Real Estate Laws and Regulations
Grant Kemp is an RMLO/Investor based out of Dallas, Texas who specializes in creative financing, “out of the norm” transactions, and real estate laws and regulations.
While actively investing with sub2, cash, wholesale, wrap, and rental strategies, Grant has also spent hundreds of hours studying and reading lending requirements as outlined in the Dodd-Frank act, S.A.F.E Act, R.E.S.P.A., and TILA in order to best serve other investors around the country in successfully investing with seller financing mechanisms.
Through Texas Pride Lending, Grant has processed hundreds of owner financed transactions with nearly $20 million dollars worth of transactions already completed by Q4 of 2014.
What you’ll learn about in this episode:
- R.M.L.O.: What is it?
- The primary laws, regulations, and statutes that Grant’s company has to comply with
- Why these real estate laws and regulations are not real estate career killers
- How the Dodd-Frank laws can actually improve your owner-financing career
- Passing closing costs onto the buyer
- APR: What you need to know
- What you need to provide to Grant so that he can do his process
- Why using someone like Grant will lead to you bringing in better buyers
- How this process would protect you if you were to be sued
Mitch: Hi. This is Mitch Stephen, and I’m here today with Grant Kemp. He is with TexasPrideLending.com. He is out of Dallas, Texas. Let me tell you what Grant and his company does for me, and people just like me and you. We are real estate investors, and I like to buy things and then I like to sell them with owner financing. So, when I’m buying my houses, I personally buy houses with Other People’s Money, or O.P.M. And I owner finance these houses to individuals who could not otherwise qualify for a traditional loan.
And so, since 2005 or 2006 or 2007, or whatever it was, the regulators and the legislators started putting some pressure on us. And they started making some rules and regs, and it’s gotten to the point now that, if you’re going to owner finance houses, you need to have an R.M.L.O. in between you and buyer.
And, this is what Grant and his company does. They help creative real investors, like ourselves, stay in compliance with all the rules and the regs that have been handed down over the last 2 years and months. And, starting with Dodd-Frank, and then the Safe Act, and then the Texas Property Code, if you are in Texas. And, then the Finance Reform and it just goes on and on.
So, Grant is an expert in these laws, and how they fit together, and what we’ve got to do to comply. Grant, how are you doing today?
Grant: I’m doing pretty well. Thanks for having me on here.
Mitch: Hey, it’s great. First of all, you have an R.M.L.O. license. What does R.M.L.O. stand for? Let’s just start right there.
Grant: Yeah. Good. The R.M.L.O. stands for Residential Mortgage Loan Originator. And, that is the licensed position that has to be there when doing these owner financed transactions, offering any kind of consumer credit for a mortgage.
Mitch: Okay. So, quite frankly, if we’re going to owner finance houses and it’s not our homestead, we’re going to really want to have you in between us and our buyer, and making sure that we’re compliant with all these laws. Because, it is a bit of a, for lack of better words, a “fuster cluck” of rules and regulations that you have to sort through.
And, I don’t want to go to way into it, but what are some of the primary laws and regulations and statutes that you’re helping us comply with?
Grant: Yeah. So, that is a good question. Because, you’ve got the Truth in Lending Act, you’ve got RESPA, you’ve got the Dodd-Frank Act, you’ve got FACE Act. There’s all these regulations out there that are trying to, at the end of the day, they’re just trying to protect the consumer, right? And, that’s what they’re really putting all of these things out there for.
So, I can’t necessarily say that I disagree with any of the things that they’re putting out there. But, it definitely makes a lot of speed bumps in the road for just the regular investor trying to out there, buy a house. So, with owner financing, there’s this whole web of regulations that need to be abided by.
And, you know, you’ll hear about people talking about De Minimis Rules, meaning that, for example for RESPA, if you do up to three transactions — I should say it this way. If you do three or more transactions in a rolling 12 month period, you have to start complying with the things that are in the RESPA; the Real Estate Settlement Procedures Act. If you do…
Mitch: Three or more sounds like you can do three houses, but you can’t. You only get…
Grant: You only get two. Correct.
Mitch: On the third one, you’ve got to be compliant. So, don’t get confused there.
