California NoteBuyer LLC December 2014 New Rules - A Second Look We have reached the end of the year. Maybe it is a good time to refresh your memory on the new rules we have for seller financed transactions. These rules became effective January 10, 2014. My source is Ric Thom, owner of Security Escrow in Albuquerque, New Mexico and our industry's point man who is working on our behalf with the Consumer Financial Protection Bureau.  First, my own words. The biggest issue, really, is the CFPB's understanding - or misunderstanding - of what seller financing really is. They think it is a "mortgage loan." We know it is not. Merriam-Webster dictionary defines a loan, in part, as follows: "An amount of money that is given to someone for a period of time with a promise that it will be paid back." Farlex Financial Dictionary defines an installment sale as follows: "A sale in which the buyer makes a series of payments instead of a lump sum in order to compensate the seller. The payment in an installment sale often, but not always, may include interest to pay the seller for accepting the credit risk that the buyer will not make payments in a timely manner." In a seller financed transaction, the seller does not give money for a period of time. What does he really do? He allows the sale to happen by accepting a series of payments and accepts the credit risk that the buyer may not make his payments. Ric Thom has spent a lot of his time, money and energy meeting with CFPB folks in an attempt to get them to understand this distinction. Right now, they still don't quite get it. Here is where we are: The rules apply only if you use seller financing to finance the purchase of a property where the buyer is going to live in the property. You are now considered a loan originator. The rules do not apply if you sell vacant land, commercial property, multi-family and/or a single family residence where the buyer does not live in the property. However, there are two exclusions. If you follow these two exclusion rules, you will not have to become a loan originator. Exclusion #1 - You plan to sell only one property in a 12 month period. 1. You sell the property as a "natural person." Natural person is defined as an individual, estate or trust. A natural person is not an entity - LLC, Partnership, Corporation, etc. 2. You have not constructed the property or acted as a contractor for the construction of the property in the ordinary course of your business. 3. The financing terms do not result in a negative amortization. 4. A balloon payment is permitted. 5. The financing has a fixed rate of interest or an adjustable rate that is adjustable after five years or more. The rate change must be based on a widely available index such as LIBOR or the US Treasury. The annual rate may increase up to 2 percent with a lifetime cap of 6%. 6. You do not have to determine if the buyer has a reasonable ability to repay. Note: These are easy rules to abide by. Most notes are fixed rate. If you want to use an adjustable rate, the rules tell you how to do it.  Exclusion #2 - You plan to sell up to 3 properties in a 12 month period. 1. You can sell these properties as a natural person or entity. 2. You have not constructed the property or acted as a contractor in its construction as part of your ordinary course of business. 3. The financing must be fully amortized. No balloon payment is permitted. 4. You determine in good faith that the buyer has a reasonable ability to repay. 5. The financing interest rate rules apply as in #5 above. Note: You can determine ability to repay by knowing how much your buyer paid for rent and comparing that amount to his note payment. You can ask for a copy of his last pay stub. You can use common sense. If you think you may sell more than 3 properties in a 12 month period using seller financing, check with CFPB for their interpretation. Call 202-435-7700. Email at CFPB_reginquiries@cfpb.gov. Note: I have emailed them twice with inquiries and an attorney called me each time. He was very helpful. We do not know how these rules will be enforced. Ric Thom continues to meet with CFPB to get them to understand our business and suggest modification to the rules. You can help. Go to www.savesellerfinancing.org. Read Ric's White Paper. Make a donation. "Always do right - this will gratify some and astonish the rest." ... Mark Twain. $195 Million 'Palazzo di Amore' is America's most expensive home for sale - ever." A recent listing in Beverly Hills, Ca. is a gorgeous 25 acre estate. Check it out at martinhladyniwk.com/2014/11/10/195-million-palazzo-di-amore-is-america's-new-most-expensive-home-for-sale/. "Anything can happen on any given Sunday, especially on Monday night."  Jon Gruden, NFL Football Analyst, Monday Night Football.                How Much Do You Need to Earn to Get a Mortgage Loan? A mortgage research firm called HSH.com has analyzed the required salary to purchase a median priced home in several markets nationwide, assuming a 20% down payment. Here is a sample: 1.   Pittsburgh      $32,373 5.   St. Louis        $35,799 10. San Antonio   $46,231 12. Dallas            $50,283 13. Houston         $51,200 17. Miami             $60,175 19. Portland         $61,992 21. Seattle           $75,098 24. New York City $92,271 25. Los Angeles     $96,513 27. San Francisco  $145,361 You may live in one of these cities. You may want to sell a property in one of these cities. You may have a potential buyer who does not qualify for a mortgage loan. You know the rules for seller financing. Consider carrying back the note and negotiate terms that protect both of you. "When you work, it feels like you're playing. It's almost like the same parts of your body and brain are being exercised. The only differences are external." Aries Horoscope for November 14, 2014, by Holiday Mathis, Creators Syndicate, Inc. Note: I am an Aries! Thank you for your attention and your business. Merry Christmas and Happy New Year! If you enjoy this Newsletter, please pass it on to a friend. If I can make it better, please tell me how. Thanks for reading. Denny Stanz, Note Broker CA#01915404 www.CaliforniaNoteBuyerLLC.com dennystanz@verizon.net 760-245-5366 760-245-5367 fax If you enjoyed this Newsletter, please forward it to a friend. If I can make it better, please tell me how. Thanks for reading. Denny Stanz, Note Broker  CA Broker License # 01915404 www.CaliforniaNoteBuyerLLC.com 760-245-5366 760-245-5367 fax