Great post. I saved your email until I could give it proper attention. You did a great job of clarifying who the SAFE Act applies to and who it doesn’t, and I imagine that is very helpful for everyone. I’ve created a link from my post to yours, here, because I think it’s an important piece of the conversation.

I agree that rehab and flipper paper is not marketable most of the time (at least without serious seasoning), but just having RESPA and TILA requirements covered will not necessarily help the paper on the secondary market.

I do not think that a little extra documentation at closing (to make better paper for us to buy) justifies a restriction of personal property rights. If I’m ignorant enough to create crappy paper when I sell a property, then the market will educate me by refusing to reward me financially… I don’t need politicians stepping in to ’save’ me and make sure I can sell my note down the road. I should have every right to dispose of my property the way I see fit (to take advantage of IRC 453, etc.) as long as I’m acting ethically and not taking advantage of the buyer . . . most times buyers are getting a better shake than FHA could hand out!

Making it harder and riskier for investors to owner finance is going to reduce the number of families that can enjoy home ownership in this market, and it’ll be more expensive for these buyers to buy if they have to pay the $500-$1000 it’ll take to hire an MLO to process the paperwork (but that option isn’t even supported in the legislation at this point – except in Texas, according to Eddie).

Much of the problem with the rehab/flipper paper is that the values don’t hold up (they’ve sold for more than the property was worth), they’ve taken a small down payment from someone with a sub 600 FICO, written in a low interest rate and amortized over a long period of time.

I know of a guy who’s doing true simo’s on rehabs (where the work was really done to restore the property) in Texas, Missouri and Georgia, but the underwriting is really tight and he charges $800 to put the file together.

Rehab paper is only a small part of the traditional note business (except during those few short years that a couple of institutional buyers were buying simos on these types of deals). The SAFE Act puts an unnecessary burden on the rest of the population, many of whom may just want to owner finance on a small portfolio of investment properties.

I believe the SAFE Act hurts the note industry because fewer notes will be created. A guy in Texas called me wondering what was going on because the title company refused to insure his owner carry transaction, so he couldn’t close escrow.

If title quits insuring until there is sufficient case law showing how everything will be interpreted, then there will be less paper on the market. More people will turn to work-arounds like lease-options and title holding trusts, neither of which note buyers can directly profit from.

Thanks, again, for the thoughtful post.

Dawn