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Things may get difficult for owner financing

by Kim Cooper
| June 6, 2010 9:00 PM

Many of you remember the early '80s. That is when many of today's homebuyers were born. It is also a time when America was in a recession and interest rates soared due to rampant inflation. It was not unheard of in those days to learn of a mortgage interest rate of 19 percent or more!

When financing gets tough, whether it is because of too high interest rates, or our current strict lending requirements, sellers of real estate are often inclined to provide their own financing. Doing this could allow them to get a more attractive price for their home, land or buildings. In some cases worthy buyers deserve an opportunity to overcome bad times and start rebuilding their lives. In other instances, banks just aren't loaning on raw land or commercial buildings without exceptional participation from the borrowers.

While their credit may be marred by a short sale or foreclosure because they were under water, a buyer with a good track record of income may still be able to make predictable payments. A land or commercial buyer may easily be able to produce a significant down payment but in many instances, not enough to satisfy the stringent lending requirements today's market may present.

Although traditional sources may not be available to these buyers, a seller with a strong equity position can offer their own terms and make their own judgment calls.

For the time being, an owner still has the option to finance their own real estate but this could change soon. Without much fanfare, the Mortgage Reform and Anti-Predatory Lending Act or HR 1728 passed muster with the United States House of Representatives last year.

This bill provides some protection to consumers and is designed to prevent another flurry of predatory lending practices, but could be detrimental to property sellers who are willing to carry their own notes.

Owners of several properties who, as a part of their estate plan, or as an investment strategy, plan to dispose of properties with some frequency, could be required to register as a mortgage originator. Under the bill this would require licensing and registry as that entity. It was Congress' contention that this requirement would severely constrain the possibility of seller-financing as a loophole for the unscrupulous businesses that preyed on consumers during the housing bubble.

Under the bill, to be classified as a mortgage originator, you would have to sell more than one property every three years so most homeowners will not be affected. If you are an investor or speculator who buys multiple properties or large tracts of land to divide and then, provide your own financing, this will definitely have an impact.

This bill was approved by the House of Representatives and passed to the Senate. Senate's action was to pass it along to the Committee on Banking, Housing and Urban Affairs earlier this year. It may die there, but be warned. If it does pass, be prepared to evaluate your selling strategies.

The National Association of Realtors, of which all Realtors are members, has lobbied hard to remove some restrictive language from this bill. Any movement that restricts the private exchange of property will be scrutinized closely by us.

We encourage you to be creative in the disposition of your property and are glad to be a resource for you when you need us. If you want to finance and sell your real estate yourself we encourage you to pursue the course with knowledge. When you need professional help, please call on a Realtor. We always operate in the interest of property rights and property owners.

For a safe ride home, call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.

Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664 with your questions or commentary.

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