Can I finance a home for my children?
That has been something that’s been done for many, many years. Parents want to help out their kids and they sometimes take out a mortgage on their house in order to give their kids financing and they secure it with a note and mortgage. Sometimes they do it so that if the child is married to someone that they are concerned about they will make sure that, if there’s a divorce or anything like that, that they are still protected to get their money back or they can afford to give a gift to the child. That is something that has been going on for as long as I’ve been practicing law.
However Congress has now passed what is called the Dodd-Frank Act and it is very comprehensive; it is over 1,000 pages of legislation, and it is designed to control financial institutions in consumer financing. Under this bill, they say that you have to comply with a qualified mortgage, which is a 30 year mortgage and has all sorts of requirements under it and interest rates that you must comply with, if you are going to provide financing to a third party; which would include your children. This does not make any sense.
This does not apply to sellers who are selling their property and then taking back a note in mortgage; that is called a purchased money mortgage, and sellers can do that once a year. It also does not comply with if its investment property and not their home.
In answer to your question is if you do do the financing for your children and your mortgage does not comply with Dodd-Frank it is subject to various penalties and I don’t know whether or not they would ever have a defense if they choose to assert it as to the enforceability or the penalties in a foreclosure action if you attempted to foreclose a mortgage that does not comply with Dodd-Frank.
They made it extremely difficult and it does not make any sense whatsoever and would hope that if you are frustrated by this you might want to write to your congressman or senator and suggest that the amendment be made to Dodd-Frank which would allow family members to lend money to other family members and not be subject to the regulation and the law under Dodd-Frank. That is a very long answer and however it is unfortunate.
If you have any other questions I’ll try and answer them; about Dodd-Frank and owner financing.
My phone number is 727-847-2288.