There’s so much scuttlebutt going around these days about the SAFE Act (“The Secure and Fair Enforcement for Mortgage Licensing Act”).

Blog posts and email announcements are proliferating —-written by many bright people in the industry.  I could name a few, but I won’t.

These are people who from my perspective are failing to identify the important distinctions of the SAFE Act.  They’re speaking half-truths without stating the full truth, and because of it, they end up generating a great deal of fear and confusion and mis-information for everyone.

So let’s consider the SAFE Act carefully for a moment.

Granted, the inclusion of seller financing in this regulation is way over-board, especially when everyone knows it’s the big banks and Wall street who are the real culprits.

However, let’s understand the provisions of the Act as it relates to one important distinction:  who’s exempt and who’s not exempt.

We need to be 100% clear about this as this will determine whether a particular transaction is subject to the requirements of the SAFE Act or not.

So who’s exempt? It really depends on the buyers use and purpose of the property.

~ home owners selling and financing their own homestead are exempt.

~ and, therefore by extension, realtors representing home owners selling their single family residence via seller finance are also exempt.  This means that realtor commissions for the majority of realtors are NOT in jeopardy with these transactions.

~ real estate investors selling property to some one who intends to use the property as a rental or a second home or a vacation home are exempt.

~ investors selling non-residential property are exempt.

~ home owners wanting to sell their cabin at the lake are exempt — as long as they sell to other folks who also want to use it as a cabin and a weekend get-away.

~ if you inherit your parents house, and if it’s considered an investment, then you are exempt, as long as you seller finance it to anyone who wants to use it as a rental or a 2nd home.

Now let’s look at who’s not exempt:

~ If you are a real estate investor (or a rehabber), or if  you own investment property you can NOT sell to someone who intends to use the property for their personal residence.

So this means any seller who is essentially a dealer selling property defined as “residential purposes” to people who will be owner-occupants are not exempt.

Even though this is causing a big uproar, can anyone think of how this could be beneficial?

Well, let’s consider for a moment that close to 75% of all seller financed notes today are NOT buyable.

Isn’t this an unbelievable, inexcusable statistic?

Do you know why? Because the notes are so poorly underwritten.

No due diligence has been performed – nada, as in practically nothing. And there is no documentation or not the right kind.

These notes are NOT buyable, and are now considered the junk notes and trash can deals today. There’s a lot of them around.

Can anyone guess as to who created the greatest percentage of these 75% un-buyable trash can notes?

Yep, you got it! Real estate investors selling rehab houses creating trash can notes.

So here’s my perspective as a Note Manufacturing Professional:

I think the SAFE Act sounds like a pretty good deal.

It will put an end to all these trashy notes that have been created by real estate investors who don’t have a clue as to what constitutes a well-underwritten note that can be sold later, and therefore, they do NOT have the home owners best interest in mind!

So my take on this situation is that we all need to be more concerned about manufacturing quality notes that have the rigors of due diligence applied, are RESPA compliant, and that can be sold later for maximum value if the home owner chooses.

Afterall, this really is what constitutes “Safe Seller Financing.”  It’s ethical, legal, intelligent — and safe!

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