Tuesday, June 8, 2010

Terminology Tuesday - SAFE Act

(Note: I think it's important to know the terminology and words used when learning any new business including mobile home investing. I came up with 'Terminology Tuesday' as a way to go over the terminology used in the mobile home business. It's important to know the terminology when talking to people in the business so you're all on the same page).

Image Credit: ClipartHeaven

According to HUD:

"The Housing and Economic Recovery Act of 2008, signed into law on July 30, 2008 (Public Law 110-289) (HERA), constitutes a major new housing law that is designed to assist with the recovery and the revitalization of America's residential housing market - from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections. The SAFE Act is a key component of HERA.

The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry."

Source Definition Link

Recently, I've been receiving quite a number of inquiries from folks asking me about the SAFE Act and my thoughts on it. So, I decided to go ahead and include it in this week's Terminology Tuesday.

(Note: The following is commentary only. I am not an attorney - I am not giving legal advice. For those who are concerned, I highly recommend seeking legal counsel for any inquiries regarding the SAFE Act and compliance issues in your area).

Regarding the Act itself, I don't know the exact reason this came about. Though, I can only guess it has something to do with unscrupulous activity against the public good.

(Note: For those who have been in the real estate business for awhile, I'm thinking this came about in a similar fashion like the foreclosure law that was passed awhile back).

Unfortunately, there are more unethical investors out there than ethical ones. And, these unethical investors are the ones that ruin it for everyone else - they give the word "investor" a bad name.

(Note: Over and over again, I've said I don't like using the word "investor" - it just gives off a bad connotation to the general public).

So, when this happens the government has to step in and enforce the rules - regulate in the name of the public good (aka consumer protection).

I'm going to be honest with you, there's a lot of unethical activity that happens in the real estate business. I see it all the time, even today.

In the mobile home business alone, I've heard first hand of investors who are selling mobile homes they don't own to folks. It still happens today. It's unfortunate.

These unscrupulous investors screw people out of their hard earned money and ruin it for the rest of us. Sure, they make a quick buck or two. But, that is short term and eventually it catches up to them. They ruin any chance of repeat business.

Reputation is everything. And, having just one bad experience can ruin your reputation...forever.

Getting back to the Act itself, the question many have is, "Do 'Lonnie' deals fall under the SAFE Act?" Basically, there are two main issues investors have been debating.

First, the definition of "dwelling." From my understanding, it's not quite spelled out in the Act itself if a mobile home as personal property is considered a "dwelling" - the interpretation as it pertains to enforcement will depend on each area.

Second, the debate is the definition of "mortgage." According to some, a "mortgage" is one that is secured by a deed of trust. With "Lonnie" deals (as personal property), there is no deed of trust- they are usually secured by a promissory note.

So, the question is do "Lonnie" deals fall under this act (which is basically a mortgage act)? If so, what is the justification?

(Note: Even if mobile homes as personal property fall under the definition of "dwelling," the fact of the matter are that "Lonnie" deals are not secured by a mortgage there is no deed of trust (as in regular real estate transactions) - it is simply a promissory note. I would further go to say, this may fall under the same category as a car - they seem to work in my opinion the same way as "Lonnie" deals. So, then how could such a transaction fall under a mortgage related act, what is the justification? Again, these are just my thoughts).

In my opinion, the Act is going to come down to interpretation. And, each area (state) is going to have their own interpretation of the law since the federal government is basically leaving it up to them to enforce the law in the first place.

Quite honestly, I think this is going to be more of a hindrance for most states than anything else. It's just going to cost more time and more money. And, I highly doubt this Act is at the top of the list for many states especially in this economy.

To administer the Act alone, each state will need to set aside funds to create a whole department to monitor and regulate the Act. Of course, it is subject to their interpretation - they will enforce it based on their interpretation of the Act.

In general, my thoughts are that most states have other things (that are more of a priority) to think about than this Act. I mean, come on look at CA - they are in a financial mess right now. To me, I think there are more important things to other states than this Act. Again, this is just my opinion.

(Note: For the CA investors out there, I feel your pain. It's a great state to live in. Though, the cost of living has just risen so high compared to other states).

So basically, I think it's going to come down to interpretation - each area (state) may have a different interpretation of the law. And, their enforcement of it will highly depend on their priorities and personnel capacity.

For those who are concerned, I highly suggest checking your local area and seeing how they plan to handle the Act in terms of interpretation as well as enforcement.

(Note: For a more thorough discussion of the Act, feel free to check out this link).

I hope this post has helped. I felt the need to address it since so many folks have contacted me about it.

Frankly, I've always had the belief that if I conduct my business honestly and am always upfront with folks, it's enough. So far it's worked. Many people have come to me due to my reputation I've worked so hard to build. And, in this business (as like in any other), reputation is everything.

Happy investing!

p.s. Feel free to leave comments on any post either here and/or my Facebook Page. Comments are always welcome, thanks for reading!

1 comment:

Anonymous said...

i'm new... anticipation to despatch round more oftentimes!