Owner Finance

Owner financing or seller financing is a legitimate way to sell property in Texas.  After some recent changes in the law in 2005, two types of owner financing remain practical in Texas:

1. The traditional owner finance used when the property is paid for.
2. The wraparound which involves deeding the property to the buyer and arranging for the buyer to make payments to the seller so that the seller can continue to pay the current lender.

There are three acts or laws the seller should be in compliance with when conducting an owner financing transaction including The S.A.F.E. or T-S.A.F.E. Act, The Dodd-Frank Law, and Chapter 5 of the Texas Property Code.  Our Law Offices will ensure that transactions are in compliance with these laws.   The documents required in an owner financing transaction in Texas include:

• the Deed transferring title to the buyer
• the Note providing the obligations of payment
• the Deed of Trust as the security instrument

The federal S.A.F.E. Act and its Texas equivalent "T-S.A.F.E." impose a licensing requirement on certain types of owner financing provided by professional investors.   Since traditional owner finance transactions, wraps, and land trusts are all forms of owner finance, the S.A.F.E. Act applies; however, the seller is required to be licensed only if the property is not the seller's homestead and/or the sale is not to a family member.  If the subject property is an investment rental house being sold to a non-family member, then the seller is required to have a residential mortgage loan origination (RMLO) license from the Texas Department of Savings and Mortgage Lending.    State agencies normally have the capacityto issue regulations designed to clarify and implement the acts of the legislature. 7nbsp;In the case of T-S.A.F.E., the Texas Department of Savings and Mortgage Lending has ruled that the Act will not be applied to "non-pros."  These are persons who make five or fewer owner-financed loans in a year; preserving the so-called "de minimus exemption."

Title XIV of the Dodd-Frank law pertains to residential loans and lending practices. Dodd-Frank overlaps the S.A.F.E. Act in its regulatory effect and legislative intent.   It requires that a seller/lender in a residential owner-financed transaction determine at the time credit is extended that the buyer/borrower has the ability to repay the loan.   The seller is obligated to investigate the buyer's credit history, current and expected income, current obligations, debt-to-income ratio, employment status, and the like in order to make this determination.  This law provides for a de minimus exception for persons doing not more than three owner-financed transactions per year (so long as the seller/lender is not in the building business) – but the loan must be fully amortizing (no balloon); the seller must determine that the buyer has the ability to repay the loan (and this must be supported by verifications and documentation); and the note must have a fixed rate or, if adjustable, may adjust only after five or more years and be subject to reasonable annual and lifetime limitations on interest rate increases.

Please take a moment to use the contact form on this page to request a consultation or call our Law Offices at 361-288-1880.