News on HR 1728 and How It Could Affect Real Estate IRA Investing

Many Realtors® and Real Estate IRA Investors have been upset and up-in-arms this summer about bill HR1728, which passed in the House and is in process in the Senate.  This bill has admirable, if late, aspects aiming to prevent predatory lending.  That’s not what makes many Realtors’ stomachs churn.   The bill also takes on seller financing, which is increasingly utilized in a credit-desert environment like ours today.

Seller Financing allows the buyer and seller to work out a deal on payments, frequency of payments and interest rates, independent of banks or professional mortgage companies.  Seller Financing is what allows a self-directed IRA owner to lend money on real estate and create passive income for their IRA.  These deals happen thousands of times each year by real estate investors, IRAed or not.  Many real estate sales could not have happened in this credit-crunch environment without seller financing. Under this bill, an individual is only allowed one seller-financed deal every three years, or else register as a lender.  This is, to say the least, a complicated process.

The National Association of Realtors® initially supported the bill.  From their newsletter May 11, 2009: “NAR is supportive of this bill because it protects both the consumer and housing sector.”

However, the NAR swung on this issue.  The latest “news” comes from correspondence from NAR clarifying their position.  The NAR reports that the Senate Banking Chairman, Chris Dodd, indicated that “this issue is not on his ‘mustdo list’”.

I would like you to take the following two messages from this e-mail and NAR. First, the bill looks like it will die due to inactivity in the Senate. Meaning, these requirements, which are not in effect, will not go into effect anytime soon. Second, if the bill begins to move in the Senate, NAR will work diligently to have a full exclusion for seller financing added to the Senate’s version of the bill, or increase the limitation so it does limited harm to consumers that have to utilize this type of financing.

This is one case where congress’s tortoise pace might be to our benefit as real estate investors and Americans.

Photo courtesy of MiiiSH.