According to the NWMLS, the Consumer Financial Protection Bureau (“CFPB”) recently issued several final rules concerning mortgage markets pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). One of these rules clarifies the definition of “loan originator” and outlines conditions under which “seller-financers” are exempt from the definition.
In short, in order for a seller to finance a sale and not be considered a “loan originator” and subject to comprehensive regulation, the seller and the loan must meet the following requirements:
- The seller must be a natural person, estate, or trust (and not a loan originator);
- The seller must not have financed the sale of another property within the past 12 months;
- The seller must not have constructed or acted as a contractor for the construction of a residence on the property in the ordinary course of the seller’s business;
- The repayment schedule must not result in a negative amortization; and
- The financing must have a fixed rate of interest or an adjustable rate of interest that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases.
As always, you should seek legal counsel regarding seller financing issues.