Private Lending And The Dodd-Frank Bill

The Dodd-Frank bill affects any private lending taking place after January 1, 2014. The initial rules for seller financing have been modified.

If the buyer uses the property as their personal residence and the seller only does one seller finance per year then the rules are:

1) There must be a fixed interest rate for five years. After that, the interest rate can increase up to two points per year for a maximum of six percentage points.

2) There can be a balloon payment in the note.

3) The seller is not required to verify the buyer's ability to pay.

The selling entity can be an individual, an estate or trust. It cannot be a partnership, LLC, Corporation or other legal entities. Notice, that is one entity per trust, per year.

 

If the same person trust or estate does more than one seller financing per year then:

1) The same interest rate rules apply.

2) A balloon payment is not allowed.

3) the seller must verify the borrowers ability to pay.

I've been following the development of the Dodd Frank rules for years and have used those guidelines. We also give a full Truth-in-Lending disclosure. We also deliver many other documents, over 20 items, including a title report, termite report, property defect disclosure report, and buyers inspection reports. Since we do financing through land trust procedures, we have an explanation of the rules and procedures with trust beneficial interests. The buyers become the 100% owner of the beneficial interest and assign it back to the lender as security for the loan. All  UCC-1 documents procedures are followed. This makes a foreclosure faster and less expensive if it is ever required.

There are many potential buyers for seller financed property who are unable to qualify for a bank loan due to foreclosure, bankruptcy or other financial problems. They typically pay above market price for the house, above market interest rates, and are required to put 10% to 20% cash down payments. Monthly payment including taxes and insurance is structured to be close to market rent. They are happy buyers and have an excellent payment history on their new home.

The Dodd Frank bill should have very little negative effect on seller financing. As you can see, the rule for one transaction per trust will not affect any investor that uses land trusts for holding title to investment real estate. It is the best method of owning real estate. You can learn everything about land trusts, personal property trusts and other tools such as options, IRAs and 1031 exchanges at the 'TRUST Creation and Application Seminar' in Jackson Mississippi January 23-25, 2014.  More information is on my website at www.JackShearealestate.com

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