Grant: Exactly. Yeah. So, that’s why I change up to say three or more. So, on your third one is when you need to start complying with RESPA. Similarly, the Safe Act there, you’ve got a De Minimis Rule of basically 6 or more before you have to be technically licensed in order to do these transactions.
But, the really, really important part that people don’t seem to think about when they’re quoting those laws is that is no De Minimis Rule for Dodd-Frank.
So, in other words, all of the main items that you’re needing to hit in order to stay protected in the case that your mortgage transaction ever went into a court scenario, that stays active from Day 1, Transaction 1.
Mitch: Transaction 1, unless it’s your homestead. Am I correct in that?
Grant: You know what, I would love to corroborate that. It only makes sense, and I feel like I’ve seen that. But, as a matter of fact, I was looking vigorously last week to help out a law firm on a case to see where it tells me that a homestead is actually okay for Dodd-Frank.
I do not see that anywhere in the laws, that a homestead is actually — a homestead to homestead transaction is out of Q.M. needs; the Qualified Mortgage needs. Now, this could be something that I’m just not seeing, going back in at last week, but I do have to be hesitant at this point in time, not knowing what’s happening with the change that came down.
Mitch: Let’s just make this an interesting point. That’s part of the problem with all of this, is that there’s so much misinformation or almost correct information that it doesn’t do us, private investors, any good to sit there and make decision in our lives on where our business is going, based on things that are very complicated between the federal regulations and the state regulations, and then all the overlapping regulations.
Like you said, these regulations that have different De Minimis’, but there’s one very important one, Dodd-Frank, that has no De Minimis — quite possibly not even your homestead — and so, you just have to start conforming from the very beginning.
So, I just want to point out to the listeners right now that I had a decision to make. And, when I first starting getting mixed up in these rules and regs, it was very daunting for me. And, I actually was sick to my stomach because I thought the business that I had been running for 18 years was effectively going down the crapper.
And, I struggled with that for a while. Then, I decided that this business was too good to me and had been too good for me too long, and I was going to confront these rules and regulations head on. And this was when I started meeting people like Grant Kemp, who started telling me and helping me saying, “You know, these are not career killers. This is not an industry killer.” And that we can conform, and we can do business.
And, in fact, after all of my worries and my troubles, I got with Grant Kemp and learned that, in a way, Grant is making my life easier, because I simply just delegate all this to him and they handle it.
So, I don’t want people — I chose not to give up this business over this. I know a lot of people that walk away from the real estate business, or at least doing business where they owner finance houses for lease options or whatever. They just went straight into rentals, which, I personally, I don’t like rentals. I’d just as soon get out of the business if I have to do rentals.
But, people like Grant and these licensed R.M.L.Os — What do you call yourself? An intermediary that helps us to be compliant — can keep this business viable for us.
How many investors have you run into out there, Grant, that just were about to give up before they met you?
Grant: It’s crazy. I’ve run into so many, and that’s actually why — as I go around and I speak to these real estate investment groups, I’ve named my presentation “The Dodd-Frank Act in 2014 and How It Stands to Raise Your Profits”, because so many people don’t understand how easy it is to comply because it is so daunting. Because there are so many things that you have to read and you have to know. And there are so many overlapping laws.
And, well, I’ve heard this one from plenty of people where they’re thinking they’re completely safe if they do up to 3 transactions. Meaning, you know, they would do 3 transactions, not licensed to not doing RESPA, anything like that, because they heard somebody say the number 3 at some point in time, you know.
And so, we’ve got all these people hearing all this misinformation, and just getting scared and wanting to throw up their hands. I’m just out there saying, “Wait, wait, wait guys. Really, all it takes is for you to get your contract, send it over to somebody like myself and have us worry about all the compliance.” Because, that’s my job. That’s what I spend all day doing.
I’ve actually read Dodd-Frank. I’ve actually read RESPA, you know. And, not a lot of people have sat down and actually looked at the word in the log to find out it’s really not all that bad.
Guys, there’s a lot of money on the table that you can make with owner financing in this world and it’s still a great and viable business plan. And, furthermore, because of all the people throwing their hands up and leaving the market, that’s just leaving more of that market out there for people like us to grab.
