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Investors – HR-5201 is Our Chance to Bring Back the Seller Financing Business

By Bradley S. Dornish

Recently, I attended the National REIA Mid-Year Leadership Conference in Atlanta. While there, I had the opportunity to network with Charles Tassell, National REIA’s Chief Operating Officer and Director of Government Affairs, and with Jeff Watson, who leads the Distressed Property Coalition and is Nations REIA’s representative to the Seller Finance Coalition. (For those who don’t remember, ACRE is the Southwestern Pennsylvania Chapter of National REIA and we contribute over $5,000.00 per year from your ACRE dues to National REIA to support its operations).

The most exciting news to come out of this year’s Mid-Year Conference is that HR-5301 had gotten broad bi-partisan support from liberal and conservative members of Congress, and is not opposed by the National Association of Realtors. This means HR-5301 has a great chance of passing, even in an election year.

So, why should you as a real estate investor care about this? Because not too long ago, buying and renovating single family homes and selling them to consumers with seller financing was an important part of many investors’ businesses, as well as a great way to improve the housing stock in U.S. cities, provide more jobs in the rehab construction industry and provide clean, safe, affordable homes to consumers who wanted to own, not rent.

When the SAFE Act, Dodd-Frank Act became law, investors were limited first, to no more than five, and then to no more than three, seller financed loans to consumers per year. Even more restrictive, the Dodd-Frank regulations imposed the same burdens on investors to verify consumer credit and income from third party sources and properly calculate each consumer’s ability to repay which it imposed on big banks like Bank of America, Wells-Fargo and Chase. And if that weren’t enough, seller financed loans from mom and pop real estate investors were subject to the same voluminous and strict scrutiny of the Consumer Finance Protection Bureau in Washington, D.C.

Over the past few years this led me to advise my client investors to not finance to consumers – PERIOID. You could still buy, renovate and rent properties, and even give tenants the option to buy (with financing they could get from a bank or mortgage lender). But a seller financed mortgage or installment land contract was just too risky for most sellers under these laws. Because of this advice, some gurus even said I was unfriendly to investors, which is ironic since real estate investors are the bulk of my clientele.

In the wake of these onerous laws and regulations, National REIA became the largest member of the Seller Finance Coalition and helped to craft and supported what has now become HR-5301, The Seller Finance Enhancement Act. HR-5301 was introduced in the House in May and is now in review by the House Committee on Financial Services, a standing committee on which Pennsylvania representatives Keith Rothfus and Michael Fitzpatrick sit as members.

What does HR-5301 actually say or do for us if it passes and becomes law? You can read the whole text at Congress.gov, searching under bills, or see the link on our ACRE website. No need to fear, it is not a whole book like Dodd-Frank or Obama Care. It is only four short pages.

The short summary is that it EXEMPTS sellers of real estate who provide seller financing on up to 24 properties, in a 12 month period, to consumer borrowers by mortgage loans or equivalent (i.e. installment land contracts) from the Loan Originator Licensing and Registration requirements of the SAFE Act (12 U.S.C. §5103), and from the debt to income ratio restrictions of the Dodd-Frank Act (15 U.S.C. §1693c (b)(2)(A).

Twenty four seller financed loans per year, including first mortgages, second mortgages and installment land contracts is enough for almost any small real estate investor to get back to improving our cities’ housing stock, providing clean, safe housing for consumers to own, and making some long term interest on these transactions to help secure and stabilize our own financial futures.

Call or email Keith Rothfus today to express your support for HR-5301. (412) 837-1361; rothfus.house.gov.

The author, Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania. He can be reached at bdornish@dornish.net.

July 2016

PROA Regroups for the Long Haul on Student Housing Legislation

By Bradley S. Dornish, Esquire

After over a year of hard work finding the right language, a committed sponsor in the legislature, and the right timing to move forward, we had in HB 809 sponsored by Representative Sue Helm a vehicle we believed would protect students who wanted to rent off campus housing and the landlords who wanted to rent to them from arbitrary, biased and prejudicial local ordinances being passed in many cities and towns throughout Pennsylvania.

Some, like the City of Pittsburgh’s ordinance, limit the number of unrelated persons who can live in a single rental home or apartment. The magic number in Pittsburgh is three, and we have seen landlords with even four or five bedroom rental properties prosecuted by city code enforcement officers and fined hundreds of thousands of dollars, yes hundreds of thousands for renting to more than three unrelated persons. Other municipalities like Greensburg license student housing separately from other rental units, dictate in which areas of town students are permitted to live, and require that a student rental unit not be within 500 feet of another student rental.

HB 809 addresses both of these types of arbitrary restrictions, and if passed, will make ordinances which discriminate on the basis of matriculation subject to being invalidated by court action. On July 20th, a hearing was scheduled in front of the House Municipal Government Committee, and PROA affiliates from West Chester to Harrisburg to Erie and Meadville, and of course Pittsburgh, prepared to testify.

