OK here we go, folks. Hang onto your hats…
A couple of days ago I got word from Peter Conti of an ominous piece of legislation that just flew through the House and is now apparently being fast tracked in the Senate.
In summary Peter warned this bill threatens to not only severely limit the way creative real estate investors do business, but even more importantly is an inexcusable infringement of the property rights of all Americans.
As a result I posted this: “STOP H.R. 1728: Anti-Property Owner, Anti-America” (And if you didn’t catch it yet, that’ s probably the best place to start before continuing here.)
Basically this bill focuses upon reforming predatory lending practices by imposing a stringent list of requirements on mortgage brokers, servicers, appraisers, etc. Unfortunately, owner financing gets caught up in the broad strokes, and the impact could be devastating.
So essentially anyone who sells more than one property every three years via owner financing will be in violation unless they are a ‘licensed mortgage originator’.
Controversy Arises Within REI…
What’s interesting is that a number of our industry leaders seem divided on whether this pending bill is a big or small issue, and more importantly whether we should be up in arms over it or not even worry about it much.
Late yesterday (6/11/09) Attorney Bill Bronchick posted this retort, first to a popular online forum, then emailing it out en mass:
From: Bill Bronchick
Re: The truth on House Bill 1787
I’ve received a number of emails from people claiming that House Bill 1787 will eliminate owner financed deals to once every 36 months. This is patently FALSE. Become an informed citizen and read it yourself: http://www.govtrack.us/congress/bill.xpd?bill=h111-1728
This bill aims to include owner financed deals within the definition of “Truth in Lending” law. I’ve always instructed in my courses and seminars that you should comply with Truth in Lending, which requires just a few simple disclosures.
The bill also would, in theory, make a person who sells a home a “mortgage originator”. This would require compliance with RESPA, which I’ve always instructed in my courses and seminars that you should comply with anyway.
Finally, the bill would require that you actually qualify your buyer. It prohibits, “lending without due regard of the mortgagor’s ability to repay”. Duh! Only a fool would put someone in an owner financed house deal without checking their income, debt and credit.
All in all, there’s nothing to worry about here for investors, it’s just a matter of compliance with some federal rules and a couple of disclosures. Any comments or questions are welcome.
However Other Industry Leaders Strongly Disagree…
Late yesterday, I was invited to attend an impromptu teleconference on this issue, lead by:
- Peter Conti (Longstanding Industry Leader)
- Vena Jones Cox (Industry Leader, Radio Host and RE Goddess)
- Jeff Schiller (Attorney)
- Clint Hinman (Editor, The Noteworthy Newsletter and 15-year veteran of the seller-financed industry)
- Charles Tassell (Lobbyist for National REIA)
Everyone leading this call stated unequivocally their stance that it would be foolhearty to view this bill as “no big deal” to the REI industry or to private property rights.
They also outlined a specific strategy for effectively fighting this bad legislation, including how to be heard and not ignored on this issue by the legislative powers that be.
If possible, I urge anyone interested to listen to the entire conference call. It’s only about half an hour long.
The Noteworthy Newsletter is taking it seriously enough to have put up HR1728.org in an effort to unify the REI front online against the bill. They’re view is definitely that this bill is a big problem and that it must be dealt with. As they put it…
What’s The Problem? Owner financed notes are not loans. There is no transfer of money, no points or closing costs, and no mortgage brokers involved. They are not created with the intent of selling them off to government-sponsored entities like Fannie Mae, Freddie Mac, or FHA. They are installment sales. The borrower receives no money that must be repaid, only a property on which periodic (read: installment) payments must be made.
Just as egregious is the loss of private property rights. The government should have no power to legislate how property owners dispense of their properties. If a property owner is willing to finance the sale of a property to a buyer, whom is the government trying to protect by making the transaction illegal? States already have usury laws and servicing requirements that protect the purchasers.
If passed by the Senate, this legislation will:
1. Severely limit the number of property owners who can legally owner finance the sale of their properties.
2. Make violators out of everyday Americans who, unaware they are breaking the law, are merely trying to sell their properties and/or offering financing to prospective homeowners who cannot obtain conventional financing.
3. Require obscene amounts of due diligence on the part of note investors to make sure all facets of this legislation have been complied with.
4. Give prospective homeowners even fewer options to realize the American Dream of homeownership.
5. Cost the U.S. taxpayers over $400 million dollars to enforce.
There’s also been interesting “behind the scenes” flurry of emails back and forth over the last few days among REI leaders, with some taking one stance and others taking the other.
Where do I stand?
For what it’s worth, my opinion is still that this is a big issue. I agree with the Noteworthy assessment and Uma Thurman’s sentiment quoted above. I believe this bill should be KILLED as it’s written right now.
Even if it doesn’t directly effect you now, it’s an inappropriate, needless attack on private property owner rights in this country. The strokes they’re painting with here are needlessly broad and personally I’m asking real estate investors to take it seriously and act against it.