Homeowners die before they receive all of their equity under the Dodd-Frank Act.

The act requires any homeowner who sells their property using an installment sale, known as owner financing, to fully amortize the installment sale note. It does not allow any balloons to be negotiated between buyer and seller in the note. This means if you are 55 or older there is a good chance you will die before that 30 year note pays out.

Part of the purpose of the Dodd-Frank Act is to protect seniors who use or invest in financial products. The Federal government chastises insurance companies for the deplorable practice of selling seniors 30 year annuities because Ma and Pa will die before they receive their money. Yet, the Dodd-Frank act does the same thing when it mandates that you cannot receive all of your equity for 30 years. Just shortening the amortization period does not help either. How many buyers can afford the monthly payments on a ten or fifteen year amortization?

The Dodd-Frank Act strips homeowner’s of their equity

Part of the rationale for the act is to protect homeowners from having their equity stripped from them by unscrupulous lenders. Yet, the Act which mandates that an installment sale note be fully amortized over 30 years with no balloons does just that. Ma and Pa who use owner financing when they sell their property receive a note for their equity. They have the right and the ability to sell that note in the future. Anyone who purchases that note takes into consideration the time value of money. Just like bonds these notes are sold at a discount. The longer it takes for the note to pay out, the more of a discount the note holder has to take. So, if Ma and Pa need to sell that note in the future they are going to have to sell at a 30-35% discount as opposed to a 5-10% discount if it had a balloon. So, you can see that by the government mandating no balloons they have potentially stripped Ma and Pa’s equity by 20-30%. I can see the reason behind not allowing these installment sale notes to negatively amortize or to be interest only, but I don’t think allowing a balloon in 8 to 10 years is unreasonable or predatory. That gives the new buyer ample time to refinance or sell the property before the note becomes due. It is not reasonable to require Ma and Pa to wait 30 years to receive their equity, unless that is what they wish to do.

An Installment Sale is Not a Loan

Thirteen states have exempted owner financing to some degree from their Mortgage Loan Originator Act in 2009. They did this because they realize owner financing is not a loan; it is an installment sale. There is no third party lender; no points or origination fees are charged. In spite of this, Congress included owner financing in the Dodd-Frank Bill with additional regulations. Owner financing is not predatory. The seller has 100% skin in the game. Ma and Pa simply want to receive their equity over time with a reasonable interest rate. They don’t want to receive cash. They don’t want to invest in 1% CDs or in a stock market that lost 40% of its value in recent history. The sellers do not want the property back; they simply want a decent return on their money. That’s why they sold it in the first place. Today’s buyer using owner financing will most likely be tomorrow’s seller using owner financing.

The IRS does not recognize the installment sale as a loan. They view it more as a trade. The property owner is trading the property for a note, which represents the seller’s equity. The IRS only taxes the seller as they receive payments.

Yet, Ma and Pa who might have only one property which they want to sell using the installment sale method are penalized, scrutinized and regulated.

Over-criminalization

This act regulates the sale of your personal residence, your cabin in the mountains, the vacant lot next door, a rental house, a duplex, triplex and four-plex. How many of the millions of property owners are going to know that if they use owner financing they are going to have to fully amortize the note, verify and document that the buyer can qualify, and that the interest rate is supposed to be fixed for the first five years? If they sell their property and don’t comply with these restrictions, they could be fined up to $25,000 and a possible felony charge simply because they did not know of the restrictions and requirements. The 13 states which exempted owner financing realized it would be a regulatory nightmare trying to keep track of every residential transaction that property owners enter into, not to mention the cost associated with that regulation. 99% of the people who use owner financing do not make a business of selling their property using the installment sale method. It is most likely they would only sell property using on installment sale a few times during their life. But that one time might involve trying to sell four properties at the same time.

Each state has its own version of owner financing; some states use notes and mortgages, some use deeds of trust or contract for deed. Each state already has case law and state statues that set the standards for owner financing and provide the protections for buyer and seller. The Dodd-Frank Act simply adds another, conflicting layer of complexity to the simple act of selling your private property on an installment sale. The states should remain in control of owner financing.

Trying to apply the same rules and regulations and licensing requirements for banks and professional mortgage loan originators to Ma and Pa on Main Street is counterproductive. It is only going to drive owner financing underground. Buyers and sellers will still use it, but they won’t use realtors or title companies which creates opportunity for abuse where there wasn’t any before.

