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Big news today from Washington, for sellers who would consider offering financing to potential buyers and for
lucky souls who's parents or other benevolent freinds or family might consider financing their real estate purchases - HUD announced rules that may actually let you execute on your plans.

Shockingly, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act seems to have outlawed these sorts of financing tools. The SAFE Act established  minimum standards for state 
licensing of residential mortgage loan originators in order to increase uniformity, improve 
accountability of loan originators, combat fraud, and enhance consumer protections. but in enacting restrictions on their qualifications and authority, the law included everyone in the universe who made, or wanted to make, mortgage loans.

 The SAFE Act defines “loan originator” to mean “an individual who takes a residential mortgage loan application; and offers or negotiates the terms of a residential mortgage loan for compensation or gain,"  including individuals who “engage in the business” of a loan originator.  

As interpreted in Illinois, a parent  could not lend money to a child to purchase a home or condo unless that parent was a licensed Illinois mortgage lender or originator. Making even a single loan is deemed to be a venture for compensation or gain.

Sad to say, I have had several clients who's plans were dashed by this nasty, and surely unintended consequence of SAFE act implementation.

Today's HUD announcement 11-133 appears to (finally) change all of that. 

  • HUD notes that nothing in the SAFE Act rule prohibits an individual property owner from financing the sale of his or her own property, nor does the SAFE Act require an individual to become a licensed loan originator in order to provide financing in the sale of his or her property.
  • The rule change also clarifies that individuals are not required to be licensed by states) when offering mortgage loans on behalf of an immediate family members. 

To soon to know how the State of Illinois will interpret this one, but it seems pretty clear. Seller financing and parent-financing of mortgages can resume in Illinois. Buyers who are looking for "creative financing" have some new options - that is to say, some classic old-school financing tools  that fell out of favor may be back.

Have a question about seller financing or other family-funded financing of your next real estate purchase? give me a call.


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