Owner Financing is Legal Again – PA Allows Owner-Occupied Residential Mortgages

by Dave Miller

What was illegal has been reverted; you can once again borrow money from your rich uncle to buy your house. In Pennsylvania, you can participate in private financing deals again.

Our government in its normal state of exaggeration and misappropriation deemed it necessary to make a law regarding mortgages. This was after Wall Street, Fannie and Freddie all really screwed up in the mortgage world. True to form our government went into complete overkill and enacted the S.A.F.E. Mortgage Licensing Act of 2008. This Act states that an individual who takes a mortgage application and negotiates a residential loan is breaking the law.

This meant that if you asked your rich uncle to loan you $200,000 to buy your house, you were a law-breaker. If you asked the seller to keep money in the house you were buying, that was breaking the law. Residential mortgages were a strict no-no. This was only being regulated for about a year but was creating quite the uproar.

Our government had enacted this law saying they were protecting the people. What they missed was that the people weren’t asking for protection. Besides this law actually did the opposite. When the people wanted money they went to the banks, and the banks were not in the lending mood so they didn’t lend. In times past the people would ask friends, family or the seller for assistance. This kept the bankers in check until their statesmen cronies helped then out by making it illegal.

I’ll try to break this down:

Secure and Fair Enforcement for Mortgage Licensing Act 2008. I’m most certain it’s not fair and secure but they picked the title, not me.

The key here is “loan originator”. They define it as anyone that takes, offers, or negotiates a residential mortgage.

This applies to “residential mortgage loans”. Owner occupied or as they state “personal, family, or household use” is prohibited.

As far as I can tell, commercial mortgages and private loans or any other non-owner-occuppied residential mortgages are legal.

Owner occupied real estate with a mortgage is what is at stake here.

Now the good news.

This month the Pennsylvania Department of Banking has released a letter to clarify what a “mortgage originator” is. Here are the highlighted areas of the letter with my comments:

As a general matter, the Department will begin interpreting the provisions of the existing MLA regarding the definition of “mortgage originator” to the extent possible in a manner consistent with the HUD Regulation.

Comment: the department is interpreting the definition of “mortgage originator”

the Department will not take exception to an individual making or brokering three (3) or less mortgage loans in a calendar year without being licensed as a mortgage originator,

Comment: the department does not view someone as a “mortgage originator” if he is involved in less than 3 residential owner-occupied mortgages.

sellers of dwellings or residential real estate by means of an installment sales contract who engage in such business in a commercial context and habitually and repeatedly are required to be licensed as mortgage lenders and have their employees appropriately licensed as mortgage originators under the MLA.

Comment: installment sales are mortgages.

You can read the entire letter: Click here

 Now I’m not a lawyer or anything close to it so don’t take my word for it. Ask an attorney that can bill you $225 an hour. I spent around 5 hours researching this subject, it’s too bad I can’t bill at that rate.

So here is my take:

You can once again be involved in owner-occupied residential mortgages as long you do not exceed 3 per year. So go ahead and borrow from your rich uncle to buy your home.

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Choose What You Want To Learn in Real Estate

We, at Shepherd Real Estate LLC, are offering a few FREE classes this fall.

Our class-room style lectures are structured around real estate investing. The Shepherd Team consists of professionals in Lancaster, PA with experience in real estate. We are investors ourselves and want to help you succeed in your endeavors. The Shepherd Team has a wealth of knowledge to share. In house we have an attorney, a CPA and Realtors all ready to help you.

 We need your help in deciding which classes to offer. Our goal is to give you what is of most value to you. We are conducting a survey to choose to the topics.

Please click through to the survey to make your choice.

Click here to take the survey.

Your response will help us pick the best topics.

Here is a breakdown of the options:

  • Investment Analysis

Crunching the numbers

  • Building your Power Team

Realtor, attorney, insurance agent, consultant, property manager

  • Assets Protection

Entities, insurance

  • Improving Cashflow

Proper management for better cashflow

  • Taxation of Real Property

Structuring your investments to avoid excess taxes

Click here to take the survey.

Thank you for taking the time to complete the survey.

Email me if you want to be notified when we schedule these FREE classes. They will be held at a location to be announced in the Lancaster PA area.


As Barren Ground Gets So Goes Lackadaisical Investing

by Dave Miller

The bare ground of the empty garden was being overrun by weeds in a short few weeks. So I tilled the ground last night and scattered the Jerry oats. With the dirt knocked loose and the weeds stunned the oat seeds I spread can find a hold and quickly overpower the weeds.

