Quick Breakdown of Dodd-Frank Act in Effect Jan. 10, 2014

DODD-FRANK WALL STREET REFORM & CONSUMER PROTECTION ACT IN FULL EFFECT

On January 10, 2014, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) went into full effect. The 900 hundred page bill was drafted, in part, to attempt to address alleged shortcomings of the financial industry.  Instead,  it has created a great deal of confusion and has prompted numerous questions, particularly from sellers who are willing to finance the sale of their home, or private money lenders who wish to provide financing for homebuyers. The following is a VERY brief summary regarding Dodd-Frank’s direct impact on seller and private money financing of owner occupied residential property.  The following does not apply to commercial, multi-family properties with five (5) or more units, and vacant lots/land.

Sellers or lenders who finance one (1) owner-occupant home per year:

  • Balloon payments will continue to be allowed;
  • Promissory Note must be fixed for first 5 years, and then may adjust no more than 2 points per year with a cap at no more than 6 points above the original rate.

Sellers or lenders who finance more than one (1) owner-occupant home, but no more than three (3) per year:

  • No balloon payments will be allowed;
  • Seller or lender must determine and show proof of borrower’s ability to pay;
  • Promissory note must be fixed for first 5 years, and then may adjust no more than 2 points per year with a cap at no more than 6 points above the original rate.

Sellers or lenders who finance more than three (3) owner-occupant homes in one year:

  • Must have mortgage loan originator (MLO) status or must engage an MLO to complete all transactions; 
  • No balloon payments will be allowed;
  • Seller or lender must determine and show proof of borrower’s ability to pay;
  • Promissory note must be fixed for first 5 years, and then may adjust no more than 2 points per year with a cap at no more than 6 points above the original rate.

Again, the following is a very brief summary of the Dodd-Frank as it applies specifically to seller and private lender financing.  Dodd-Frank is extremely complex and a determination of its impact on any proposed financing (including seller financing) should be made on a case by case basis by an experienced lawyer or MLO familiar with Dodd-Frank.   

Sincerely,

Berlin-Patten, PLLC

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com 

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