I’ve just been updating myself on the ins and outs of local Tennessee seller-financing rules. I have a listing coming up that we thought might benefit from advertising possible owner-financing. Well, as it turns out, this type of financing arrangement is becoming much more difficult. There are basically three scenarios that allow this type of financial transaction (and these options might not be around for much longer.

1. the property being sold must currently be the owners primary residence.
2. -OR- the seller must hold a current license as a mortgage broker.
3. -OR- the transaction must involve close family members in the transfer.

Here is the current law on the matter with regard to the Tennessee Association of Realtors Hot Line:

QUESTION: With the new SAFE act in mind, I am trying to find out if I can structure a transaction whereby the Seller offers financing. The property to be sold is not the Seller’s residence and the Seller does not hold a mortgage license. The buyer is not related to the Seller nor does the buyer plan to use the property as a residence. In essence, it is more of a commercial transaction since both parties are investors. Would I be in violation of the act if I facilitated the sale with owner financing?

ANSWER: TAR just received an opinion letter from the Commissioner of Financial Institutions. This letter clarified and provided some additional limited exceptions to the Tennessee Residential Lending, Brokerage and Servicing Act (Tennessee’s response to the federal SAFE Act). Prior to this letter being released on November 30, 2010, the only exemptions from licensure were if the seller was selling his residence or funding a loan for an immediate family member.

However, under this new opinion, there is a limited exception for individuals (this means that the person owns it in his own name – not that of a company such as an LLC, corporation, etc.). Pursuant to this letter opinion “For the present time and subject to a final rule, regulation, interpretation, or formal guidance of the federal S.A.F.E. Act indicating otherwise from HUD, the Department interprets an individual who, as a seller of his or her own real property, makes five (5) or fewer residential mortgage loans within any twelve (12) month period as exempt from the Mortgage Act. PLEASE TAKE NOTICE that, when and if HUD issues a final rule, regulation, interpretation, or formal guidance of the federal S.A.F.E. Act that is contrary to this position, the Department will have no alternative but to rescind its position and enforce said final rule, regulation, interpretation, or formal guidance. Thus, if HUD makes a determination that the Department’s position is inconsistent with the federal SAFE Act, the Department reserves the right to withdraw its position in order to be consistent with federal law.”

This letter opinion changes things somewhat. PLEASE bear in mind that you as the real estate agent CANNOT advise your sellers as to whether they meet these slim exemptions under the law. We would strongly recommend that this seller consult with his own attorney as reference this opinion letter from the Department of Financial Institutions dated November 30, 2010. In addition, you should understand that you as a real estate licensee CANNOT negotiate the terms of a mortgage on behalf of your seller. This would require a mortgage originator’s license. The seller should speak with his/her own attorney regarding the ever changing status of these laws.

[SOURCE: TAR Legal & Ethics Hot Line Attorneys]