What do Dodd-Frank and Consumer Financial Protection Bureau Regulations Mean for Owner Financing in Colorado?
by Michael A. Smeenk, Esq.
The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") introduced a host of new regulations designed to protect consumers and avoid another housing collapse. Key components of Dodd-Frank were designed to create greater certainty that borrowers can repay their home loans. The regulations impose a number of complex parameters that limit available loan terms and require lenders to verify and document the borrower’s ability to repay.
The new Consumer Financial Protection Bureau ("CFPB") was established to implement and enforce the Dodd-Frank rules in the mortgage industry. The CFPB regulations implementing Dodd-Frank went into effect on January 10, 2014 and have raised a number of compliance issues for those in the lending industry.
The rules and regulations also introduce compliance burdens for those who are not regularly in the business of making loans. For instance, even sellers who wish to provide owner carry financing in a single transaction must be careful to comply with Dodd-Frank. Owner financing may be an attractive option if a buyer cannot qualify for institutional financing or if the seller prefers the steadiness of monthly mortgage payments as an investment option. While certain exclusions exist under Dodd-Frank for sellers who wish to provide seller-carry financing in connection with the sale of their property, the criteria for qualifying for an the applicable exclusions is complex and rigid.
To complicate matters, even if seller financers in Colorado qualify for certain exclusions under federal Dodd-Frank regulations, they must also comply with separate state-specific obligations. This article will examine federal and state compliance requirements for Colorado sellers who may consider offering financing to fund the sale of their property.