts using cash, Private Money, or Hard Money.

Existing Financing is a powerful option…

Another favorite is to use existing financing by acquiring the property “Subject to.” With this technique, you take over the payments on existing debt without originating a new mortgage. Options and Lease Options are another pair of great techniques to control properties without ownership and still generate great profits.

Partnering with the seller…

Seller financing is my all time favorite. Sometimes it even presents an opportunity for creating a Deal After the Deal for increased profits. All of these transaction techniques can be structured as no money down. Consider Split Funding (some money now and some later); With or Without Payments; With or Without a Balloon Payment, or virtually any combination you can negotiate.

Now, sell it creatively…

When it comes to selling properties creativity is again your best strategy. How do you sell in a tough market? What do you do when the banks won’t lend? You become the bank! It is the most powerful way to build a fortune, while helping other people resolve their problems or achieve their dreams. And you won’t do it with adjustable rate mortgages or other exotic forms of financing that got this whole mess started.

Cash or cash flow? Your choice…

We can sell or lease properties to create either cash or cash flow. Lease Options and Rent to Own programs can help more people qualify for home ownership while reducing vacancies. Selling homes with Owner Financing, Wrap Around Mortgages, and Agreements for Deed can help you market properties to a broader buyer base than the traditional buyer who will get a traditional bank mortgage. These creative techniques also help you overcome seasoning issues and maximize cash flow.

Well there you have it, at least 10 creative ways to buy and another 5 ways to sell without using banks. All the traditional avenues remain available but doesn’t it make good sense to have alternatives that work in any market? Using these creative techniques in an ever-changing array of combinations can give you hundreds of possibilities.

If some of the terms above are unfamiliar to you, don’t worry, you’ll have an opportunity to learn about them and put them to good use during our Quick Start Workshop Series.

Join Us on June 16th at the Bohemian Hotel in Celebration from 9:00am – 5:00pm

Creating Your Real Estate Money Machine Workshop

“Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy.” Dale Carnegie

To your success…

Augie

Real Estate Investing For Dummies; Is There Such a Thing?

What comes to mind when you hear the word, “dummy?” I tend to think of a ventriloquist’s doll or a replica of a person that isn’t really a live person? One definition I looked up said a “counterfeit or sham.” With all the hucksters and self-proclaimed guru’s on stage, on-line and even on television pitching get rich quick schemes with real estate you’d think that there actually is such a thing as real estate investing for dummies. You know, “it’s so easy a caveman could do it!” At least the cave man was a living adaptable being…the dummy, well …not so much.

While I hate to be the bearer of bad news, anyone who buys into this get rich quick baloney is the dummy. Remember, a dummy lives in a trunk and doesn’t do anything until the puppeteer pulls their string or the ventriloquist puts words in their mouth.

Real estate investing is a great business for those people willing to exercise what I like to call the TEA Principle. TEA is an acronym I have used in my teaching for many years and I plan to continue its use for many more. The reason…IT WORKS!

Most people will tell you, “Take Action” and that is fairly good counsel however, what action? This is where TEA comes in handy. The philosophy here is to take effective action. Actions that move you nearer to your goals or bring your goals nearer to you are what make the difference between success and everything else.

This approach ensures a high probability of success. While you might think this is rather elementary, let me ask you this, how on target are you in achieving your goals? Have you achieved everything you set out to do 10 years ago? 5 years ago? Did you hit all of your goals for last year?

Here is a simple way to begin using this principle. First, set a goal or objective. Begin with something relatively simple and short term. Next write it down…yes write it down. Now think about what you need to do to achieve the result. Write it down in linear steps if necessary. Now it is time to schedule time to achieve the result you want. When and how will you execute the actions necessary to achieve your desired out come? The TEA Principle works best when you learn the discipline of time blocking.

Let’s assume my goal is to buy an investment property in order to produce passive income and tax benefits. I shouldn’t be looking for rehabs because they could require a lengthy vacancy period while they are being renovated. Vacancy is the enemy of passive income. Additionally, it would likely tie up my cash resources which could be better used to produce leverage (smaller amounts of cash to control larger amounts of equity and/or cash flow).

Next, I’d have to identify what skills and tools I’d need to achieve this goal. I’d have to answer questions like; how will I generate leads or find prospects? What buying criteria will ensure that the property will cash flow? Am I better off using the Multiple Listing Service to find the right deal or is there too much competition there? Once I locate a prospect, how will I pre-screen them and then negotiate either a price or terms that will increase my likelihood of success?