Mitch: Now, that’s a very important point. One of the reasons I decided to go forward instead of jump out was because I heard so many people jumping out that I thought, “Wow, if I stay in, you know, for some window of time until everyone figures out that they didn’t have to jump out and they come back. For some window of time, I’m going to have far less competition.” Actually, it’s worked out that way.
And, I’ve also found ways to mitigate my expenses. Now, that we’re doing truth in lending and giving the actual APR and stuff, I used to never have any closing costs when I went to closing. And, quite frankly, and tell me if there’s a problem with this, because I’ll need to know, but it dawned on me that I could take the fees that you charge and take the extra fees, the extra cost for me, which is not all that much, given the amount of money that I can make. Granted, it’s more than it was yesterday. But, it’s not enough to kill anyone of my deals.
But, I’ve also learned to recoup some of that. So, you know, if I have a thousand dollars in expenses to close a deal, I just simply go to my buyer and I say, “Look, I’d like to get $5,000 down, and I need a $1,000 for closing costs. And, if you don’t have the $1,000 for the closing cost, I’ll just add it to your note. It won’t affect your payment that much.”
And, you know, if you add a $1,000 to 50 deals, at 10.5% for 20 years or whatever, I mean, that’s like a $50,000 CD that’s working at a 10 .5% for 20 years. So, I’ve found ways to kind of soften or cushion that blow. Is there anything the matter with that idea?
And so, it’s dawned on me to start charging closing costs as a part of my regular transaction. I never did before. But now, since I have closing costs, I’m going to try to pass those closing costs along.
It’s the same thing that happens with every consumer protection law. They try to regulate the guys in the business. And, all the guys in the business do is figure out how to mitigate it and pass it along to the consumer they were trying to protect. And, I’m going to be no different.
Mitch: So, now I have closing costs. And, I’ll say my house is $5,000 down plus $1,000 down. I’m sorry, $5,000 down plus $1,000 in closing cost. And, if you don’t have the $1,000, I’ll just add it to your financed amount and I — you won’t have to pay it. It won’t affect your payment that much.
But, if you do that over 50 deals, then that’s like a $50,000 CD sitting around at 7.5%. That’s a far cry from costing you to $50,000. You know what I’m saying?
So, is there any problem with adding closing costs to your statement to help cover some of the expenses that we’re having to go through, Grant?
Grant: Yeah. No, absolutely not. I mean, having the buyer pay closing costs is 100% okay. You know, whatever those closing costs are. Now, what you need to be aware of is there are certain APR thresholds. Okay? So, there’s a couple of threshold points that we hit where different rules start to apply.
Now, there’s one called, the higher priced mortgage. And, there is one called the higher cost mortgage. And, the reason I’m going into all of this is that, those thresholds are hit by the APR. So, if you are out there doing an 8% mortgage to somebody, 8% owner financed transaction, and then you add in closing costs. You know, that may make your APR 8.1, or something. It’s not not going to move it that significantly.
But, the reason I’m bringing this up is that, that way you can choose how much of the closing costs are going to go to their side. Because, the way that we decide which items need to happen for compliance is by looking at that APR versus what’s the typical APR of the nation right now. So, there’s kind of a — and I guess, you know, to compare this to something would be sort of like how an Adjustable Rate Mortgage works.
You’ve got a margin, which is your number that everything is based off of, right? But, they’re comparing everything, too, with the interest rates. And, then you have an index, which is going to be, you know, whatever that margin is plus a number that gets you to your actual interest rate.
Well, the way that we’re looking at our thresholds in the mortgage world is that we’re using a margin called, the A.P.O.R. The average prime offer rate. This is released by the government every week on Tuesday. They let you know what the average good interest rate was in America that week.
So, let’s say that the A.P.O.R. is four, just for a nice even number. If you were doing a first lien transaction, like what you’re doing, Mitch, where you are buying with cash, you are turning around, and you are selling it to a consumer with owner financing. Now, let me make this — or clear this up real quick.
When you’re buying with cash, do you have a lien position with your investor? Is your investor getting a first lien position on that house?
Mitch: He is, he is. But, you know, Grant, I think you’re making my case right now. And, I want to slow you down. And, I’m glad that you’re talking to us in this way, because it shows that you know what you’re talking about. But, here’s the bottom line of the investors on this phone call. We don’t want to understand all this stuff. I don’t care.
