Seller financing has become a huge issue in this legal and economic environment and there has been a lot of confusion as to whether it is still permitted under both federal and state law without first having to obtain a mortgage broker's license. In 2008, Congress passed the Secure and Fair Enforcement Licensing Act of 2008 ("SAFE Act"). In this Act, states were required to develop licensing systems and criteria which would comply with the Act within a short period of time or risk HUD stepping in and developing a program for the state. Under the terms of the statute, Tennessee had one year to develop its plan. Shortly afterward, HUD published a model plan to guide states as well as a proposed set of rules which interpret the SAFE Act. Unfortunately, even though the deadline for the states to develop their plans has passed, HUD has not finalized the rules for the SAFE Act.

In 2009, the Tennessee legislature developed statutes in an effort to comply with the new federal legislation. Tennessee, along with 34 other states plus the District of Columbia, enacted statutes which either mirrored HUD's model plan or were more restrictive than HUD's plan. Tennessee's Residential Lending, Brokerage, and Servicing Act mirrors HUD's model plan concerning seller financing.

At this time, Tennessee law (along with a majority of states) prohibits seller financing without obtaining a state license absent very limited exceptions. These exceptions are:

1. any individual who makes a residential mortgage loan to, or offers or negotiates terms of a residential mortgage loan with or on behalf of, an immediate family member of the individual and

2. any individual who makes a mortgage loan, when the loan is secured by a dwelling that served as the individual's residence.

Therefore, seller financing is not impacted except when the property was owned by the seller as investment property. The Tennessee Attorney General recently published an opinion interpreting this aspect of Tennessee's law. For the full opinion, go to:

Unfortunately, HUD has yet to publish their finalized rule concerning the SAFE Act which has lead to great confusion at the state level as to what requires a license and what does not. TAR is closely monitoring the situation as well as looking to the federal government, HUD and other states to determine whether Tennessee's law may be amended to allow greater flexibility in owner financing situations.