Once successfully negotiated, how will we document the transaction? Will I buy the property? If so, will I pay all cash (mine or a private lender’s)? Will I seek seller financing or use the existing financing (Buying Subject To) or another technique? Will I lease the property to control it and buy it at a later date (using a lease option)?

As you can see there are many questions to consider but by considering them up front, I can invest my time, energy and efforts in a very focused way. The TEA Principle allows me to take laser-like focus on my objective and as this becomes a habit, it grows easier and more natural to use for any goal I want to achieve. Every question I answer helps my actions become more effective. When I waste fewer actions on unproductive entanglements, my success rate increases and I free up time that would otherwise have been lost. Its sort of like what happens when I’m on Facebook or YouTube.

Buying or controlling the property is just the first half of the task, remember the goal is to create passive income and that comes when you start receiving those monthly checks so there are a few more questions to answer. Do I understand the rental market, how to prescreen tenants and manage property? What paperwork is requires, what is a 3-day notice? How would I do an eviction if necessary?

I’m not saying you need every answer before you begin because we are always learning and growing. We continue to get better over time as long as we keep asking more questions, seeking more answers and increasing the effectiveness of everything we do.

So why not get out there and Take Effective Action today! Simply taking one effective action every day will have a compound effect, which over the course of the next week, month or year can have a profound impact on your life and your business!

Please take a moment and let me know what Effective Action you took today?

To your success…

Augie

5 Keys To Building A Successful Creative Real Estate Investing Business

Why are you interested in the creative real estate business? What is it you are trying to accomplish? These are two questions we all need to answer for ourselves. The bottom line is to recognize that you are in the property investment business and treat it that way. It requires planning, discipline, and execution or else it can be a dangerous and unproductive hobby.

We have been property investors long enough to experience ups and downs, a market boom and bust, changes in target markets, even changes in our own strategy. We have fine-tuned our investment strategies, focused on target markets, built our team and systems and have a pretty good handle on things. Honestly, this is a good start, but we still have to ask ourselves, “What does our business represent and deliver?”

To answer this last question we started by defining what we do and then identifying our goals. We buy properties below market value or with excellent terms in order to produce positive cash flow. We constantly seek to improve operations resulting in greater effectiveness, efficiency and value. We generate profits from rents or the sale of the property.

While this is what we do it isn’t the entire story. There are still more questions to answer. So what are our goals? How do we do what we do? What is the result? What is our real estate investment philosophy? What are the most important things that lead to our success? How will we continue to succeed long into the future? What are the fundamentals that we live by?

These are the kinds of questions that help us get closer to answering the grand question about what our creative real estate business stands for. Here is what we came up with:

1. Minimize risk and maximize annualized return – This is our goal. We first understand and minimize the risk. This includes making sure worst case scenarios are not so bad. We focus on maximizing annualized return instead of your one time return. A 10% return is great. A 5% return in one month is twice the annualized return as 15% in 6 months. That’s a big difference especially when you compound it over the long term.

2. Control and manage our success – We do not speculate, as the market is out of our control. We buy based on solid fundamentals. Appreciation is an extra bonus. The numbers must make sense on every investment.

3. Stick to our criteria – We stick to our criteria of properties with 50-70% LTV, strong cash flow and a decent area. We also seek to upgrade our portfolio by periodically purging weaker properties and replacing them with better performers.

4. Strong and multiple exit strategies – We only do deals with tremendous equity and tremendous cash flow, which results in strong multiple exit strategies. This supports our goal to minimize risk and maximize annualized return.

5. Make informed business decisions – We do not make decisions based on hype, emotion, excitement or by following what everyone else is doing. We justify our decisions with thorough due diligence, thereby making the best informed business decisions.

These 5 keys are the foundation of our business and they help position us to be successful in any market for as long as we are actively investing.

So, if I had to say what our creative real estate investing business represents and delivers in a few sentences it is this, We represent creative real estate investing done the right way. We control and manage our success, stick to our criteria, ensure strong multiple exit strategies and make informed decisions that allow us to achieve our goals of minimizing risk and maximizing annualized return.

Whether you are a beginner or an experienced professional, you should go through this exercise as well. Doing so could establish the foundation for a long and successful creative real estate investing career.

Learn how to jump-start your investing business at www.quickstart.pactprosperity.com

Wholesaling Houses; the Good, the Bad and the Ugly

When I first began investing in real estate I had no idea of the broad range of possibilities for making money.  One of the more surprising ways was the concept of wholesaling.  Being from New York, I heard the line, “I can get it for you wholesale” a million times but never even considered houses ad something you could wholesale.

