"Isn't seller financing illegal now because of Dodd Frank?" I hear that from land sellers all the time. It is not illegal. But the rules are real, and a few of them can apply to land. Here is the plain English version so you know where you stand.
I am not a lawyer, and this is not legal advice. Have a real estate attorney in your state review how you sell.
Does Dodd Frank apply to seller financing vacant land?
The biggest Dodd Frank rules are written for loans secured by a dwelling, and raw land is not a dwelling.
The ability to repay rule and most of the loan originator rules that land sellers worry about cover consumer loans secured by a dwelling, such as a house or mobile home. The CFPB lists consumer loans secured by vacant land as not covered by the ability to repay rule (source). Other Truth in Lending rules can still apply, depending on who the buyer is and how often you sell.
Does it matter if my buyer is a business?
Yes. Truth in Lending covers consumer credit, not credit made mainly for business purposes.
If your buyer is an LLC buying land as an investment, the federal consumer lending rules generally do not apply (12 CFR 1026.3). If your buyer is a person buying land for personal use, such as a weekend camping spot or a future home, it is consumer credit, and the questions below matter.
Want the paperwork handled?
When we buy your note at closing, we provide the loan documents and work with the title company.
Get a Free QuoteSell Your NoteWhen does a land seller count as a creditor?
When you regularly make consumer loans: more than 25 in a year, or more than 5 secured by a dwelling.
Under Regulation Z, you are a "creditor" if you extended consumer credit more than 25 times in the prior or current year, or more than 5 times for loans secured by a dwelling (12 CFR 1026.2). If you sell a few parcels a year on terms, you are likely under that line. If you sell dozens of lots a year to consumers, you may be over it.
| Your situation | Where you likely land | What to do |
|---|---|---|
| A few parcels a year to consumers | Likely not a creditor under Reg Z | Still use a title company and good documents |
| Dozens of lots a year to consumers | May be a creditor | Truth in Lending disclosures may apply; talk to a lawyer |
| Sales to LLCs for business use | Business purpose credit | Consumer rules generally do not apply |
| Land with a home or mobile home on it | Secured by a dwelling | Ability to repay and originator rules can apply |
What if my buyer plans to build a home?
Get legal advice. A home on the land can change which rules apply.
Some rules turn on whether a dwelling is part of the deal. For example, the RESPA vacant land exemption does not apply if a home will be built or placed on the land within two years using the loan proceeds (source). If you sell land with a mobile home on it, or sell with a home package, assume the dwelling rules apply until a lawyer tells you otherwise.
Do states have their own rules?
Yes. Some states add licensing or disclosure rules for sellers who finance.
Federal law is only half the picture. Some states have their own rules on seller financing, contracts for deed, and who needs a license. That is one reason I would avoid land contracts and use a promissory note with a deed of trust or mortgage. See why to avoid land contracts.
How do I seller finance land safely?
Use a title company, a proper note and deed of trust, a servicer, and a lawyer's review.
- Close through a title company so title and the lien are insured
- Use a promissory note and a deed of trust or mortgage, not a land contract
- Screen the buyer and get a real down payment
- Use a licensed servicer for payments and year end statements
- Have a real estate attorney in your state review your setup once
Rule of thumb: the more lots you sell to consumers, the sooner you need a lawyer. Or sell the note at closing through our sell at closing program and let us handle the documents.
Frequently Asked Questions
Does Dodd Frank apply to seller financing land?
The ability to repay rule covers consumer loans secured by a dwelling. The CFPB lists consumer loans secured by vacant land as not covered. Other Truth in Lending rules can still apply.
Is seller financing land legal?
Yes. Seller financing land is legal. Follow federal and state rules, use a title company, and have a real estate attorney review your setup.
How many seller financed deals can I do before Reg Z applies?
Regulation Z treats you as a creditor if you extend consumer credit more than 25 times a year, or more than 5 times for loans secured by a dwelling.
Do consumer lending rules apply if my buyer is an LLC?
Generally no. Truth in Lending covers consumer credit, not credit made mainly for business purposes.