SAFE Act

Is it true that a seller can no longer offer owner financing to a buyer?

The answer is “It depends.” In 2008 the Secure and Fair
Enforcement for Mortgage Licensing Act, commonly referred to as the SAFE
Act, was enacted. The SAFE Act requires licensing or registration of loan
originators. This legislation led to a variety of activities related to
implementation, including indirectly imposing requirements on seller
financing and legislative and regulatory activity at the state level.
The SAFE Act was intended to enhance consumer protection and reduce
fraud.

The law required states to establish loan originator licensing
requirements with respect to residential mortgage loans made primarily for
personal, family or household use. Loan originators who are employees of
banks are subject to less onerous registration requirements. All states,
including Maryland, have enacted legislation requiring licensing through the
Nationwide Mortgage Licensing System and Registry (NMLSR).

The SAFE Act does not exempt individuals who choose to finance the sale of
residential property they own (often referred to as seller financing), but HUD
guidelines and its proposed rule do exempt from licensing requirements
individuals selling their own residence.

The SAFE Act exempts from licensing:

1. Homeowners selling and financing their own residence. HUD does not
limit this exemption to a principal residence, so the sale of a vacation
home with seller financing is also exempt.
2. Homeowners who are real estate licensees and are selling their residence
with seller financing, to the extent they are performing real estate
brokerage activities, not lending activities compensated by a lender. This
means that the vast majority of REALTORS® are NOT required to be
licensed as loan originators.
3. Real estate owners selling property to someone who intends to use the
property as a rental. Investors selling non-residential property, with seller
financing, are also exempt. These categories are exempt because the
financing must be primarily for personal, family, or household use to
trigger the licensing requirements.

Now let’s look at who’s not exempt:
1. If you own real estate other than your own home and want to provide
seller financing for the sale of the property to a buyer who plans to use the
property as their residence, you are not exempt.
2. If you provide financing for a property you do not own, you are not
exempt.
In other words, anyone who wants to provide seller financing for a residential
property to a buyer who will use the property for personal, family or household
uses is not exempt from the loan origination licensing requirements under the
SAFE Act, unless they are selling their own home.

In response to the SAFE Act, the 2009 Maryland General Assembly revised
the State’s mortgage lender and mortgage loan originator laws. Chapter 4 of
the Acts of 2009: 1) altered the licensing requirements, initial license terms,
and renewal license terms for mortgage lenders and mortgage loan originators;
2) required applicants and licensees to submit certain information and fees to
the Nationwide Multistate Licensing System and Registry (NMLSR); 3)
increased civil penalties for violations of the mortgage lender and mortgage
loan originator laws; and 4) authorized the Commissioner of Financial
Regulation to issue interim mortgage loan originator licenses and affiliated
insurance producer/mortgage loan originator licenses.
Chapter 4 also requires an applicant for a mortgage lender or mortgage loan
originator license to provide the NMLSR with fingerprints for a criminal
history background check and established pre-licensing education,
pre-licensing testing, and surety bond requirements for mortgage loan
originators