In January of 2014 the game will change for seller financing when The Dodd- Frank Wall Street Consumer Protection Act (Don't ya just love the titles politicians put on laws) takes affect. For the real estate investors who are using seller financing as an exit strategy, I strongly suggest you become as familiar with the law as much as possible. I say "as possible" because there are so many gray areas due to the vagueness of the regulations. With this in mind, if you hear from any "legal expert", that if the law does not specifically mention or restrict an action, that action will be legal, all I can say is "Bovine Scatology". You will not be dealing with a court or jury, but rather a bureaucrat.

Here are a few high points to consider. If you sell more than three seller financed properties, to individuals who will use the property as their primary residence, you must comply with the law, as well as have an RMLO(Residential Mortgage Loan Originator) involved. There should be no balloons, and adjustable interest rates will have restrictions. More importantly, if you are an LLC, corporation, or partnership you might fall into the same category of selling more than one a year, even if you sell only one property.

"Acceptable" interest rates is another high point. With interest rates being tied to Fannie Mae or the Treasury Bill, 9% and even 6% might fall outside the parameters of a Qualified Mortgage or Safe Haven. My advice is to find a good RMLO, and take the "better safe than sorry" approach.

I could write pages and pages about the do's and don'ts of Dodd- Frank, but that is not the purpose of this article. The purpose of this article is to make real estate investors aware of Dodd- Frank, and to realize it is real. The second purpose is to give real estate investors an idea of how institutional Note Buyers view Dodd-Frank.

One Note Buyer is refusing to purchase notes from real estate investors who sell owner occupied residential properties. In other words, they are purchasing notes only on non-owner occupied residential properties or commercial properties.

Another Note Buyer will purchase owner occupied property notes from real estate investors, however, all the closing documents must be in order, including a good faith estimate or GFE, APR calculations, and MOST IMPORTANTLY, documentation of the ability to repay.

Although the definition ability to repay definition is vague, and all that is required is a "good faith effort", it should not be taken lightly. Preparing the proper documentation is where a good RMLO will prove invaluable.

Another Note Buyer I spoke with is taking the position that it will wait for three years of seasoning before purchasing notes where real estate investors sell to owner occupants. Even then, they are going to make sure all the proper documentation is completed. As added protection all the Note Buyers I spoke with will require the note sellers to sign affidavits guaranteeing the Note Buyer that they have complied with Dodd-Frank, and will reimburse the Note Buyer should the issue rise in the future. In other words, institutional Note Buyers are going to make real estate investors jump through hoops before purchasing their notes.

All the Note Buyers I talked with are not going to purchase notes where the property or note was in a trust, LLC or partnership etc, and the note has been moved into an individual account to get around Dodd-Frank. So if you are hearing this as an exit avenue to sell your note, be advised it does not go from the podium to the pavement. ADVICE: If you use this technique for any transaction, be sure to check with your CPA. When you transfer property, it is a taxable event, is it not?

Another issue I discussed with Note Buyers was how they viewed notes created prior to January of 2014. This is also a gray area. Note Buyers do not want to turn down a "good note", but on the other hand, they are concerned about having to deal with Consumer Financial Protection Bureau. (CFPB) One strategy that was mentioned by more than one Note Buyer is to purchase only partials to limit their risks. All Note Buyers indicated they will look at each note created prior to January, 2014 and consider the note on its own merits. If you are getting the idea that Note Buyers are being vague, you are correct. The reason is they are unsure as to what to expect, just like the rest of us.

With this being said, if you have a note you are considering selling, I strongly suggest you do so by the end of the year before Dodd-Frank goes into full swing.

Summary: Dodd-Frank will be upon us in January. It is going to be the responsibility of real estate investors to know the laws, as well as possible. Like it or not, a good, knowledgeable RMLO should be a part of any seller finance transaction. The RMLO will document all vital information to make a decision. At this time, the reaction from institutional Note Buyers range from not purchasing any note where the property is the primary residence, to making sure all documentation is in order, to waiting for seasoning for three years. If you are selling non owner occupied residential property or selling any property to another investor, Dodd-Frank does not apply. The same holds true for a Mom and Pop selling only one property a year via seller financing. I strongly suggest you find a good, knowledgeable RMLO to complete the proper documentation for your seller financing deals. BETTER TO BE SAFE THAN SORRY.

I received a notice from the CFPB they are already prosecuting a mortgage company for violations. They also sent instructions on how to refer mortgage applicants to the proper "home ownership counselors" as required by Dodd-Frank My concern is that once CFPB starts to gain momentum, they must justify their existence. What better way to get some traction than to find a mean, evil, greedy real estate investor who did not dot his/her "i,s" or cross his/her "t,s". Act accordingly. If you have a note you are considering selling, I strongly suggest you do before the end of the year.

If you have a comment or know of someone who has a note to sell, CONTACT ME.

.

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Tom Henderson a.k.a. THE NOTE PROFESSOR

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The pundits from both sides have outdone themselves with the Affordable Care Act fiasco, herein referred to as Obamacare. I am going to peel back the layers to expose the sleight of hand the framers of Obamacare use in promoting their program, as well a point out why Obamacare is not sustainable. At one time I was going write an article comparing the language of free markets to the language of collectivism. There is no better example than Obamacare to make one aware of the language of collectivism, as well as how words are distorted to give the listener or reader a false impression. As a side note, make no mistake, these contortion of words is a purposeful act to deceive, as we will discover later.

