Not long ago, seller financing of residential properties was pretty willy nilly because there weren’t any significant restrictions or licensing requirements in place. (Since the sub-prime mortgage crisis, we now all know that licensing, guidelines and restrictions are good things!) Under the previous law, owners could provide seller financing for up to 5 of their own residential properties per year under something called the “de minimum exemption.”
That has all changed with the passage of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which was designed to place minimum licensing requirements on all loan originators. Under the new law, any seller financing a one-to-four-family residential property (think home, condo, or duplex) must be licensed as a “residential mortgage loan originator” (RMLO). The main exemption, which is still in effect, applies to any seller (1) financing their primary homestead or (2) financing to a family member – these types of sellers are still not required to obtain a RMLO license to complete the transaction. (The RMLO licensing process include basic education requirements, submitting to a background check, passing an exam, and paying a small fee.) So basically, the SAFE Act put the kibosh on the seller financing free-for-all.
If you are planning on entering a real estate transaction with any type of seller financing, be sure that these requirements are met. Of course, we would be happy to navigate potential pitfalls for clients, so please contact us if you’re considering a seller financed deal!