Is your credit good enough to sell your home?

The Act does allow a balloon in the installment sale note if Ma and Pa become mortgage loan originators. The Dodd-Frank Act restricts you to only three real estate transactions in a 12 month period where you offer owner financing terms. If you want a balloon or you want to sell a 4th property within a 12 month period using the installment sale you have to become a mortgage loan originator, which means: you have to have good credit, put up a surety bond, take 20 hours of classes on Federal and State mortgage laws, pass a national test, and take continuing education courses. 30% of mortgage brokers were unable to become mortgage loan originators because they either had poor credit or were unable to pass the test. Ma and Pa are sure to experience the same thing. Requiring a seller to take a test and have a certain credit score to transfer their private property is a slippery slope. It is an erosion of our private property rights.

This act, which is over 2000 pages and requires over 500 new rules to be written by 40 different agencies by July 2011, was meant to regulate Wall Street and protect consumers from the predatory lending practices of mortgage brokers, but has over-reached into Main Street and into the lives of Ma and Pa. Selling your own property using the installment sale method did not create the financial crisis. Including it in the Dodd-Frank Wall Street Reform and Consumer Protection Act is inappropriate. An installment sale is not a loan. This act is a limitation of the rights of property owners which will be virtually impossible to regulate. We need to ask our congressional representatives to exempt all owner-financing and return it’s regulation to the states or at the very least, to remove the draconian restrictions, in the Dodd-Frank Act.

The Act is just the framework. The Consumer Financial Protection Bureau has the authority to relax or expand the rules and regulations in the bill. They are in the process of reviewing the rules and regulations that do not go into effect until July 2011. Until then, it is my understanding that everyone will be following the laws of their state, but that could change come July 2011. Please write your congressional representatives, write your local board of realtors, and the National Association of Realtors or anyone else that might get the word out for Ma and Pa.

For the complete list of e-mail addresses and fax numbers for the US Congress and Governors go to http://www.conservativeusa.org/mega-cong.htm

To find your local board of realtors go to:

http://www.realtor.org/directories

To contact the National Association of Realtors:

Anthony Hutchinson

Sr. Policy Representative – Financial Services

National Association of REALTORS®

Phone: (202) 383-1120 or Email: THutchinson@realtors.org

Sam Whitfield

National Association of REALTORS

500 New Jersey Ave. NW, Washington, DC 20001

Phone: 202/383-1131 (direct) or E-mail: SWhitfield@realtors.org

About the Author: This informative article was written by long time note professional Rich Thom. For further information contact: Ric Thom, President of Security Escrow Corporation, Albuquerque, NM, Phone: (505) 266-3487, Email: ricthom51@yahoo.com, Web: http://www.securityescrow.com/about/

HUD is poised to take away our rights to offer owner or seller financing on property we own. Under the Safe Mortgage Act proposal, you can only offer owner financing on the home you live in or you must become a licensed mortgage originator.

Here’s how I see it. If we own a property, ANY property (whether it is our residence or not), we should be able to sell to a buyer with owner financing.

HUD’s proposal is to provide an exemption to “where an individual seller provides financing to a buyer pursuant to the sale of the seller’s own residence” (Item F Page 66551 of the HUD Summary Comments).

Unfortunately, this exemption does not go far enough. What if you bought the property lived in it and then moved? What if it is now a rental property, inherited, or simply bought for investment purposes?

At a minimum the exemption should be extended to include any transaction where the seller provides financing to a buyer pursuant to the sale of property the seller owns (regardless of whether it is the seller’s residence).

The HUD proposals under the Safe Act are all part of the fall out from the failed lending institutions and related to HR 1728 and HR 4173.

It makes me wonder…

If the property owner must become a licensed loan originator to offer a seller carry back, will we now be eligible for the TARP bailout should the mortgage fail? (Just couldn’t resist that comment.)

So what can we do?

The first step is to make your voice heard at www.regulations.gov.

Here are some helpful steps that were outlined in a memo from the National Real Estate Investors Association entitled “HUD Issues Problematic Rules Interpreting SAFE Mortgage Licensing Act”:

1. Log on to www.regulations.gov. You will see two white boxes for searching

2. On the left box labeled “Document Type”, pull the menu down and select “proposed rules”

3. On the right box labeled “Enter keyword or ID”, enter “safe mortgage”. Then, press search

4. Locate the blue search result “FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ….” To read the rules, click on this title. You will be taken to another page. You will see “views”. You can click on PDF file or another symbol, which will show you the rule document online.

