Seller Financing Laws

The NW Multiple Listing Service (NWMLS) just modified its Form 22C, Payment Terms for creative financing, due to changes in federal legislation related to seller financing. The revisions address recent changes in federal law that limit a seller’s eligibility to finance the sale of real property

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.

In Washington, there is not currently an automatic statutory exemption under the Consumer Loan Act (RCW 31.04) similar to the federal exemption. The Consumer Loan Act gives the Director of the Department of Financial Institutions (“DFI”) the authority to waive the licensing provisions for loan originators under certain circumstances. DFI has announced plans to review and possibly change its rules in the near future to consider standards for allowing exemptions. For more information on obtaining a waiver from DFI, contact Cindy Fazio at (360) 902-8800 or lfazio@dfi.wa.gov.

As always, you should seek legal counsel regarding seller financing issues.


Happy investing!