Seller Financing and the Dodd-Frank Act

Seller financing is an option for buyers who do not qualify for traditional loans. Seller financing allows a property owner who owns his house free and clear to transfer title to the property and accept a mortgage for a substantial portion of the sale price rather than receiving all of the money in one lump sum. This produces several benefits for the seller.

First, the seller will receive the tax benefits of not receiving a large lump sum and will likely get a higher return on their money than if they were to invest it elsewhere. There are a number of other benefits for the seller who decides to take the seller financing route but starting at the beginning of this month, restrictions went into effect that may reduce some of the benefits. The passage and enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act has created the following restrictions on seller financing:
– The seller cannot be the one who constructed the home.
– The loan must be fully amortized. No balloon payments are allowed.
– The seller must determine in good faith that buyer has a reasonable ability to repay the loan.
– The loan must have a fixed interest rate for a minimum of five years.
-The loan must meet criteria identified by the Federal Reserve Board.

Congress’ intent when it passed the  Dodd-Frank Act  was to increase regulations on financial institutions in order to prevent another financial crisis. However, many perceive the restrictions on seller financing will result in giving more power to the banks and less to the individual.

For experienced attorneys who handle Arizona real estate and property issues, contact the law office of Richard Klauer and schedule an appointment.