Resources > Potential Loan Regulations
POTENTIAL LOAN REGULATIONS FOR OWNER FINANCED SALES
Real Estate entrepreneurs, builders, or investors realize that
when they sell a property on an owner financed basis, where they
actually extend the financing to the buyer by taking back an owner
financed Mortgage, Trust Deed, or Land Contract; they may be
acting as a "lender" under the law. Please bear in mind
that when you sell a property and finance it, it is considered an
extension of credit. Depending on the nature and frequency of your
financing activities, in addition to state consumer and lending
laws, you may need to also comply with Federal regulations.
One of the first law’s you need to become familiar with is
called "Truth-in-Lending." Truth in lending, also called
"Regulation Z", applies to anyone who
"regularly" extends credit. Past litigation of this
definition has come up with a very liberal definition; if you are
selling residential Real Estate properties to consumers who intend
to live in the property as owner occupants more than a few times
during a year’s timeframe, and you are also extending owner
financing to them, you can be construed as being a lender within
Under the law, a lender must disclose certain financing terms,
such as the Annual percentage rate, amount financed, total
If you extend credit exceeding $1,000,000 per year secured by real
estate used for the borrower’s residence, you must also comply
with the Real Estate Settlement Procedures Act ("RESPA").
RESPA is one of the most complicated and confusing Laws ever
created, is constantly changing and few lenders are ever in strict
Compliance with the law. Nevertheless, you should at least make an
attempt at basic compliance, which involves:
- Providing the prospective borrower/buyer a "good faith
estimate" of estimated closing costs within (3) three
days of their completing a loan application or signing and
entering into a Purchase & Sale contract where owner
financing is involved in the sale.
- Having a HUD-1 Settlement Statement prepared and provided to
the borrower/buyer at the time of Closing (this is usually
done by the closing title company or escrow agent).
- Disclosing to the borrower/buyer what percentage of Owner
financed loans you sell vs. may keep.
- Disclosing to the borrower/buyer what amounts, if any, you
will be escrowing up front in an escrow impound account for
the future payment of property taxes and hazard insurance
Samples of some of these forms can be found on our web site here.