My written testimony traced the problems I have seen with Pittsburgh’s ordinance since the 1980s, beginning with the owners of a building I lived in as a law student. Those owners sued to get a variance to allow four students to rent two bedroom, two bath units in a high rise building nestled between Duquesne University’s old gym, Rockwell Hall, Fisher Hall and the Liberty Bridge. Clearly, the owners thought, this was not the type of building or location which the city intended to restrict to only three students per unit. The owners were wrong, and after years of expensive litigation, Pennsylvania appellate courts upheld the city’s right to limit student housing, and left it to the legislature to change the law. The owners sold the building to Duquesne University shortly thereafter, and the university houses as many students in the building as it sees fit, since college dorms are not subject to the city ordinance.

Other witnesses provided testimony about the effects of ordinances in other parts of the state on both landlords and students, including non-traditional students like returning veterans and how even married students with jobs could be affected by ordinances like that in Greensburg.

But Representative Kate Harper postponed the hearing several times, for various reasons, and by the time we had the opportunity to testify, well organized municipal groups opposing the passage of HB 809 including officials and landlords who lived in different college towns, were mobilized to speak and write to legislators against the bill. Witnesses told anecdotal stories of students urinating in public, having loud parties on weeknights lasting into early morning hours, of student cars making crowded streets unsafe, and students failing to keep houses yards and porches in a manner consistent with neighborhood standards. Municipal officials had Powerpoint presentations with charts showing that neighborhoods with student housing had not several times or even ten times the police calls as non-student neighborhoods of similar square mileage, but a hundred times the police calls, putting a terrible strain on municipal services and stress on their neighbors.

Witnesses supporting the passage of HB 809 were drowned out by the emotional pleas, disturbing anecdotes and incredible statistics presented by opponents. Some commented that if an ethnic, racial or religious minority had been substituted for the word student in the testimony of opponents, the prejudicial, over reaching bias of the testimony would be apparent to anyone. None of the opponents acknowledged that non-discriminatory ordinances already exist against things like loud parties disturbing the peace, public intoxication and public urination. In fact, they claimed the only way to deal with those activities is to keep most or all students out of their neighborhoods, since offending activities begin and end too quickly for police to prosecute if the students are there.

If you would like to hear some of the testimony, one supporting witness, and two opposing witnesses, and see the PowerPoint figures for yourself, search for Representative Kate Harper’s website, and click on the video excerpts from the hearing.

In the aftermath of the hearing, the PROA board met with our lobbyists and discussed where we go from here. We still believe that many local ordinances unfairly discriminate against students and other unmarried individuals in their housing choices, and prevent owners of multi-bedroom units from renting those units to many good prospective tenants just because of their student or marital status. However, the organization and passion of opponents mean that a more patient and deliberative course is required to get the justice and equity we seek for student and unmarried tenants and landlords who would rent to them.

PROA affiliates have filed Public Records Information Act requests which seek the raw data on which the statistics in the municipal government PowerPoint are based. We will need to analyze the data for multiple other variables between the districts being compared, such as density of population, socioeconomic factors between the districts, and other variables independent of student residence which would contribute to the deviation in police calls which the municipalities attribute entirely to student housing. Next, we will need to test the veracity of police call accounting to see if the data led to the result, or the desired result led to the data.

We can’t do much to combat anecdotal stories, but we can check local, non-discriminatory ordinances which exist in the communities where the stories arose, and ask why those ordinances were not used to combat the bad behaviors complained of. Finally, we must find our own anecdotal stories of good student and unmarried tenants who were discriminated against and landlords who have been unfairly prevented from renting their properties to the number of persons the properties can reasonable accommodate, such as only having three tenants allowed in a four bedroom house.

When we are ready for the information and emotion offered by opponents, we can come back to HB 809 and have a full discussion on its merits, and hopefully get it passed for the benefit of Pennsylvania.

National REIA Mid-Year Conference Brings Exciting News

By Bradley S. Dornish, Esq.

ACRE is the Western PA chapter of National REIA, the National Real Estate Investors’ Association. The association has given us connections to and feedback on the quality of national speakers, and has kept us up to date on issues facing real estate investors all across the country. Click here to read more »

July PROA Board Member Message

Bradley S. Dornish, Esquire

As I write this message, I have just finished a three day convention of leaders of real estate investors’ groups from all over Pennsylvania and the rest of the country.   It occurs to me that it has been some time since I wrote to you about our state organization, the Pennsylvania Residential Owners’ Association, PROA for short, and the National Real Estate Investors’ Association, National REIA. Click here to read more »

Where Are You Going as a Real Estate Investor This Year?

By Bradley S. Dornish, Esquire

Now that we can close the door on 2012, as we start preparing information regarding our real estate investing activities for our 2012 tax returns, it’s a perfect time to look a little harder at that information and see how we are doing and where we should be going as investors. Click here to read more »