Over the past several years I have had individuals come into my office with questions about property they have bought where the owner financed the property to them. Invariably I have noted where the transaction was so poorly done that the purchaser had either defective title to his property or the property was not even in his name. Some time ago a gentleman came to my office with a contract that appeared to have been designed for use in the state of Washington. Researching the property on the Internet showed the property was not even in the man’s name although he has already shelled out over $17,000.00 to the seller. There was only one solution: Send the man to an attorney competent in matters of real estate. In many of these transactions, the parties do not speak the same language. Whether you like it or not, certain kinds of real estate transactions require that the contract is in the principal language of the purchaser.
Here is a smattering of real estate transactions gone bad:
- Manufactured home purchased had back taxes owed on it in other counties in the state of Texas. The parties failed to process the transaction through the Texas Department of Housing and Community Affairs.
- The bill of sale for a manufactured home was a handwritten document and when a research of the title was eventually performed, the home was not even en the seller’s name. Again the proper TDHCA documents were not prepared. The seller was fined $2,000.00 by the State of Texas.
- Seller owner-financed a home that was already securing debt with a local lender. The seller was behind in his mortgage payments and the payment of property taxes. The buyer sued and got a judgment of over $13,000.00 for money paid to the seller and spent on an attorney. The seller has since filed bankruptcy and neither the buyer nor the attorney has seen a penny of what’s owed them.
- Buyer made extra payments of principal on his note, saving thousands in interest but nobody caught it. The buyer has had to hire an attorney to get his overpayment back.
- A seller sold a house under a contract for deed and when the buyer would miss an occasional payment the seller would add the interest to the principal balance. The seller also failed to provide the buyer with an annual accounting of her interest and principal payments. There was a resulting civil penalty of approximately $38,000.00.
Because of these kinds of shoddy dealings and a lot of unethical and dishonest lending practices that helped precipitate the housing crisis, Uncle Sam, during the Bush Administration, created the “Secure and Fair Enforcement for Mortgage Licensing Act” (SAFE), which mandates that all states enact legislation requiring minimum licensing standards for those who originate loans. SAFE also requires that states have in place laws governing seller/owner financing of certain kinds of property.
Effective May 31, 2010, any person who is in the business of financing one-to-four family dwellings he owns, must first become licensed as a residential mortgage loan originator (RMLO). It does not matter who you are or what you do; you are required to have this licensure. If you do not and you finance, the above-described type of property, you are guilty of a misdemeanor and can expect to see the county attorney in court. There are exceptions to this law. An individual may still finance unimproved land, commercial property, his own principal residence or to a family member without being licensed. A visit to the Texas Department of Savings and Mortgage Lending website: http://www.sml.state.tx.us, provides the details. Many will decry what will be perceived by many as government meddling. This meddling has a purpose: To protect the public. One other piece of advice: When involved in a private party transaction, such as those described above, do not be a do-it-yourselfer. Have a real estate broker prepare your contract using forms promulgated by the Texas Real Estate Commission; or hire an attorney competent in matters of real estate. It could save you thousands.
Mike McEwen is a real estate broker with 28 years in the business.