What you need to know about the SAFE Act!

Read Dawn Enoch's blog post about the SAFE Act and what precautions you should take as a real estate professional:

Beginning June 1, 2010, the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), a Federal law which was implemented by the 2009 Texas legislature, requires persons originating loans on residential real property intended to be used by the Buyer/Borrower for personal, family, or household use to obtain a license to originate the loan. The Act includes the process of taking a mortgage loan application or offering or negotiating the terms of a mortgage loan, in the definition of loan origination.
The purpose of the SAFE Act is to protect residential borrowers who intend to use the property for personal, family or household purposes from unscrupulous lending practices. A violation of the SAFE Act is subject to both criminal and civil penalties.
The impact on Seller financing is significant. Seller financed transactions will have to be negotiated using the services of a licensed Residential Mortgage Loan Originator. There is a narrow exemption from the Act’s licensing requirements for a Seller who negotiates the terms of Seller financing on a property used by the Seller as a primary residence and who has not sold another residence in the last 12 months.. Note, the exemption is for the Seller, not the listing agent.
Real estate agents must be careful NOT to negotiate the terms of a residential mortgage in any event, unless they are licensed as mortgage originators. Although the Act also excepts from its license requirement “a real estate broker or agent who is not compensated by a lender, mortgage broker, or Residential Mortgage Loan Originator”, under careful reading, this does not except a real estate broker or agent who is compensated by the Seller. In a Seller financed transaction, the Seller is the lender. And, it is important to remember that most buyers’ agents are also compensated through the listing agreement and thus the Seller/Lender.
The TREC Broker/Lawyer committee has already proposed new language be added to the TREC Seller Financing Addendum form to advise and protect against unauthorized use of the form. However, the revised addendum is not yet available.