5. On the right of the screen, click on “submit comment”

6. Complete the form providing required information and your comments and then submit

What do you say?

Say what you feel, but say it politely! The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own. Some ideas from others:

• bank loans are not available on some types of properties
• the tight lending climate has made bank financing “out of reach” for many
• seller financing is an “age old” tradition based on private property rights
• these rules would prohibit even partial seller financing – i.e. a “seller second”
• according to HUD’s “Residential Finance Survey” in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
• an estimated 6 million Americans own a property other than their own primary residence
• an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
• 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
• approximately 5% of homes in US are for sale or for lease… seller financing may be key to liquidating this inventory.

The continued success of our industry as we know it is threatened by these proposed regulatory changes. Please do not hesitate to follow the steps above and make your voice heard.

Long-time seller financing professional Ric Thom of Security Escrow shared this helpful comment:

“Seller financing is an installment sale. The exemption should apply to any property that an individual owns, i.e. second home, rental house, vacant land, not just a person’s individual residence.

Not everyone owns stock. People have invested in real estate with the intent of reselling using owner financing to supplement their retirement income with this cash flow. Thousands of people have property in their IRAs for this very purpose. To require this class of private property owners, who offer their own property and negotiate the terms of an installment sale to become a mortgage loan originator, is onerous.

This exemption should be broadened beyond just a seller’s residence.”

Comments are due at www.regulations.gov by 2/16/2010 so we urge you to take action now.

Important Update: The time for comments on the HUD Safe Act has been extended to 3/5/10.

In search of alternative financing methods, many buyers, sellers, and investors are turning to the seller carry-back. Be sure to review the 5 most read seller financing articles in 2009 as you plan for the upcoming year.

#5 – The Downside of Owner Financing – Disadvantages to Seller Financing
What’s old is new again and the credit crisis, struggling economy, and declining real estate market made seller financing the come back kid of 2009.

Offering to owner finance a property can attract buyers and even save transactions as banks increasingly stamp “DECLINED” on mortgage applications. Before you agree to “Be the Bank” carefully consider the downside to providing creative financing. Read More…

#4 – Owner Financing – Avoid 5 Balloon Mortgage Pitfalls
Using a balloon payment with owner financing can be a valuable addition to a mortgage note or land contract.

Unfortunately many sellers and buyers unknowingly combine a balloon payment with high risk factors turning a positive into a negative. Be sure to avoid these common pitfalls when considering seller financing with balloon mortgages. Read More…

#3 – Directory of Owner Financed Note Buyers and Service Providers
Sometimes it is not only what you know, but also who you know.

Gain access to our personal Rolodex of experienced professionals with the Directory of Owner Financed Note Buyers (now updated for 2010)! Work direct with knowledgeable investors, educators, master note brokers, and service providers. Read More…

#2 – How Congress Wants to Change Seller Financing!
Rarely does legislation have the potential to impact the world of seller financing as severely as HR 1728: Mortgage Reform and Anti-Predatory Lending Act. Read More…

After passing the House on May 7, 2009, this bill has been stalled in the Senate. Now Note Investor has discovered that most of the provisions and restrictions of HR 1728, including the limitations on seller financing, have been included as part of HR 4173. Also known as The Wall Street Reform and Consumer Protection Act, this bill passed the House on December 11, 2009 and now goes before the Senate. Read More…

#1 – Using Owner Financing with the $8,000 First Time Home Buyers Tax Credit
In an effort to stimulate the housing market and overall economy the government provided first time home buyers with an $8,000 incentive. Read More…

Next the $8,000 tax credit was extended to April 30, 2010 and also expanded to include existing home owners. Read More…

This led many to wonder if seller financing could be used for qualified buyers hoping to cash in on the $8,000 tax credit. Fortunately, the IRS responded with a definitive “Yes!” to this question and outlined factors to evidence the benefits and burdens of home ownership. Read More…

Thanks to all of our faithful readers for making 2009 a great year at NoteInvestor.com. We wish everyone a successful and prosperous 2010!

It seemed pretty straight forward that owner financed transactions involving a deed to the buyer and a note and mortgage (or deed of trust) back to the seller would let qualified buyers take the First Time $8,000 Homebuyer Credit.  However, some wondered if the credit was still available when the seller financing involved a contract for deed, installment land sale contract, or long-term land contract.