  The seed is planted and has a good chance to grow. No weeds to hinder the growth. Fertile ground to root into. At the sight of the greenness we will see the fruits of the labor, our toil combined with productive soil coming to fruition.

Is neutrality possible? The first law of motion says: The velocity of a body remains constant unless the body is acted upon by an external force. So something at rest stays at rest. Unless an outside force affects it. It stays at rest if nothing affects it, but something is always affecting something.

To invest or not to invest. That is the question.

When I say invest I mean good investing, not the I’m-too-uncertain-so-I-will-stick-it-in-bank flavor of investing.

Good Investing; By making good investments of time, money and knowledge you will grow in confidence and intellect. When you see your seeds multiply, your heart will be happy and content. This is not always easy, it’s work, but it’s rewarding.

Bad Investing; When investments go bad they deflate the morale, they squash and humiliate. Your attitude and life will be affected, like it or not, it just will.

Neutrality; By not investing your money, holding it in cash or putting it in a savings account for ½% interest a year, you are not moving. As Isaac Newton said, a body at rest stays at rest unless affected by an external force. The external force is never at rest. If you are not investing wisely you can go backwards, but if you do not invest, you will also go backwards. Neutrality is not an option. The outside force is in motion and if it is going faster than you then you are going backwards.  

Here a few reasons why “neutral” money holding doesn’t exist.

  • If you invest at a ½% in the bank you are (1) not keeping up with inflation (2) your reward sucks so the incentive to save more is squashed.
  • When sitting on cash you (1) are not keeping up with inflation (2) are prone to spend more than needed because it’s visible and accessible. Money in your pocket has a way of disappearing.
  • Did I mention inflation? According to our government inflation has been around 2% to 3% but has jumped to around 3.75% last month. Now we could spend a whole paper on the inaccuracy of these government statistics but we will let it go for now. Nevertheless, they may be inaccurate but the experts agree they are pushed down, meaning in reality they are higher. So if you are not making in excess of 4% to 5% you are floating backwards. Your money will buy less in the future.

The ground does not like to be barren. It will cover itself. Its default is weeds. So if you choose to sit by idly it will cover itself with weeds. Do I want weeds?  No. I will work, till, and plant to create an environment that allows the ground the produce. Today it’s raining steadily. I smile because I planned and prepared.

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The Club


by Dave Miller

The Club House Meeting Room

Every two weeks we meet, the clan and I, for our book club. The topic of discussion is the latest book that we are reviewing. Our motivation is to invoke discussion and thought. And successful we are. The discussions run deep and are extremely thought provoking. It is up building and educational for the most part, even though some of us shoot an occasional fiery dart. 

We fellow contrarians meet at either my house or the Kingsway Realty office depending on the weather. If it’s too hot and air-conditioning is needed we head to Kingsway. They allow us to use one of their conference rooms thanks to Curvin Horning, one of their agents and a member of our group. Otherwise the meeting place is at my house with a few cool summer evenings spent on the deck with the tiki lamps burning.

As time goes on the bond between members grows stronger. The camaraderie has grown to the point that I feel I’m really going to miss a good evening if I can’t make it. So attendance is high. Everyone enjoys seeing the others as we arrive. And we always leave in peace. Okay, my mind is usually still spinning but I depart holding no grudges.

Here is a list of topics we have covered thus far

  • Theology and economics; Calvin and Commerce
  • Building a master plan for life; The Pledge by Michael Masterson
  • I Pencil  by Leonard E Read
  • How an Economy Grows and Why it Crashes  by Peter D. Schiff
  • The Politically Incorrect Guide to American History by Thomas E Woods, Jr., Ph.D 

Our group is well versed on debate and if the point you present is weak you will get shot down. So making a good case is essential to survival. That or asking questions to tap into the knowledge of the group is a great way to sharpen your awareness on a particular subject.

If a question is presented, someone in the group will usually have good response. Whether or not the view is accurate the rest will critique it to verify its validity or to uncover the errors.

 It was a dream of mine, to create a group like this, for years. In 2008 I talked with a few people and in March of 2009 we got together. We discussed Gary North’s book Mises on Money. It was a great book for the time, being about monetary cycles and we were experiencing the beginning of this recession.

The group was not interested in continuing. So it came to a screeching halt. I was disappointed but not ready to give up. I picked away at creating this group, talking to more friends of like mind. Now in 2011 we have a group that looks fit to last.

If this is something you have interest in doing I encourage you to create a group of your own. With the reactions I have gotten from people it seems you could easily to start another group. Don’t let it take four years like it did me. If you have even a small urge, then start talking to people. You will soon have a group formed.

Related post: Intellectual Exercise Machine


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