Federal Borrower Protections Limit Seller Financing Choices

written by Attorney Kirk G. Siegel

As of January 10, 2014, banks face new federal regulations requiring them to assess the borrower’s ability to repay most residential mortgage loans, intended in part to protect the public from overreaching lenders. An unintended consequence, however, is that many new (but not existing) seller-financing arrangements will become illegal; and, even if sellers are exempt, they may need to become¬†licensed mortgage loan originators. Seller-financed and privately financed mortgages (and potentially land installment contracts) are implicated. Vacant land, commercial property and multiple units (5 or more) are not included in the rule, meaning there are no restrictions on seller financing for these types of properties. The rules are being implemented by the Consumer Financial Protection Bureau (“CFPB”) under the Dodd-Frank act. Continue reading