The Secure and Fair Enforcement for Mortgage Licensing Act or Safe Act is Title V of the 700-page “Housing and Economic Recovery Act.” It prohibits anyone except a person selling their primary residence from taking back a mortgage on a residential dwelling (SFR or 1-4 units) without a mortgage originator’s license unless they sell to a direct family relative.

That means real estate investors, vacation home owners, people who own a vacant residential lot and even heirs will have to be licensed to take back a note in almost all cases.

Click here to read the proposed law online at regulations.gov

Or download a 16-page copy easier for printing here (pdf)

Note that the proposed law includes:

The commercial context implied by the taking of an “application” is also absent where an individual seller provides financing to a buyer pursuant to the sale of the seller’s own residence. The frequency with which a particular seller provides financing is so limited that HUD’s view is that Congress did not intend to require such sellers to obtain loan originator licenses. Accordingly, state legislation that excludes from licensing and registration requirements an individual who offers or negotiates terms of a residential mortgage loan only to the buyer or prospective buyer of the seller’s residence will not be found to be out of compliance with the SAFE Act.

This would allow a seller to sell you their primary residence without complying with the Act.