(March 8, 2019) While it’s not common, seller financing is one way for buyers to purchase property when they are not able to get approved by traditional lenders/banks.
But, it is important to know that through the Consumer Financial Protection Bureau (CFPB) rule from 2013, as part of its implementation of amendments to the Truth in Lending Act (TILA), sellers who agree to hold financing for buyers are held to the rules of this recent legislation.
The definition of loan originator is broad. It covers anyone who, for compensation, performs any activities related to the origination of mortgage loans, including, but not limited to: taking an application or offering, arranging, or assisting a consumer in obtaining or applying for credit.
CFPB has provided some flexibility in the final rule by excluding from the definition of loan originator two categories of seller financing:
• those that sell three or fewer properties in any 12-month period, and
• those that sell only one in any 12-month period.
In both cases, sellers must meet various other criteria as well. But, if you sell one property using the less restrictive exclusion rules and then seek to sell a second property, the safest course would be to wait for the expiration of 12 months after consummation of the first sale before selling the second property.
Important for real estate agents to note is that CFPB says:
• Even if state law provides that loan origination activities are eligible real estate brokerage activities, the real estate broker/agent is nevertheless considered to be a loan originator under the final rule if engaged in loan originator activities as defined under the final rule.
• A broker/agent is a loan originator when paid for performing creditor, mortgage broker, or consumer credit referral activities.
• If a broker affiliated with a creditor pays an agent for origination activities, such as for taking the consumer’s credit application and performing other functions related to origination of the loan, the agent is a loan originator.
To learn more about the final rules and criteria, visit www.consumerfinance.gov.
— Lauren Bunting is an Associate Broker with Bunting Realty, Inc. in Berlin.