One big difference with a contract is that the seller stays vested in fee simple or legal title while the buyer makes the payments.  When the buyer has made payment in full on the contract then the Warranty Deed transferring title is recorded. This Warranty Deed is recorded upfront at closing when using a  a seller financed mortgage or deed of trust. (For more details and differences read What is a Real Estate Contract?)

The IRS has specifically addressed this issue on their website.  It outlines the buyer must meet the benefits and burdens of ownership and includes 7 test points.  Here is an excerpt from the Q&A page at www.irs.gov:

Question: Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?

IRS Answer:

If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include:

1. the right of possession,

2. the right to obtain legal title upon full payment of the purchase price,

3. the right to construct improvements,

4. the obligation to pay property taxes,

5. the risk of loss,

6. the responsibility to insure the property, and

7. the duty to maintain the property.

Source: First-Time Homebuyer Credit Questions and Answers – Basic Information at:

http://www.irs.gov/newsroom/article/0,,id=206291,00.html

Then why do sellers agree to take back financing? Here are the three most common reasons behind the installment sale.

Reason #1 Buyer or Borrower Problems
Seller financing helps sell property faster by attracting more potential buyers. Since properties can be sold without bank financing it is appealing to buyers experiencing loan approval challenges including:

• Low or no down payments
• Poor credit history
• Lack of credit history
• Recent career or job change
• Self-employed income
• Corporate or trust entities without personal guarantors for the note
• Real Estate Investors with multiple rental properties that have reached their credit limits with traditional lenders (generally four or more)

Reason #2 Property Challenges
Rather than finding a bank-qualified buyer, sometimes it is the property itself that comes with challenges. It might be a property that is difficult to market or does not qualify for conventional mortgage loans. These properties are often sold with creative seller financing:

• Lower home value range (generally under $50,000 depending on market area)
• Single and/or doublewide mobile homes (with or without land)
• Low improvement to land value ratio (such as a small home on large acreage)
• Properties with deferred maintenance or in need of repairs
• Mixed-use properties (commercial and residential)
• Rental or multi-unit properties
• Sales involving business value such as inventory, goodwill, or personal property
• Vacant or Improved Land
• Any property located in a soft market or proving difficult to move (offered for sale for 6 months or longer)

Reason #3 Investment Strategy
There are some savvy sellers that use seller financing as a thought out strategy, even on easy to finance homes with qualified buyers in strong real estate markets. Often referred to as “professional sellers” they are looking to:

• Decrease marketing times
• Maximize the sale price
• Speed the closing process
• Buy wholesale and sell retail with easy terms
• Profit from long-term interest income
• Receive monthly payments without being a landlord
• Own a liquid asset that can be sold for cash should the need for capital arise

It’s no secret properties are taking longer to sell and bank’s frequently say “no” to mortgage loans. Across America there is renewed interest in an old solution all leading to the increase in seller financing.

Are you a buyer, seller, investor, real estate agent, or note broker wanting to learn more about seller financing? You can learn the note business from two masters of the art for just $99 with the Complete Money Making System to Buying, Referring, Creating, or Holding Real Estate Notes.

Have you ever tried to describe the “typical” buyer purchasing property where the seller provides financing? Many mistakenly think of only those that are “down and out” on their luck.

Let go of preconceived notions and start looking at seller financing as a potential creative financing solution.

A recent encounter with a real estate professional set on stereotyping buyers using seller-financing left me searching for an enlightening response.  It is truly difficult to find a “one size fits all” description.

A simple explanation might be “Owner Financing is an alternative for the buyer or property that falls outside traditional mortgage loan criteria.”  While technically accurate, it leaves out the human element.

To paint the full picture it just seems easier to portray a few of the many faces of the owner-financed buyer.  So please, allow me to introduce to you…

The Single Mom that purchased a distressed property with owner financing and only $1,500 down. After living in the home for two years and making sweat equity improvements, she was able to sell the home for a $30,000 profit to put towards a home in a better school district.

The Self Employed Couple that had good credit and 20% down but had just started their new company a year ago and could not provide two years of verifiable income.  They purchased their vacation home on the lake using owner financing and helped the seller assign the Deed of Trust and Note to a note investor for cash at closing.

The Real Estate Investor that bought a 4-plex in need of repairs.  The investor planned to rehab the property for resale profits but the banks wanted the repairs done before extending a loan.  The resolution was short-term private mortgage also known as temporary owner financing.

