How HUD Safe Act Will Hurt Seller Financing

Be afraid!

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

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 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 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.

About Tracy Z

Tracy combines her knowledge of cash flow notes with the power of marketing online to help grow your business! She can be reached at 1-888-999-7905 or at Exposure One Marketing.


  1. I wonder what exactly “owner-occupied” means? Do I have to stay in the house I am selling for a night or two and prove that I have? or do I have to have stayed there for years?

  2. As with anything there are ways around it. Seek a competent real estate lawyer.

    • Hello Jason,

      Good advice. The first step is to be aware, get informed, and seek competent legal advice. It won’t be the end of seller financing but it will change how business is transacted by owners and note buyers.

      Thanks for reading and commenting at Note Investor.

  3. Jackie Rueckert says

    I believe the idea of the S.A.F.E. Act predated the meltdown. I believe it was the brainchild of lenders who wished to elimanate competation;. and who had enough clout to get the job done.

  4. Resistor Color Code says

    you can also save a lot of money when you do some home rentals, just find a cheap one ‘~:

  5. My site is under construction. But I have been trying to establish myself in the note business for about 15yrs. I have to retire soon and to be told that I may not be able to sell my property unless I get a license because the banks got greedy is hard to swallow.

    This is especially true when my retirement funds kept shrinking to a third of it worth not once but four times. Now I get little hints that I need to find other ways of funding my retirement as social security is not going to be able to sustain me. And I know my funds are not going to last.

    Real Estate is a great investment or was. How do you profit if you are not allowed to sell it unless you become a license mortgage holder. Will it be the same eventually for my car, stamps or other memorabilia.

  6. Does anyone know the status?

    • HUD received quite a few comments on the proposed Safe Act Rules from concerned property owners, real estate investors, and mortgage professionals.

      The comments are being reviewed and we visit the HUD site daily for any official update. We believe a decision should be made shortly since HUD is under the following deadline:

      States have until July 31, 2010, to have their loan originators licensed under the SAFE Act criteria, unless they already have them licensed under a different system. If already using a different licensing system, they have until December 31, 2010, to bring them in line with the Act’s requirements.

      Source: HUD Press Release No. 09-231.

      We will keep you posted.

      Tracy Z. Rewey

  7. Well, this is/was the last day for leaving comments about HUD’s proposed changes. I hope that alot of people took the matter to heart and spoke out about it. I also hope that seller financing and how it is used is left alone for people to utilize it how they see it fit. Does anyone know when an update would be available?

  8. I was also thinking that the proposed rules to seller financing would not fly in the court of law, especially how the proposition is worded,”you can only offer owner financing on a home you live in”. My reason is there would be no way that an individual could sell their home and they still occupy the home. Also, if I went out and bought 10 homes tomorrow, there is now way I can occupy all 10 homes. I would have to have rights to sell any of those homes the best way I can. If I had to resort to financing the sale of any of those properties, I would have to have the right to do so.

  9. The feedback from readers on the HUD Safe Act has been right on encouraging. Hopefully all our comments will make a difference. Here is the comment I submitted at

    All across this nation buyers are being turned down for home loans by banks and mortgage companies. Owner financing has long provided an alternative to traditional bank loans, and we need it now more than ever.

    There are many private individuals, trusts, and self directed IRA accounts that own real estate and are willing to seller finance a property that is not their own residence. The exemption (Item F Page 66551 of the HUD Summary Comments) should apply to any property that is owned and then financed by that owner. This exemption would include a second home, rental house, vacant land, mobile home, etc.; not just a person’s individual residence.

    If someone is regularly extending credit with seller financing they will fall under the existing dealer and TILA regulations. Please don’t make the average seller that is willing to owner finance under an installment sale subject to all the requirements of a mortgage originator, just because they don’t live in their property when they sell it. This will only make the housing market worse because buyers and sellers will have fewer options.

    Respectfully yours,

    Tracy Z. Rewey

  10. Another great article Tracy. Thanks for writing it and keep up the good work.

  11. Hello Tracy:

    I will be getting right to this. I thought that the intial attempt at limiting owner financing did not go through. I thought they left it alone. I don’t see where putting clamps on how people sell their homes would benefit the economy at all, being that it’s so tough for people to get loans, and will be that way for some time.

  12. A few years ago I was attending a seminar and got into a discussion with an oriental attendee. I mentioned owner financing, and he replied “we can’t do owner financing in my country-it is illegal.” I thought, how sad. And thanked my lucky stars that we live in a free country. It was very hard for me to realize that this might happen anywhere. I am 75 years old, and have accumulated 30 single family rental homes. My plan was alwlays to owner finance most of these for retirement income. Most of these homes are in the lower to middle price range of our market. Many of the prospects (some of them my tenants) are good people, but for one reason or another cannot get bank financing. How fair is it for the Government to tell me what I can do with my properties? It is very sad that they are trying.


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