I said I would report back after I researched the whole Dodd Frank and Safe Act issue. Here is what I have learned.
DF is federal, so it applies everywhere. For owner financing it allows for borrower to sue lenders if they act against the law. Scary right? Not really when you look at what they can sue for – the interest paid, damages, and attorney fees. Big deal; I was not going to charge any interest anyway, but even if I did charge 5% on a $15k loan with monthly payments of $350, what would that be after a few years? Not much. It is not the kind of case an attorney would take on contingency and who would take it anyway if there is little to no interest to sue for? Plus as the attorney in the video I linked to before said, there are not many attorneys who practice DF law. And I guess those who do are not getting involved in working for clients who live in old trailers in trailer parks who have paid $172 in interest. Their clients are big financial institutions with bottomless pockets. I’ve talked to a bunch of attorneys and I now believe that is correct; not many are at all that knowledgeable about DF.
And there are exemptions to DF. First as a natural person you can do one owner financing deal every 12 months. Second, every legal entity can do 3 every 12 months. That includes natural persons, corporations, LLCs etc. How the first exemption and the second exemption jive in regards toward natural persons is beyond me; perhaps you can clarify but I am just going to go with #2. So my understanding is, I can do 3 owner carry deals, my wife can do 3, my LLC #1 can do 3, my LLC #2 can do 3, my LLC #3 can do 3 and my LLC #4 can do 3. I lost count but that is probably enough in 12 months.
The Safe Act
It is part of DF but it is about states regulating Mortgage Loan Originators. So it is up to the states to implement it in how they see fit. It is not about tenants suing you, it is about what you must do to become a MLO. And they typically have exemptions for owner carry deals.
So I called the South Dakota Department of Labor: Division of Banking this morning. They are the guys who take care of the Safe act in SD. I went through the whole spew about how I own a MHP, and the POHs and how I want to sell them and the tenants want to buy them but don’t have any capital, blaw, blaw, blaw. Guy 1 tells me he sees nothing wrong with it but maybe I should talk to Bob. Bob tells me, well, maybe you should check with the DMV to see if they have some kind of law about how much a person can charge for interest or some other law about that kind of thing.
Wow, my fear of the Safe act has been holding back my business for years, like if I did something wrong I would end up in the Yankton Federal Prison Camp.
OK, so I call up the Nebraska Department of of Banking and Finance.
Same thing. “Sure, sounds good to me.” They did add that I could not charge more than 18% interest and something about charging too much in fees which I did not write down because I am not charging fees.
I did learn that in CA and TX there are no exemptions to the Safe Act for owner finance deals, but I think it is easy to find a MLO there who will handle the deal for not much.
My take away – stop worrying so much about the Dodd Frank/Safe Act Bogey Man and sell off the POHs and start buying up homes, stick them on my vacant lots and sell those puppies. To hell with the rent credit program.