Let's first look at a word that is fundamental for in discussing any program of collectivism; "mandate". The definition of "mandate" is an official order or commission to do something. Force or mandates are necessary elements for any collectivist program. The Individual Mandate forces or orders individuals to purchase some form of politically correct health insurance. However, mandates are in direct opposition to free markets and the laws of supply and demand.

Remember the definition of demand; the willingness and ability to purchase goods or services at a specified price at a specified time. Notice the word "willingness". Willingness and mandate are contradiction in terms. Forcing the population to purchase a regulated product distorts the concept of demand.

Next let's examine another function of demand; ability. If a person is forced, or mandated to purchase a health plan and cannot afford to do so, (by arbitrary determination of a bureaucrat) the government, meaning the tax payer, will subsidize the insurance premium. When the tax payer subsidizes any good or service, the element of ability to pay is taken away from the concept of demand. Keep in mind ability to pay is included in the definition of demand because one must produce in order to exchange. If one does not produce, he/she has no ability to pay. Subsidizing the purchase of any product, including health insurance is a form of wealth redistribution. Wealth redistribution is consuming without producing.

Is there any doubt that as Obamacare moves forward, mandating that one group subsidize another group will result in higher and higher premiums for the group that is actually funding Obamacare?

When goods or services are mandated, and especially mandated then subsidized, the price system becomes distorted.

When the price system becomes distorted, the result is unwanted consequences. If you have been following my articles, you know that price controls cause shortages. For example, what happens when insurance premiums and cost of medical services are determined by politicians and bureaucrats instead of market forces? In the real world if demand for health care rises, the price of health services is suppose to rise. As a result, others will enter the field to take advantage of rising prices, and prices will decline.

However, under Obamacare, the price of health care services are arbitrarily being set below market value. The result will be not only will others not enter the medical field, but doctors who are presently in practice will exit.

One result of Obamacare which is undeniable, there will be a shortage of doctors. This will mean longer waits for services and some services even being denied; or perhaps changing the rules where patients will have to see a person who is not an MD for primary care. The mantra of pro Obamacare is "forty million people will now be insured and can obtain health care". With a shortage of doctors and nurses, who are these forty million people going to see for their health care? The next inevitable step is rationing. Make no mistake; governments cannot lower prices, politicians can only ration when supply dwindles.

The most brilliant and most deceptive use of Obamacare language is the use of the words "Marketplace" and "Exchanges" in describing the vehicle to purchase your health care insurance. This sleight of hand completes the deception that Obamacare allows the free market to function "better". For the proponents of Obamacare, having the choice of a Bronze, Silver, Gold and Platinum program is a market. Let's reexamine the definition of "market". People with the desire and ability to buy a specific product/service. Does the "Marketplace" of Obamacare consist of people with the desire and ability to purchase a product? No! The products are mandated and subsidized.

Notice also, that "Marketplace" as it refers to Obamacare is capitalized meaning it refers to Obamacare only. When we hear, "Go into the Marketplace to obtain your health insurance", this does not mean a real marketplace where individuals freely buy and sell goods or services, but rather a place where your choices are limited to what the bureaucrats and politicians have decided to be appropriate.

We are already starting to witness the effects of mandated health care as insurance companies are canceling policies by the millions that do not conform to what a bureaucrat determines as acceptable. We have not even seen the effects of employer mandates. I predict millions more will be forced into the "Marketplace" because the price system will become more and more distorted.

Nothing can more prove how politicians either are ignorant of the laws of supply of demand, or voluntarily choose to ignore them than their reaction to the unintended consequence of people loosing their health insurance. Both Republicans and Democrats are promoting their own versions of how to "fix" this fiasco. The House has passed an "If You Like It; You Can Keep It" law.
Obama's "fix" is to give the insurance companies the option of renewing the policies they canceled due to Obamacare.

Republicans are starting to promote their versions of "proper" insurance coverage with mandates of their own under the guise of letting "free" markets function. If it were not so important it would be laughable.

Neither the Republicans nor Democrats are acknowledging the reason Obamacare is falling apart is because price and supply controls distorts the price system, which results in shortages. Going out the gate, there is a shortage of healthy, young people who will pay a hefty price for insurance they do not want, in order to subsidize insurance of the unhealthy.

Yet there is a double whammy. Even if all the healthy, young people were to sign up, there would still be a shortage of health care professionals as doctors exit the industry.

If the medical industry were to return to free markets, the problem would disappear as medical costs decrease, along with insurance premiums. But politicians from both parties choose to continue to mandate, regulate, control, or level the playing field to make everything "fair" in search of Utopia rather than reality.

Conclusion: Words like "mandate", "force", "regulate", "control", "level playing field", "shared responsibility" and others are the language of collectivism. Moreover, collectivists are experts in hijacking words to give false meanings. Marketplace and exchanges are but two examples, where they lead you to believe it is a free market system.

Yet no matter how language is contorted, the fact still remains that controlling the price and supply of any good or service creates shortages. Health care is no exception.

Look for higher premiums, shortages of doctors, longer waiting periods to see a professional and eventual rationing. These inevitable results will occur no matter if all the young, healthy individuals sign up or not. Why? Because price controls cause shortages. It is that simple.

When Obamacare does eventually collapse, what will be the next step? Free markets? I fear not. The next step is Single Payer health care. Then the politicians will have complete control of our health care system.

I have a couple of requests to address the debt and expand on last month's article on the morality of free markets. Contact me with your suggestions or comments.

HAPPY THANKSGIVING TO ALL.

If you have questions or comments, CONTACT ME Tom Henderson /a.k.a. THE NOTE PROFESSOR .

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