Grant: Sure. [LAUGHTER]
Mitch: Which is great. So, let me kind of boil this down for the investors and make this real easy for you. The point is, Grant and his fellow business associate, Scott Horn, whose an attorney out of Dallas, they have been over this 9 ways to Sunday. And, they know all the problems that you can run into. I’ve heard them. I couldn’t recite them. A dang sure couldn’t remember all of it. This is why I have Grant on my side work.
Let’s explain to the people what happens when I want to do business, and I want to owner finance houses, and I want to stay compliant. What does my day look like when I find a buyer for my house, and I call you up? Just tell me the process. What do you do? I mean, I don’t do much. But, tell me why I have to provide you with — I hand it over to you, and then you hand it back to me, and then we go close the deal. I want to show people how simple it is when I go through you.
Grant: Sure. Absolutely. So, I could show ways how that works. Our investor is going to come to us and say, “Hey, Grant, I’ve got this great house. I just sold it with owner financing. You know, here’s the contract, the sales contract between me and my buyer. And, I want to get this thing at, whatever 7.5% interest rate, a 9% interest rate, or whatever it is, for 30 years, and you take it from here.”And I say, “Great.”
The investor gives me a contract. I, or one of my employees will call the buyer. Now, I do have a couple of employees that are bilingual. So, if you’ve got your buyers that are coming in there that really need that Spanish first, we’ll be able to take care of that as well. But, you know, me or one of my employees will call the buyer, and, then, we just take it from there.
We do everything that needs to happen in order to keep you complaint, get all of the disclosures signed that need to get signed, disclose everything to them that needs to happen. And then, we put together what’s called an underwriting package. And, what that is, is that shows we put the contract on there, we put a little QM report that says, “Yes. This loan is a qualified mortgage.”
We give all of the signed disclosures. We give their bank statements, their tax returns, everything that goes into proving that these guys have a qualified mortgage. We put into one nice little neat package, and email it over to you as the investor, and then you’re ready to close.
Mitch: See how simple that was? We could’ve went through 10 years of Dodd-Frank, and S.A.F.E. Act, and all that. And I, frankly, I just want to buy a house, make sure I’m compliant and sell it. So, I buy the house. I fix it, or I don’t fix it.
I get a contract from someone who’s willing to buy the house from me. At least, I write down a sheet of terms. At least I give them a set of terms. This man wants to buy this house for this price, this much down, at this interest rate for so many years. And the payment is going to be around X. And, I hand that sheet in — What do I get? A rental app, or just a name and phone number, really, as a guide.
And then, they take it from there. When he was talking about qualified mortgage, you know, we as owner financiers now, can’t just sell a house to anybody because they have a down payment. We have to have a reason to believe that they make enough money to make the payment. And, that’s a qualified mortgage.
A lot of people are under the, you know, the misinformation again that, you know, their income to debt ratio, or their disposal income has to be over 43%. It’s none of that. We just have to have a reason, a viable reason that we believe they can make the payment.
And, one of those reasons might be, “Well, they’ve been paying me rent for a year, I don’t know where he makes his money. I don’t even see where he has a job, but obviously he could pay, because he’s paid me every time, on time for a year.” I mean, that’s a reason.
Grant: Right. Absolutely. And, I do want to put in a little caveat there. We do have to verify income. That is part of my job. I have to actually verify where that money is coming from. But, there are lot of ways that I can verify that income.
And, let me tell you, we deal with a lot of people that get paid in cash only. You know, we’ve got ways to figure out, to make sure that we can verify that income. But, you hit the nail on the head. Your buyer doesn’t even have to have a job in order to have a qualified mortgage.
I mean, that is where our laws are. You have to verify these things, but it’s so relaxed again, you know. It goes back to, guys, it’s easy to comply if you are using the right resources that you have at your fingertips. Which is an R.M.L.O. and an attorney team to make sure that these things are taken care for you the right way.
Mitch: Well, see, so that’s how easy it is to be compliant. And, I have so many people that — you know, Grant and his company is not doing this for free. But, I’m going to tell you it is very reasonable. I’m not going to mention a price out here today, because prices change. And I don’t want to, you know — Grant stuck with whatever number we say right here. But, it’s very reasonable.