The Minority Family that only paid cash and didn’t believe in using credit.  Without a credit score a loan was impossible.  By showing the seller proof of timely rent and utility payments they were able to buy a home for their family using an installment sale on land contract.

The Retired Couple living on social security income that needed affordable housing but didn’t want to just pay rent. Excited to locate a mobile home and lot in a nice 55+ community, they were disappointed to find the circa 1974 mobile home was outside the lender’s age restrictions.  The solution?  Well by now you are filling in the blanks; it was owner financing.

This is just a sampling of the real-life buyers that have purchased property using seller financing.  No, they were not “dead beats” or “unsavory” characters.  They were people just like you and me that desired a home to call their own or an investment vehicle to a better life.  In fact three of those examples were transactions where I personally wore the hat of the property buyer.

These days I’m fortunate enough to purchase seller financed notes for investment purposes.  But whenever evaluating a deal or working with a slow paying customer it helps to understand the human side of the transaction.  The same ability to relate to individuals facilitates working with sellers and note holders too.

As more banks are saying no to home mortgage loans the need for seller financing is on the increase.  If a buyer doesn’t have 20% down, 720 credit score, and 2 years of verifiable income it could be that owner financing is their only option.  For sellers needing to move a property it provides an opportunity to attract a greater number of prospective purchasers in a struggling real estate market.

Author: Written and copyrighted by Tracy Z. Rewey, a well known seller financing expert with over 20 years experience buying and selling real estate notes.

Offering to owner finance a property can attract buyers and even save transactions as banks increasingly stamp “DECLINED” on mortgage applications.  Before you agree to “Be the Bank” carefully consider the downside to providing creative financing.

Time is Money – For most sellers waiting to get paid is the biggest drawback since they would prefer to receive the full purchase price in cash at closing. Using a balloon payment to shorten the term of repayment can often reduce the severity of this time delay.  Using temporary seller financing techniques can also help optimize a subsequent sale of the payments to a note investor.

Honey, Did You See That Check? – It will take time every month to keep track of the payments.  An amortization schedule helps to accurately calculate the interest, principal, and remaining balance due. There are also annual 1098 mortgage interest statements to prepare. Many sellers decide to leave all this to a professional and make use of an outside servicer.

Here Comes Guido – When payments don’t arrive on time sellers will quickly find they have been cast in the role of bill collector.  They also have to worry about if the buyer maintains the property, lets the property insurance lapse, fails to keeps the real estate taxes current, or violates any other terms of the financing arrangement.

No TARP for You! – There is the risk a seller will need to initiate foreclosure proceedings if the buyer fails to make payments (or follow any other terms of the note).  Along with time and money, in today’s market foreclosure comes with the risk a property might be worth less than the outstanding balance due.  There is no government TARP lender bailout plan for the individual seller!

Who’s On First? – When a property is sold with owner financing and the seller still owes money both the buyer and seller need to be concerned about timely repayment of the underlying lien.  The first position might also have the right to accelerate their mortgage under some type of due on sale clause. Most note investors will pay off the seller’s underlying liens out of proceeds when they purchase the future payments. (Read more at Wraparounds with Underlying Liens)

They Offered How Much?! – If a seller gets tired of the monthly payments trickling in they can sell the note to an investor for cash now. While future payments can be sold to a note buyer it is usually at a discount rather than full face value.  How steep of a discount depends on the equity, interest rate, payer credit, property type, and other terms. (Read more at Structuring Notes for Top Dollar Pricing)

Of course it’s not all bad.  Many buyers and sellers use owner financing to create a winning solution for both sides.  The trick is to work with qualified professionals that can steer you in the right direction. To discover the positive side of seller financing be sure to read 10 Advantages to Using the Seller Carry Back.

Author:  Article written and copyrighted by Tracy Z. Rewey.

So what’s all the hype? Here are ten advantages to using the seller carry back to buy or sell real estate.

1. Shorter Marketing Times – Properties marketed with “Owner Will Finance” will draw a greater response rate and generally sell at least 20% faster than properties requiring conventional financing.

2. More Buyers – With many lenders’ tightening their approval process, the seller carry back enables a greater number of buyers to purchase and finance a home.

3. Speedy Closings – Without the red tape of a conventional mortgage lender, a real estate transaction can close in as little as two to three weeks.

4. Maximize Selling Price – The seller has an opportunity to realize full market value for a property when providing financing. This is viewed as a sales concession in many markets.

