CALL TO ACTION Redux - KILL (HUD) BILL Vol. 2 - Posted by David Butler

Posted by Gerald Lockhart on February 15, 2010 at 08:27:05:

Hopefully the message I sent will help.

CALL TO ACTION Redux - KILL (HUD) BILL Vol. 2 - Posted by David Butler

Posted by David Butler on February 13, 2010 at 14:08:46:

Much as it occurred at the time of the original Housing and Economic Recovery Act of 2008 that authorized the process of proposing the rules being discussed at this point in time, alert activists in the private cash flow and creative real estate investing industries are again trying to elicit the necessary support to override ill-advised legislation that is detrimental to the real estate marketplace - and more particularly, detrimental to those of us who participate in that marketplace as buyers, sellers, and/or investors.

As we said back at that time in both the Main Board, and in the Cash Flow Forum, seller-financing has long the back-bone of creative real estate investing. Two-hundred years long, for that matter. And it has been a critical lubricant in particular, during tight-money cycles. And contrary to popular conception, Seller-financing has a long history of being more consumer friendly (generally), and less predatory across the board, than institutional models. At least part of that is that private sellers - in general - are more generous in underwriting standards, rates, and terms.

Strangely, the rank-and-file of our industry was lukewarm to the original “Hue and Cry”. More oddly, only limited discussion came into the threads, and much of that showed a remarkable lack of understanding of the nuances and scope of seller-financing as an investment weapon?? The recent “easy-money” financing cycles of the past 18 years most likely played a significant role in the mindset that led to the complacency in objecting at that point in time.

Fortunately, we are getting a second bite at the apple now.

The premise being circulated with great alarm is quite valid, and of great concern to anyone remotely involved with real estate investing, if such investing includes, or is likely to include, seller-financing of single-family residential income properties (1-4 units). The issue in play here is one of clarity, and the existing limiting language that would unquestionably inhibit the broad use of seller financing; and subsequently severely limit the advantages that seller financing brings to the table for a wide range of parties, including sellers, buyers, investors (acting as sellers,buyers, or lenders), and the residential marketplace. This is particularly so during down markets, and tight-money cycles, such as those our economy is going through at present.

At this juncture, the opportunity is one of seeking clarification in the proposed rules, and attempting to assure that such clarification works to our advantage as nothing more than good business practice, which also fortuitously works to increase the free flow of commerce. Under paragraph F. (Individuals Not Subject to Licensing Requirements):

“The commercial context implied by the taking of an ``application’’ is also absent where
an individual seller provides financing to a buyer pursuant to the sale ‘of the seller’s own
residence’. The frequency with which a particular seller provides financing is so limited
that HUD’s view is that Congress did not intend to require such sellers to obtain loan
originator licenses. Accordingly, this rule would provide in Sec. 3400.103(e)(5) that
such individuals are not subject to State licensing requirements.”

The proposed rules needs to clarify the exception to embody the well-established rules of Installment Sales as they have existed in federal tax law for decades, and for the purposes intended. Consequently, our concern as an industry of CREI’s, is that the rule should adequately quantify the exception to include “ANY property owner providing private seller-financing to a buyer of the property subject to said financing.” For the purposes of achieving the intent of the SAFE Act, the language could easily define such sellers who would not be exempt. In that case, the above language can be extended to read “except those Sellers who are classified as dealers under existing IRS rules”.

To blithely ignore the opportunity to at least try to protect our own interests yet again defies any form of logic. And it leaves one defenseless in complaining about regulations we later deem suffocating, when we have voted for those same regulations through our silence at the time of their promulgation.

Seller-financing has been, and is again, a vital cog in the wheels of real estate commerce. Over and above our individual interests, the liquidity presented by such financing is more critical than ever to the American economy.

I urge every CREI, or aspiring CREI, to spend an hour this week-end to get more familiar with the issues in play, and then get onboard with the instructions for commenting before Monday through the vehicle provide as discussed in the several threads dealing with the matter:

Follow these simple steps:

  1. Logon to www.regulations.gov 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.

David P. Butler
Nascent Equity &
Hotspur Investment Group