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 1787I’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.
Listen here 
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…
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.
I am vigorously opposed to the Bill, as drafted.
To have the federal government enact legislation such as this is clearly an undue infringement on not only real estate investors’ rights regarding RESPA, TILA, etc compliance but also should send a very clear signal to all of us about where the federal government is heading from a “control” standpoint unless all of us send them a clear unequivocal message that they are way off base.
What they should be doing is supplementing their enforcement staff at the SEC, OTS HUD and a host of others to jump all over the servicing agents/”lender” of all the criminally irresponsible behavior that lead to the meltdown–it’s effects are still being felt by the borrowers (owner-occupied and investor alike) who have been left out in the cold. The infrastructure exists to enforce existing laws, state and federal. The powers that be are just not doing enough about it. For the record, I am a real estate investor full time, former lawyer for 28 years,
and have managed to dodge the bullets I have referred to above. In closing, I would add this: The last thing we need is what appears to be an unconstitutional law on the books that will invite litigation for years to come for those that can afford to do so, while all the “bad guys” who directed the meltdown at various levels–get to continue to do their thing–make gobs of money.
Mr. Bronchick’s comment, I believe is too simplistic–this is far more than a disclosure issue—he, like some others assumes or believes the federal government has the right to interfere with our private property rights,(such as an installment sale) it does not by definition, unless we let them.—that sets a dangerous precedent as well.
I see some RE folks I respect are against this bill, as well as some I don’t, after reading the blogs and forums. I tend to believe those who make money doing RE investing in a responsible manner and who are in it for the long haul, over those making money off of selling courses for a quick buck, although some I respect fall into both categories. If this bill would only stop the shyster course sellers who are wrecking the industry for everyone AND screwing people over I would be all for it, but I do not know enough about the path the bill is taking yet to be able to tell if that’s going to be the result.
Let’s face it guys, a lot of you who will be reading this are completely greedy and clueless and THAT’S why you will or will not support this bill. My mailbox is filled with your hype and my voice mail is full of your telemarketing. If you WERE making “10-15” deals a month and making millions as you say in a legit manner, you would not be cold calling me, and we would not be having to fight constant anti-RE investor legislation attempts. That’s the real enemy, these RE hump hucksters proliferating. A bill we can handle, those guys are a bit more shifty. I see them taking advantage of poor folks around here daily and spreading illegal advice for bug bucks. You know who you are. You are the ones this message ticks off the most!
I’m not taking any chances. I’ve e-mailed my Senators asking them not to support this bill, and you should, too. I also posted on twitter, asking my followers to do the same. Can we really afford to take a chance by doing nothing?
Ridiculus, this is just another way for the government to control and not really protect like they’d have you believe…
Might as well figure a new way around this one now… Maybe control without ownership would be a start…
Better safe than sorry. The administration and Congress appear to want to control many if not most aspects of Americans’ lives. Better to speak up sooner rather than later. Contact your local REIAs and get all investors involved. Also be sure to re-write the sample letter(s) in your own words before mailing, faxing, or e-mailing them to your Senators.
All I am saying is that when I ask this bankers for a job. they told me that I am not qualified! whem I am doing a couple of bucks in the real estate business then the banks say I’m sorry we weren’t very smart back then but today we are not going to lend any money if you are not perfect and these stupid people were receiving millions of dollars in salary and bonuses!!! the system is not working!!
Sub2. Immediate problem solved.
Our socialist government controlling our lives-problem continuing to grow. Bring this Congress to its knees in 2010.
Hey JP I tried to get on this website to download the letters and find out who the correct senators are on the Banking Senate Committee. Can you help with the website that maybe has been updated where it has come thru. I would like to send my comments to my senator. We need to let our government know we are all concerned with what they are doing. I think they have enough on there plate without disrupting the small business owner out ther trying to help others. Thanks JP
PLEASE write your lawmakers!
All that is necessary for the triumph of evil is that good men do nothing.
-Edmund Burke
So seller’s who offer financing are to comply with RESPA?
Gimme a break.
Attorneys specialize in TIL violations- that’s one of the levers used against lenders when going after short sales, etc. It’s NOT easy to be completely compliant with government guidelines- especially without the assistance of an attorney well versed in the peculiar guidelines for TIL.
Besides, since when is private property transactions, where no new financing is involved, become something that the federal government controls? We are rushing into a form of government where the individual rights and liberty are being shoved aside by those who’s view of government is all encompassing. These people are convinced that centralized power and control is the answer to everything.
That is NOT what our country is all about. OUr freedom to conduct transactions is being choked and we must resist this effort to push the rights of individuals aside by those who desire to impose their “mob” mentality. Russia, Germany and Italy thought that was a good idea… and we can all agree, it led to immense destruction of life, liberty and prosperity.
Not in America.
I agree with Peggy- we must make Congress pay in 2010. Enough with the government “solutions”. The banks should have been allowed to fail due to their stupidity. Nobody bails me out when I make a bad deal, I just learn from it & move on. Term limits wouldn’t be a bad idea, either, so the people we send there won’t have a chance to be totally corrupted before we replace them.
We are all so fat, dumb, and lazy that we’re losing our country to the marxists. We should be rioting in the streets about all the loss of freedom we’ve suffered the last few years! Attend a Tea Party. If enough people take the time to protest and vote, the scoundrels will have to start listening again.
Just the mere fact that this is a liberal Democrat authored bill, does not bode well for creative real etate investors, or frankly, anybody else. In my view, this is just another in a long line of unnecessary legislation from this Congress, that is a stepping stone to controlling or eventually eliminating the ability to invest in the area of Real Estate. Push hard to kill this bill. Start getting ahold of your representatives, and make it crystal clear where you stand.
This makes absolutely no sense!
One (of many other) HUGE thing Bill Bronchick failed to mention in his simplified summary is that in order to lend money to your child (secured by his/her home), say to help with your grandchild’s education, you would have to “be qualified and, when required, registered and licensed as a mortgage originator in accordance with applicable State or Federal law, including the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.”
Battery Acid in a Kool-Aid Container!
Assuming you want to use a dwelling as security, here are a few other heinous consequences of this bill, a:
1. Because “dwelling” is not defined and people have been known to dwell in them, points 2-5 below could apply to any loan you want to make that is secured by a:
• Self-contained recreational vehicle or camper, or
• Commercial building or store with a kitchen(ette) and bathing and sleeping areas.
Note: It doesn’t matter if the dwelling/property
is vacant, you live in it, rent it out, or
use it for your business.
2. If you need help with medical expenses, mortgage payments, education, or want to buy a home, you won’t be able to borrower from family or friends.
3. If you have family members or friends who need help because they are unemployed, disabled, or want to purchase a home, you won’t be able to make them a loan.
4. If you need to use your dwelling’s equity to pay bills or buy food during an income hardship (unemployment, illness, death of a spouse), you must apply for a loan with a regulated lender. This lender will be required to deny your loan request, if the government’s ‘to-be-established’ formula says you can’t afford repayment with your reduced income. Effectively, the equity in your residential properties will be locked away with no way to access it in an emergency.
5. You can only finance the sale of 1 owned dwelling in any 3-year period. Any additional non-cash sale would have to be financed by a regulated lender. If your property doesn’t meet standards established by the lending industry (as is the case for many homes in rural America), the property would be unsaleable during that 3-year period.
RESPONDING TO THE KILL BILL ARTICLE,SHOULD I GET LICENSE AS A MORTGAGE ORIGINATOR OR A MORTGAGE BROKER IF I WANT TO BE A CREATIVE REAL ESTATE INVESTOR
competition will never end huh…