5. Reduced Restrictions – Restrictive lending requirements don’t apply providing greater flexibility when it comes to the buyer’s credit history, down payment, debt to income ratios, and other underwriting criteria.

6. Fewer Costs – There are no expensive loan costs to worry about. A buyer can put the money they save on origination fees, points, underwriting fees, mortgage insurance premiums, and junk fees towards the down payment and building equity.

7. Interest Income - The seller is able to collect long-term interest since they are essentially acting as the bank by extending terms to the buyer. On average a buyer will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result of interest.

8. Installment Sale Tax Deferral – When property is sold at a gain and subject to tax there can be an opportunity to delay a portion due when reporting under the Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a qualified tax professional for further details).

9. Secure Asset – The balance of the purchase price is collateralized by the property. If the buyer stops making payments the seller can take back ownership of the home.

10. Liquid Asset – The seller owns a liquid asset, which is just a fancy way of saying somebody will purchase the note, mortgage, trust deed, or contract on the open market. Many sellers elect to sell their future payments to a note investor or note buyer for cash today rather than payments over time.

Seller financing offers a creative solution to financing real estate but there are some risks. For the flip side of the coin be sure to read the The Downside of Owner Financing – Disadvantages to Providing Financing. It also pays to consult with qualified real estate, tax, and legal professionals to make sure today’s solution doesn’t turn into tomorrow’s problem.

Author: Article written and copyrighted by Tracy Z. Rewey

Suffering from whiplash, banks are clutching tightly to funds and routinely declining home mortgage loans. Individual sellers and private investors are forced to think creatively by offering financing terms to anyone that is less than an A+ borrower.

The Mortgage Reform and Anti-Predatory Lending Act passed the house on May 7, 2009 and was received in the Senate on May 12th. It was then read twice and referred to the Committee on Banking, Housing, and Urban Affairs. While the official status has not changed we wanted to pass along an informative update.

One of our readers was kind enough to post a comment on our original article post entitled How Congress Wants to Change Seller Financing.   The following provides the reader’s comment including a response from the National Association of REALTORS®:

Jeffrey Smith Commented on June 8th, 2009 6:30 pm
The National Association of Realtors is ready to tackle this issue:
——————————–
2009 June 8
Mr. Smith:

Thank you for forwarding us your concerns regarding seller financing. We understand that the restriction of 1 seller financed property every three years is of great concern to our members, and NAR greatly appreciates receiving all of the comments related to this topic.

First, please know that H.R. 1728, “The Mortgage Reform and Anti-Predatory Lending Act of 2009″, will not be taken up by the Senate any time soon. Senate Banking Chairman, Chris Dodd, has indicated this a couple of times over the last few weeks, with his latest comments appearing in the May 26th release of Inside Regulatory Strategies. In the article, an industry executive is quoted as saying that this is “deja vu all over again”, referring to the 2007 anti-predatory lending bill that was sent to the Senate and died due to inaction. Moreover, Chairman Dodd indicated that “this issue is not on his ‘mustdo list’, which includes credit card reform, financial modernization, and the oversight of TARP.” Senator Dodd goes further and states, “he’s not minimizing predatory lending, but the financial crisis has pretty much collapsed the subprime market, where the majority of abusive and predatory practices took place.”

Second, when the original language for H.R. 1728 was introduced, REALTORS® faced two significant issues: 1) being included in the definition of mortgage originator, which would have required additional licensing and educational requirements, and 2) having all consumers that finance the sale of their real property required to be licensed to do so. We worked hard, and successfully removed the requirement of REALTORS® licensed / registered as mortgage originators, and to allow seller financers not to have to register, or get licensed, to sell their own real property once every three years. Please note that: 1) NAR worked for a full exclusion for seller financers; however, had to accept the current language as a compromise or there would have been no exclusion, and 2) That the language does not prohibit consumers from financing the sale of more than 1 property every three years. If the consumer wants to finance more than 1 property every 3 years, they will have to be licensed as a mortgage originator, and become subject to the rules within H.R. 1728. It was Congress’ contention that this requirement would severely constrain the possibility of seller-financing as a loop hole for the unscrupulous businesses that preyed on consumers during the housing bubble.

