[WSBARP] Private loans

[John McCrady]

I just came across this thread.  I don't know if anyone has raised the issue, but attention needs to be paid also to the Washington Consumer Loan Act, RCW 31.04 and WAC 208-620



John McCrady
Counsel
Puget Sound Title Company
5350 Orchard Street West
University Place WA 98467
253-476-5721
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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Craig Gourley
Sent: Thursday, July 14, 2022 2:35 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Private loans

Yours is essentially the same problem as mine.  Below is an excerpt from an article on Dodd Frank.   I am not finding a way for anyone to loan money to any third party that is secured by their residence without being in violation of Dodd Frank unless it is seller financed at the time of the loan.  I figure I must be missing something but so far I am not seeing it.

The two exceptions are as follows:
1. First, there is a one property exception. Under the first exception, a seller-financer who extends credit to a buyer as defined above, secured by a mortgage encumbering a residential dwelling, is not considered a "loan originator" if:
(a) they are a natural person, estate, or trust;
(b) they provide financing for only one property in a twelve month period;
(c) they own the property securing the financing;
(d) they did not construct or act as the contractor for the construction of a residence on the property;
(e) the financing must have a repayment schedule that does not result in a negative amortization;
(f) balloon payments are allowed (not less than 5 years recommended to be conservative; however, there is apparently a two-year window, and after two years this allowance may terminate);
(g) the financing must have a fixed rate or an adjustable rate that resets after five or more years, and there are restrictions, limitations, and caps on rate changes and lifetime caps of rates; and lastly,
(h) the seller does not have to vet the borrowers or determine the borrower's ability to repay.

2. Second, there is a three property exception. Under this exception, the seller-financer is not considered a "loan originator" if:
(a) they are a natural person, estate, or trust, or an entity;
(b) they provide financing for three properties or less in any twelve month period;
(c) they own the property securing the financing;
(d) they did not construct or act as the contractor for the construction of a residence on the property;
(e) the financing must be fully amortizing and there must be no balloon payments or structures allowed;
(f) the financing must have a fixed rate or an adjustable rate that resets after five or more years, and must have caps on rate changes, and also lifetime caps.
(g) the seller must determine, in good faith, that the consumer has a reasonable ability to repay, and while the sellers are not required to formally document how they made their good faith determination that the buyer had the ability to repay, a prudent seller should keep records in case the analysis is ever called into question. This could include current or reasonably expected income or assets, income tax returns, employment, monthly payments, debt obligations, debt to income ratios, credit history, etc.

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Athena Dickerson
Sent: Thursday, July 14, 2022 12:48 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] Private loans

Follow up question to this one, kind of related:  if a seller of a property sells the property and the buyers gets conventional financing, but seller after closing of the initial sale to buyers, decides to loan money buyers via secured by a Prom Note and DOT, do they have to follow any special rules since they are not the lender per se just financing loaned money for the buyers.  Parties are unrelated but friends.

Athena Makratzakis Dickerson
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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Mark Anderson
Sent: Thursday, July 14, 2022 12:39 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] Private loans

One additional consideration of which I am aware is related to the minimum interest rate to be charged in a situation involving "family loans."  The minimum federal rate, also known as the "Applicable Federal Rate," sets the lowest amount of interest that must be charged on a loan.  The AFR is published by the IRS every month.  If the rate is below this, the risk exists that the IRS will consider the loan a gift and tax the transaction accordingly.

Mark B. Anderson
ANDERSON LAW FIRM PLLC
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Tacoma, Washington 98402
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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Craig Gourley
Sent: 07/14/2022 12:19 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: [WSBARP] Private loans

Listmates.  I suddenly have several separate clients wanting to make private loans to refinance home loans for relatives, friends etc.  These are NOT seller financing.  These are "let me pay off your existing mortgage and you can make payments to me" cases.   I have some knowledge of Dodd Frank and the State regulations and I know that there are exceptions for seller financing.  Are there any exceptions for these non-seller financing loans secured by the borrower's personal residence?  Work arounds?  I appreciate any input. Thanks, Craig


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