There is currently one bill in Congress and a companion bill in the Senate that threaten the very fabric of American property rights. While there are many good benefits for the public included in these bills there are dangerous pitfalls as relates to the consumers this bill is intended to protect. Real estate investors nationwide are seeking assistance in de-coupling the individual taxpayer from this legislation that is intended for oversight of institutions, and we need your help to get the word out.
Don’t Judge A Book (Or A Bill) By Its Cover
The bills are HR 4173, the Wall Street Reform and Consumer Protection Act, and the Senate companion bill, the Restoring American Financial Stability Act of 2010. These sound great don’t they? Wall Street Reform, Consumer Protection and American Financial Stability are warm and fuzzy sounding names. You’ve probably heard the old adage, “you can’t tell a book by its cover,” right? Well, you can’t tell a piece of legislation by its name either. Both bills literally contain thousands of pages.
I had the opportunity to participate in National REIA’s 3rd Day On the Hill in Washington, D.C., where these bills were brought to my attention. This important event was sponsored by the National Real Estate Investors Association, who represents over 40,000 small businesses in 41 states. Of concern to both investors and average Americans is that we are all caught in one big net directed at mortgage regulation. You, me, your parents, your grandparents…everyone you know would, upon passage of this legislation, be required to become licensed mortgage lenders if we decide to sell any property we own with owner financing. Suddenly, if your parents own a property free and clear and decide to let you buy it from them with monthly payments, they would need to be licensed as a mortgage lender and you would have to qualify for the loan as you would with any other lender.
Many properties, such as condos, mobile homes or land, don’t qualify for bank financing but would now have to. Why? Because purchasing from individuals by using a privately held note would no longer be legal. After the tumultuous real estate market of the past few years, many of today’s buyers can’t qualify for a traditional mortgage and count on seller financing. This would no longer be an option for millions of potential homeowners.
Threats To Private Property Rights
HR 4123 poses the following threats to the security of private property rights, and to the stabilization of the housing markets in many communities:
- On its face, this legislation appears to merge individual taxpayers who accept installment payments for their equity with banking institutions, mortgage brokers and originators who sell money for a business.
- When a seller offers to sell their own property to another and accept payment for equity, there is no loan, but rather terms of a sale.
- Banks lend money that the borrower can then spend as they see fit.
- In the current market, if there were no seller financing, there may be no financing at all in many communities.
- Millions of soon-to-be-retirees who have worked a lifetime and prepared for retirement by investing in properties that can be sold in exchange for installment payments providing supplementary income will be negatively impacted by this legislation. The legislation limits individuals to only one transaction every 36 month. Imagine trying to liquidate a large portfolio at this pace.
- The dramatically increased number of individuals and families who are going through foreclosure may only retain the ability to buy a future home for their family by finding a seller amenable to accepting an installment sale
- A homeowner who may have sold their previous home with seller terms has now lost their job and is about to fall behind on payments. However, they have a little vacation cabin. In order to sell quickly, the cabin has to be sold on terms to provide enough income to keep the homeowner current on their present homestead. This scenario would run afoul of this legislation as it is currently written.
- While this legislation regulates large organizations with teams of legal people (consider the contract language that is being used in the resale of foreclosed homes being sold by banks) it puts the individual taxpayer at a tremendous disadvantage on both the selling side as well as the buying side, thereby making homes less accessible to many people.
- Lastly, many people in the United States live in manufactured housing for which there are basically no loan products available. Once the manufactured home reaches a certain age, although there is still remaining useful life in the home, no loans are available for homeowners. How will these properties be bought or sold if not with a seller accepting installment payments?
Specifically, the language lifted from failed HB 1728 and added to these bills, the former, Section 101, 3, (E) does not include, with respect to a residential mortgage loan, a person, estate or trust that provides mortgage financing for the sale of 1 property in any 36 month period, provided that such loan:
(i) Is fully amortizing
(ii) Is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay
(iii) Has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and life-time limitations on interest rate increases, and meets any other criteria the Federal banking agencies may subscribe
I invite you to follow up with your Senators (before the Senate bill is voted upon) and Congressmen (regarding an amendment should it pass the Senate) with emails, phone calls, letters and personal appointments when they’re back in our home states. The bill, as written, has already passed the House and will soon be voted on by the Senate. We need your support and the support of every property owner you know.
What did we ask for? The answer: “to have seller financing de-coupled from these bills.”
Surprise! Your Legislators WANT To Hear From You!
You may be surprised to learn how accessible and interested many of our legislators in hearing from their constituents. Did you know that, with an appointment, you can see almost any of your local House Representatives or Senators? Possibly more difficult in Washington, D.C. than while they are at home in your state but, even then, if they don’t have the time to speak with your personally, you can make appointments to meet with their aides.
Everyone we talked with about these bills seemed genuinely concerned and a bit alarmed at the harm this one section could do to the general public. They were concerned for the “Mom and Pop” operations out there who may have paid off some rental properties for their retirement and now, with the new laws, would no longer be able to sell with owner finance securing themselves income during retirement. The general consensus was that this could not have been the original intention of this bill. Most termed the situation an “unintended consequence”.
I’d like to close with a quote from my friend Tom Zeeb, president of Capitol Area REIA, “Never ask how law and sausage are made.” Unfortunately, we need to know what’s in the laws are legislators are voting on. The good news is that we can influence the outcome with our voices and our votes.
Your Call To Action – Make A Difference!
You can locate contact information for your Senator at http://www.Senate.gov and you can find your Congressional Representative at http://house.gov. Remember, we are asking them “to have seller financing de-coupled from the following bills: “HR4173 and the Restoring American Financial Stability Act of 2010.” Contact them today!
In closing, I thank National REIA for their legislative efforts on behalf of our industry. I also thank Central Florida Realty Investors Association for sponsoring Charles Fischer, CFRI President, and myself to represent Central Florida. Finally, I thank the 40-plus investors in attendance and their home REIAs for sending them. We were in Washington, D.C. working with our elected legislators in both the House and Senate to protect American property rights, and now we need your help. Take action today!
To your success…