With all that said, I would like you to take the following two messages from this e-mail and NAR. First, the bill looks like it will die due to inactivity in the Senate. Meaning, these requirements, which are not in effect, will not go into effect anytime soon. Second, if the bill begins to move in the Senate, NAR will work diligently to have a full exclusion for seller financing added to the Senate’s version of the bill, or increase the limitation so it does limited harm to consumers that have to utilize this type of financing.

Please let me know if you have any additional comments or concerns.

Thanks again for your comments.

Anthony Hutchinson
Sr. Policy Representative – Financial Services
National Association of REALTORS®

(202) 383-1120

While this response is certainly encouraging we must continue to contact State Senators to let them know how we feel.  NoteInvestor is urging the Senate to Vote NO on HR 1728. For a sample letter visit Why Save Owner Financing From HR 1728?

The government is offering first time home buyers an $8,000 tax credit in an effort to stimulate the ailing real estate market.

Sellers can attract buyers by highlighting the refund in their ads, especially when used in conjunction with owner financing.

Author’s Update: This law was extended and expanded on November 6, 2009.  Be sure to read the update at:

This appealing tax credit is part of the Recovery Act that was expanded for 2009 home purchases. Here are 10 things you must know to make the most out of this program.

1. First Timers Only Please – The $8,000 tax credit is available to first time home buyers only.  This means the buyer (and their spouse if married) must not have owned their principal residence at any time during the three years prior to the date of purchase. (UPDATE: As of 11/6/09 there is also a lower $6,500 tax credit available for qualifying long-time homeowners that are buying a replacement home.)

2. Home Sweet Home – The buyer must live in the home as their primary residence. This means vacation homes and rental homes do not qualify.   The home must be located in the U.S.  However, it can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.

3. Show Me the Money – The credit is 10% of the home purchase price to a maximum of $8,000.  This means the home price needs to be $80,000 or above for the full $8,000 refund.  The credit is claimed with the federal tax return using IRS Form 5405.

4. Timing is Everything – The increased $8,000 tax credit applies to homes purchased in 2009 that close before December 1, 2009. (UPDATE: Extended for closings through June 30, 2010 provided there is a sales contract in place by April 30, 2010.)

5. It’s Yours to Keep – Rather than a tax deduction the tax credit is fully refundable. This means a qualified buyer could have no taxable income and still receive the refund.  Unlike the earlier $7,500 version from 2008, this 2009 credit does not have to be repaid over a 15-year period.

6. Simon Says, “Don’t Move” - The buyer must continue to live in the property for 36 months after the purchase date.  If they move earlier than the 3 years the credit must be repaid.

7. Limitations Apply -Income limitations also apply based on modified adjusted gross income.  The phase out range is $75,000 to $95,000 for single buyers and $150,000 to $170,000 for married couples filing a joint return. (UPDATE: The revised income limits are $125,000 for single buyers and $225,000 for married couples filing jointly, with an additional $20,000 phase out range.)

8. Why Wait? - There are FHA mortgages that make a portion of the tax credit available at purchase.  This is accomplished through a short-term loan that can be applied to closing costs and a portion of the down payment above the 3.5% minimum.  There is also the possibility of filing an amended 2008 tax return so buyers don’t have to wait for the refund until filing their 2009 return.

9. Think Creatively – If a first time home buyer has difficulties qualifying for a bank loan they might consider purchasing a property with owner financing.  Also known as an installment sale, the seller agrees to “be the bank” and accept payments from the buyer.  This allows a buyer to take advantage of the 2009 tax credit even when banks say no to a mortgage loan.  The IRS might not recognize the closing date on a Contract for Deed so a Warranty Deed from the seller to the buyer with a Note and Mortgage (or Note and Deed of Trust) naming the seller, as the payee might be preferred for this purpose.

(10/20/09 Author’s Update – The IRS has recently addressed the Contract for Deed issue.  For more details please refer to Does Seller Financing Qualify for the $8,000 First Time Homebuyer Tax Credit?)

10. Read the Fine Print – Like any act of Congress there are a few pesky details.  For instance the property can’t be acquired from a related person.  Be sure to review the fine print available online through the Internal Revenue Service web site.  It is also advisable to contact competent tax and legal counsel to avoid any costly mistakes.

The combination of historically low interest rates, large inventory, reasonable prices, and the $8,000 tax credit are making 2009 an excellent time for buyers to purchase their first home.  When sellers also offer to owner finance the property the easy financing and tax credit should entice buyers to get off the fence and consider a home purchase.

Author:  Article written and copyrighted by Tracy Z. Rewey