Actually, he really kind of vets your buyer to a large degree. And, it kind of save you from having to go check some things and spend some time that you normally have to do. If not all, just extra expenses, you’re also getting some value and delegating some stuff that you would have to do yourself. So, I just think — I used to be really sick to my stomach about all this. And now, I kind of like it. Once I did a few deals, and saw how easy it really was, for me to just hand it to you.
You know, we’ve spent some cooling off some periods. I think 7 days is normal. But you can be longer than that. If you push some boundaries, especially in interest rates. But, you know, so, we do our cooling off, and we look like a pro. And, we are a pro.
And, I think that the people who buy your owner financed houses feel more comfortable that they’ve gone through this process, because it feels like a real house purchase to them. You know before Grant, we used to just — Let’s say they want the house over there in the front yard. We put them in the truck, we drive them over to Jim’s coffee shop. We’d sit him down in front of a cup of coffee, and we’d sign a bunch of papers, and hand them the keys. And, they walked out of there kind of thinking, “I wonder if I really bought a house or not.”
Grant: Yeah. That’s an important part. And, I was actually about to mention that, too, so I’m glad that you bring it up. Because, your buyers, you know — adding a company in there, like Texas Pride Lending, adds such a level of legitimacy to the buyers.
Because, all of a sudden, they’ve got somebody that — you know, and this isn’t to say that you, as an investor, aren’t doing this already. But, they’ve got somebody that will sit down, and were talking all the numbers with them. And making sure they understand exactly what is going with it.
And, they’ve got this sense of, like, “Oh. Okay. This really is happening. This really is something that we have to go down.” Because, trust me, whenever I sit down in front of somebody, and I’m holding 65 pages worth of stuff for them to sign, they get it.
They say, “Oh. I’m buying a house.” You know, it really puts that into their mind. And, in my opinion, you know, it’s really going to lead to having better buyers for you in the long run. Not only because, a) we’re proving that they have the ability to repay. But, b) because, you know, doing that first is like you said going down to Jim’s coffee shop, there’s this sense of realism to it that sparks responsibility out of your buyer.
Mitch: You know, it does several things. One is, you just help me qualify them, which you just brought up. But, the other thing it does is, in the buyer’s mind, he feels that he’s gone through a true process, and this really is going to minimize your contingency to have lawsuits.
I mean, because, when you go close at Jim’s coffee shop, part of what causes the lawsuit is they just feel like it was kind of a fly-by-the-seat-of-your-pants kind of paperwork. And then, the first time a lawyer says, “Well, did you buy a house from a guy that owner financed?” And they say, “Yes.” He says, “Well, you know, did they take you to, you know, an office and all this?” In the buyer’s mind, you’re a legitimate company that did things right.
For heaven’s sake, there was so many pieces of paper, how could it not be right? You know, is, essentially, what they’re going to take away from it. Because there’s a lot of pieces of paper.
And, the other side of it is, as the investor, I feel like I can relax and sleep at night, because, while there is very little case law on the books dealing with all these regulations, I feel like there’s no way that a judge or a jury could look at me and/or the company, Grant, and say that we didn’t do the very best that we could do.
And, I would say that, if you’re using Grant Kemp, you know, or a professional R.M.L.O., that you’re going to be head and shoulders above the other investors out there as far as that you are trying to comply. That you are telling people everything they need to know before they make this big decision, and you’re giving them their cooling off periods, and they’re signing their disclosures and you are disclosing everything. It’s just a great peace of mind. And, I think you are a very busy person, Grant. A lot of people are using your services these days, I bet.
Grant: Oh, yeah, most definitely. I mean, we’ve just been consistently rocketing with more and more clients coming in, because we do things the right way. And, we know how to explain it.
And, the other side of the things is that I’m buying and selling houses with owner financing, too. And, not very many R.M.L.Os are actually going out there and putting their money where their mouth is and actually doing this type of investing strategy.
So, I know how to look at it from an investor’s standpoint. I know how to look at it the same way that you’re looking at it. But, I also know how to look at it in the way to keep things compliant. So, that’s a huge benefit the Texas Pride Lending has over some of the other shops out there, to make sure that, you know, you are in compliance.
