The unintended consequences of Dodd-Frank

As of Jan. 21, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) began regulating all residential real estate transactions in the United States. This new act will have a negative effect on Florida's real estate economy and will alter what has traditionally been an accepted procedure: private seller financing.

Private seller financing, sometimes referred to as “purchase money financing” or “carry back financing” is where a private seller transfers title to property and accepts a mortgage for a substantial part of the sale price rather than receiving all cash on the sale. Private seller financing historically has been beneficial for buyers, sellers and Florida's economy.

For example, a couple who invested in a residential property and paid off the underlying mortgage decides that it would be a better return for their retirement if they sell the property and carry back a purchase money mortgage. By receiving payments from the buyer over the next few years, the seller would: a.) not receive all cash and the immediate tax impact, and b.) would have a higher return on their money than if they invest in Treasuries or certificates of deposits offered by banks.