Did you know that there is an underworld of seller financing alive and strong out there? Chances are, you probably haven’t given it much thought.
We are familiar with this concept because it is one of the worlds we do business in. Now, you might be wondering why I would call it an “underworld.” It sounds a little shady, doesn’t it? It really isn’t, but the government portrays those who provide such services as being shady. Let me explain.
You might remember me telling you about the cruise I went on a few months ago. There were a couple hundred people on the ship who put on short presentations to educate one another on what their current business and investment opportunities were. This made me realize that there are a lot of operators out there doing seller financing on home loans — many more than I thought.
So, why does that matter? Well, in any market of commerce there are groups of people that do not fit within the mainstream guidelines. For example, not everyone qualifies for an FHA loan at 4% for 30 years with 5% down. There are outliers in every market and that’s where seller financing comes in.
Should those outliers be denied the opportunity of homeownership if others are willing to loan them money, and in doing so, fill the void of traditional lenders? Of course not, but lawmakers don’t make it easy.
Today, the law says you can’t do more than 3 seller financing deals per year. Why does the government get to dictate what we can and can’t do with our property? The operative word here is “dictate.” I thought we were a country of free markets with the right to own property, but maybe I am mistaken.
Under this law, you can own the property but you just can’t loan someone money to buy it more than 3 times per year. Of course, this is all under the guise of protecting people from predatory property owners. I find that pretty ironic since these “predators” are willing to take a chance on someone who doesn’t qualify for a loan. There are many reasons a buyer may be labeled as unqualified for a traditional loan, and they are not all bad. There are a lot of people out there who have the desire to own their own home and have the ability to do so, but don’t fit in the box for traditional lending.
The government must stop acting as if they know better than the free market and thinking that it is their duty to protect everyone from everything. Remember, those protections come at a price, and as we have discussed a thousand times before, those “protections” rarely protect the people they are supposed to. Ironically, they almost always make things worse for those they intend to benefit.
Let’s get back to our discussion on the underworld of seller financing. While on the cruise, I began to realize how many business owners are actively helping people achieve the dream of homeownership. I thought to myself, “Wouldn’t it be great for Congress to see this in action?” If they did, they might change their mind about some of their regulations on seller financing. In the meantime, I call this market an “underworld” because the law forces these business people to operate in an atmosphere where they have to stay small enough to avoid the risk of getting noticed and/or worry about the possibility of the law coming after them if they do more than 3 seller financed loans in a year.
Is this really the United States we want to live in? Currently, there is a group lobbying Congress to have the law changed to 24 seller financed loans per year. Such a change would benefit this group immensely. With the recent shift in government, there is hope that President Trump will be able to dismantle the Dodd/Frank laws that put the kibosh on resourceful business owners helping other people achieve their dream of homeownership.
Do some people take advantage of others? Yes, we know that happens every day. But in general, people mean well, and when the government tries to pick sides and interfere, it often results in a losing situation for everyone. I’ve gotten to know almost 100 operators who are working hard to feed their families, and I’ve learned something: For their businesses to survive, it is crucial for them to do the right thing and create a win-win for all the parties involved. No government regulation is needed.
As for us, we really aren’t part of what I am calling the underworld. Just to appease the lawmakers, we take an extra step in underwriting and have a mortgage broker confirm the borrower’s ability to pay. It’s really an unnecessary, costly step, and I bet you can guess who pays for it. That’s right, the people that the law was intended to protect. I’m sure this comes as no surprise to you.