Mitch: I was about to bring that up. You know, Grant is, an avid, very avid owner finance investor himself. So, he knows exactly what we’re going through. And, I want to tell you this: The guy that’s standing right next to Grant Kemp, Scott Horn, the attorney, who has spent hours upon hours, they have spent together making sure that they’ve got everything right in the Federal overlap in the State, the State and the Federal, and everything’s done correctly. Scott Horn has done literally, I think, tens of thousands of transactions. Hasn’t he? He’s been a hard money lender.
Grant: Yeah. Yeah.
Mitch: He’s got a title company. He just is in love with the game of real estate, and has been his whole life. And, just for those of you that are out there, if you’re doing a “subject to” and you don’t really know what paperwork to use, or you’re iffy on the paperwork, do yourself a favor and get with Scott Horn, and let him show you exactly the right way to do a “subject to”.
Because, everyone I know is doing them wrong. Everybody I know is putting themselves at great risk. And, that’s when I talk to Scott about, you know, “How do I set up a ‘subject to’, and have all my I’s dotted and my T’s crossed?” And, when he showed me what he was doing, I said, “Now, there’s how you do a ‘subject to’.”
And, the same thing with the tax lien that I did. So, Scott is very knowledgeable, and this gives me great confidence that Scott’s the man standing next to Grant in this R.M.L.O. situation. Because, I just believe a 100% in Scott’s ability to read the law, and assess the law, and to give great paperwork, and to do the C.Y.As that are necessary to stay out of trouble. You can’t argue with that, can you, Grant? This guy has spent his whole life in real estate law.
Grant: Oh, yeah, absolutely. I mean, I got hooked in with Scott by, whenever I was getting into the investing world and interviewing all the different attorneys that are around here, and seeing what was going on, look at their paperwork, that kind of thing. And, it wasn’t until I got to Scott, and I looked just like you.
I looked at his package of disclosures, and I said, “Ah, there we go. This is the guy that actually knows what is going on. This is the guy that’s actually going to keep me protected.” And, that’s where our relationship started, with him closing my deals.
And, we’ve just kind of grown from there as we both moved forward in our careers, and have formed a very good partnership throughout that time. So, yeah, absolutely. I trust him a 100%, and the protections that you get by using somebody like him are just unparalleled.
Mitch: Well, the thing is, you know, early on in this process, while all these regs were coming down, and everyone was trying to fit in the pieces of the puzzle together, you could go to 10 attorneys and you could get to 10 different answers. And, in fact, it’s probably a lot like that right now today. Because, most of the attorneys that you talk to, they haven’t lived real estate for 20 years, and haven’t followed the progression as it changed, you know.
Scott has been in this business many, many — he started many years ago. And, I’m not trying to put a bunch of years on the guy. But, I mean, he started many years ago, and he’s been right in the middle of it from the very beginning as an attorney. And, he’s gone through the morphs, and the changes and the adjustments. And, he completely understands where we’re at. And, really understands what they’re trying to do with these laws.
Sometimes, what laws say and what they’re trying to do are different. And sometimes, you’ve got to interpret a little bit to make sure that you’re conforming to the spirit of the law. And, that’s where all the grey comes in. And, I was very happy with his assessments, because he wasn’t trying to get around anything, or trying to be tricky or clever. He’s just conforming. And, that’s what I liked about it.
You know, I think when you try to get too tricky and some people say, “Well, I’m just going to form 10 corporations, and do 1 house in every corporation.” You know, these things, they don’t work for a lot of reasons. And, a lot of it is — the bigger — the more complicated you make things, the more your tax bill is, the more your tax return, you know– your C.P.A costs are. It is easier to go straight ahead.
You know, Grant, have I left out anything? Let’s restate the name of your company. It’s TexasPrideLending.com. You want to give a phone number?
Grant: Sure, yes. 214-473-4691. We’ll get you to us. And, then if you do have a request that’s coming in, like you want us to process a file, if you to email@example.com, that will hit me and my loan officers, and we’ll be able to get something taken care of for you immediately on that.
Now, I didn’t want to through out, my typical turnaround time, from the time that I get a contract to the time you have disclosures in your hand, is 24-48 hours. We move very quickly around here. We make sure to get things done for you. Because, we understand that time is money in the investing world. And, we need to get those cooling off periods started as soon as possible. So, we get on those files, and we get them at the door for you.