Wholesaling houses is simply the idea of buy low, sell low.  We find a bargain and then sell it to a bargain hunter.  How do you do it?  The same way as every other aspect of our industry, locate suspects, prescreen for motivation and sort the prospects from the suspects, create and present your offer(s), follow up, control the property and close quickly.

While wholesaling isn’t my core business I do wholesale a few properties a year either because they are out of my farm area or I have enough projects going on that holding a vacant house until I can get a crew on it isn’t as valuable as the quick cash that a wholesale deal can provide.  Besides if I provide good deals to other investors, they are likely to return the favor sometime in the future.

In order to be successful at wholesaling you need to buy very low and the only way to do that is to find properties that people absolutely, positively don’t want and that the average homebuyer won’t touch either because no bank will finance it or it has something that frightens the average buyer (structural issues, infestations, major repairs, etc.).

A good wholesaler can see past the problems all the way to the profit!  They know that there aren’t many problems with a house that cannot be fixed for a price and that the market for these properties is much smaller than the standard retail properties on the MLS.  A smaller market creates the opportunity to purchase these properties cheap so they can sell them cheap and still make a profit while leaving profit in the deal for their buyer!  Many new investors are frightened by these scary looking properties and tend to walk away because they can’t see the profit potential.

One such property was recently uncovered by one of my students. When we went to look at it I was blown away.  Most wholesale properties I have seen have been vacant, this one happened to be occupied up until two days before we inspected it.  After having viewed thousands of houses over my investing career I thought I was beyond shock. I was wrong.  Take a look at the video.  What do you think?

<&rel=0>

As tempted as I might be, I’m going to avoid social commentary here and stick to the subject of wholesaling.  With wholesaling the “good” actually comes from the “bad” and the “ugly.”  With trash, debris and vermin piled wall to wall up to the windowsills and only very narrow paths through the garbage, these was the worst living conditions I have ever seen.  I lived in a college dorm, rented a house with fraternity brothers and have rented to some pretty lame tenants and this exceeded anything I have ever witnessed by an order of magnitude.

The good news is that we can see past what is and on to the possibilities.  This little 3-bedroom 2-bath block home had a good roof and looked fine from the outside.  It sits in a decent working class nice neighborhood with well-maintained homes along the street.  While the place needed to be gutted to the studs, fumigated, the HVAC replaced, new baths, new kitchen, flooring and paint there is a profit to be made by the right buyer because there is nothing wrong with the house that cannot be fixed by a check to the proper tradesperson.  The key to success is in buying it right.

The end of the story is the property was put under contract and wholesaled to someone who is ready to do everything that needs to be done and sell for a profit or hold is as a long-term rental.  But their exit strategy is their business and a topic for another day!

What would you do?

 

 

A Petition You Should Sign – Fix the E2 Visa Problem

Immigration Is an issue that is hotly debated in the US and rightly so, illegal immigrants cost our taxpayers billions of dollars cast a shadow over the whole issue of immigration.  There are many legal imigrants who come to the US and are a benefit to this country.  Only recently have some of the stranger aspects of US immigration policy come to my attention as the result of challenges some of my friends are facing.

In one case the parents of a 22 year old daughter who have green cards have to send their daughter back to England because she is too old to stay in the US and it could take two years for her to receive approval even though she has a job available to her which she desparately wants to accept, though her current 60 day visa does not permit her to work.

I have other friends who have legally entered the US and invested in businesses, created jobs and pay taxes who have to renew their E2 Visa’s every two years and risk being declined and having to leave the country on 30 days notice.  There is a petition that needs 5,000 signatures by October 25 in order to be considered by the White House.  Granted that is only a first step but a necessary one.  I invite you to participate in supporting a common sense solution to a rather de-humanizing problem. The language of the petition is below.

Allow E2 Treaty Investor Visa holders, who have brought investment and created jobs in the US, to apply for Green Cards

E2 Treaty Investor Visa holders are required to bring in foreign investment to buy or start up a US business and create jobs for US citizens. To our knowledge this is the only visa that asks for a substantial investment without leading to Green Cards. Legal permanent residency would give these small business owners more stability to expand their businesses, thus leading to even more jobs.

There have been 2 Bills in the last 2 Congresses which have not been successful and we are actively working to have a new Bill introduced in this Congress. However we realize that this E2 Visa is relatively unknown and hope that is the reason why reform has not taken place thus far.

We are LEGAL Immigrants, who are helping the US Economy at a difficult time.

We urge the White House to consider this.

Go to the link below and sign the petition, you’ll be glad you did.

Email this link to your friends and family: http://wh.gov/4TP

 

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.