In the past, Seller financing of up to 5 transactions in a rolling 12 month period was permitted without licensure under the Texas Mortgage Broker Act (Chapter 156 of the Texas Finance Code). This exemption was recently eliminated by the implementation of the Texas SAFE Mortgage Licensing Act of 2009 (Chapter 180 of the Texas Finance Code).** The Texas SAFE law was mandated by the federal SAFE Mortgage Licensing Act of 2008 which was signed into law in July 2008. In short, Texas, like most states, is simply following the federal mandate.
Several factors should be considered when determining if a seller financer is required to be licensed under the Texas SAFE Act.
The Texas SAFE Act exempts an individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that serves as the individual’s residence. Thus, a homeowner may sell his or her personal residence and offer financing without triggering the licensure requirements under the Texas SAFE Act.
An exemption is also granted for a person who offers or negotiates terms of a residential mortgage loan on behalf of a person of direct familial relationship.
Additionally, the Texas SAFE Act defines a residential mortgage loan as a loan primarily for personal, family, or household use. Generally speaking, a loan is for personal, family, or household use if the buyer intends to occupy the property as a primary, secondary, or vacation residence. If the buyer is purchasing the property as an investment, the transaction is not for personal, family, or household use and is not subject to licensure requirements under the Texas SAFE Act.
In most cases, if the transaction does not meet one of the above descriptions, then the individual who acts in the capacity of a residential mortgage loan originator (takes an application or offers or negotiates terms) must be licensed for even just one occurrence. This does not necessarily mean that the seller financer must be licensed. The seller financer may engage a licensed residential mortgage loan originator to conduct all the activities that require a license. In this scenario, the seller financer should make sure to avoid conducting any activities that would require licensure.
**UPDATE - On August 17, 2010 the Commissioner of the Texas Department of Savings and Mortgage Lending signed a written notice that the Department will continue to allow the exemption found in § 156.202(a)(3) [up to 5 seller financed transactions in a rolling 12-month period], until or unless there is a subsequent statutory amendment or a rule adopted under this chapter, in which case said amendment or rule will supersede.