Mitch: So, it’s TexasPrideLending.com, 214-473. What was the last four digits there?
Mitch: And, then, if you want to email over, you just do firstname.lastname@example.org. Grant, is there anything that you want to add? We’re about — I think we’ve pretty much said what we need to say here.
Grant: Sure. Absolutely, yeah. The only thing that I might add in there, just to help people understand why this is so important is — and you started to hit on this a second ago — was the court scenario. That might be the only thing to add in there.
Because, by complying, by having a qualified mortgage, it’s laid out in Dodd-Frank that says, if we get sued from our buyers and we go up, and we show the judge that this is a qualified mortgage, in other words, you just hand them that package that I’m going to send you, the underwriting package. The judge will open the file up, and say, “Hey, this is a qualified mortgage, I rule in favor of the defendant, and close the case.” I mean, that’s basically right where it’s laid out.
Now, at the interest rates that we charge, the buyer has something called, Rebuttable Presumption, where they can say, “Wait a minute, I actually couldn’t afford this.” But, they have to come up with indisputable evidence that they couldn’t afford it at the point in time that they got put into that house. And, what we’ve done is take away their chance to be able to do that.
So, guys, it makes your — in that worst case scenario, if you have to go to court, having that qualified mortgage saves you from losing that case. And, that loss can cost you your down payment, all the interest that they’ve paid, and their attorney fees on top of that, if you don’t go through this process, and if you don’t have a qualified mortgage.
Mitch: Let’s just talk about this a second. How do you get sued? I mean, they don’t have police walking around, checking to see if you’re complying to this. Unless you’re really, really big, they might send someone for an audit. But, most of us don’t even come close to hitting that volume.
So, what happens is you’ll get at odds with a buyer that’s moved into your house, and the buyer will go get an attorney. And then, that attorney will try to poke holes in you, and try to prove where you weren’t compliant. And, that’s where the problem is.
That’s what happens is you get at odds with an owner-occupant that you owner financed. And, they go hire an attorney, and the attorney is the one who comes and starts trying to prove whether you were compliant or not with the regulations.
So, there’s not a police force out there, per se. That’s correctly how it comes down. And, I am confident that, if that ever happens to me, I’m just going to go get my file, and say, “Your honor, I’ve done everything in the world I know to do, and I’m compliant.”
And, I think Grant’s right. You know, they’re just going to rule you in your favor. There’s never a guarantee in the court, but at least you want to have the best fighting chance you can.
Grant: Right. Absolutely. Because, Dodd-Frank does lay out, if you have that qualified mortgage, then they presume you did what you were supposed to do. And, it’s called a Presumption of Compliance. So, if you show them that package that I’ve given you that has that qualified mortgage tag on the front of it, they will presume that you’ve complied with everything that needs to comply.
Mitch: Yeah. There you go. And, isn’t that a great peace of mind, everybody out there? I can see you nodding your heads, yes, because that’s the right answer. All right, Grant — well, you guys, if you’re out there listening, and you call Grant Kemp, just tell him that you heard him interview with Mitch Stephen, and I can get my little brownie points. And, he can buy me an ice cold tea and a steak somewhere, sometime. [LAUGHING]
Grant: Well, absolutely.
Mitch: Well, unless that’s against regulations.
Grant and Mitch: [LAUGHTER]
Grant: As long as it’s under $50, then we’re good.
Mitch: Under $50, okay. So, Grant thanks for being here. And, I appreciate your time, and I hope you didn’t mind that I cut you off from talking about all the laws. Because, really, it’s such a…
Grant: Hey, you saved my time, too.
Mitch: I just wanted to get down to….
Grant: I’m fine with that.
Mitch: I just wanted to get down to what we want to do as investors. We don’t want to learn every law in the book, and how to recite it. We just want to learn how to keep compliant.
Grant: Well, there’s a reason that people like me exist, and that’s exactly why. So, that you don’t have to go out there and stick your nose in the middle of federal regulations. Let me do that.
Mitch: Alright, sounds good. I think we will. Okay, Grant, have a great day. Thanks for being on, and I look forward to sending you my next package.
Grant: Absolutely. Thanks so much, Mitch.
Mitch: Bye now.