SAFE Act, 3 properties per year exemption

According to the website listed below, you are exempt from the SAFE Act for 3 properties per year if you meet these criteria…

There is a three property exception. Under this exception, the seller-financer is not considered a “loan originator” if:
(a) they are a natural person, estate, or trust, or an entity;
(b) they provide financing for three properties or less in any twelve month period;
© they own the property securing the financing;
(d) they did not construct or act as the contractor for the construction of a residence on the property;
(e) the financing must be fully amortizing and there must be no balloon payments or structures allowed;
(f) the financing must have a fixed rate or an adjustable rate that resets after five or more years, and must have caps on rate changes, and also lifetime caps.
(g) the seller must determine, in good faith, that the consumer has a reasonable ability to repay, and while the sellers are not required to formally document how they made their good faith determination that the buyer had the ability to repay, a prudent seller should keep records in case the analysis is ever called into question. This could include current or reasonably expected income or assets, income tax returns, employment, monthly payments, debt obligations, debt to income ratios, credit history, etc.

http://barneswalker.com/seller-financing-restrictions-under-the-dodd-frank-act/

That is very good news. Thanks for posting it.

This is all great and everything but rent credit is still superior to financing. It’s always going to be 10x easier to evict than it is to foreclose. Just my personal opinion but even if SAFE was amended with a $50,000 cap, I’d still do rent credit.

@CharlesD,

I think that one disadvantage of the Rent Credit Program is that you are still responsible for repairs to the home. If you were to do financing, I think that you are not responsible for repairs. Please correct me if I am wrong, thanks.

Charles,

It sounds like your POH rentals are turning a healthy profit. Mine are loosing big time. Frank tells us he is loosing on his. The few owners I know tell me the same thing. What are you doing right? Is it the nature of your parks, large security deposits, monthly home inspections or something else?

We run at around 70%-80% expense ratio on our rentals. Mostly because the delta in most of our parks is $300-$400 over lot rent. I believe you can cash flow your rentals if you create a massive marketing effort, properly screen, and be constantly selling your existing RTO people. For instance, every month our RTOs get balance owed (buy it now) on their invoice. For the people we’d like to keep (those who pay on time, keep up with their unit, and haven’t given our manager any problems) they will get a heck of a deal at tax season. Sometimes as much as 50% off the remaining balance. I will usually get involved in this sales process by speaking with those people face to face when I am onsite those 1 or 2 times per year and have the manager continuously follow up thereafter.

When you take in $25,000-$50,000 on home sales during tax season in each community, then it’s probably what makes the homes business actually cash flow a little. Again, I do not like POHs but we know how to buy them right, market them right, and sell them right. If it takes 100 follow ups to sell one unit to a good tenant, then that’s what we do.

We also bill back for repairs on POHs that are in rent credit. I’m not sure where this logic comes from that you can’t. The only repairs that we don’t bill back for is yearly pressure washing, monthly filter replacement, and Kool Seal on the metal roofs. If the tenant doesn’t do the repair or accept the bill back, then we will find a way to remove them from the community. A person like that will not be an owner in our communities and we’ll start over with someone else who has the proper ownership mentality.

2 Likes

I hate to be the wet blanket. Remember that state law is not the same thing as federal law and visa versa. If the state has a stricter law than federal law, the state law prevails and the reverse is also true. In theory, one may not need a MLO as part of their operation under certain circumstances, but that does not mean they might not need a lending license, and certainly does not exempt them from complying with the 20 so federal compliance issues for those who lend, let alone any state related compliance issues.

It has been clearly stated by both state and federal regulators this exemption was created for the homeowner who wants to sell the home they have been living in, or, a home or homes they inherit that someone now dead or disabled has been living in. Using the exemption any other way is looking for trouble if something goes wrong and people have been nailed for it - especially those whose wives and children are also using the same exemption to finance more than 3 homes.

The short-term benefits are not worth the long-term risk.

1 Like

@RishelConsultingGroup, thank you. Do you recommend using the Rent Credit System?

GJS, Ken H below provides the big picture. This excerpt is unfortunately an over simplifaction IMO. I’m but a self educated grade schooler in the university of Dodd Frank. I’ve heard of State’s Banking divisions (per Kens comment) wack lenders who aren’t licensed thinking they where under the 3 exemption but they lent in the name of an entity. The court interpreted this to mean the lender was “an on going business” not a home owner selling their own license.

The CFPB gets into this too, being the rule maker arm of the DF statute. They clarified with a reference I can no longer find: that they don’t want the 3 per year, year after year, to be from an on going business. The interpretation of what was in the hearts of the DF authors, was to give an out for home owners to fiance their own homes for a sale. Not businesses (parks) to finance to MH owners…

I’m certain a park lending in the name of their LLC will loose in court. The gap is, where is the enforcement actions and resulting case law. I’m surprised its all quiet on the western front. From a chaos theory perspective this should not comforting. :slight_smile:

1 Like