RECENT CHANGES IN STATE LAW MAY MEAN THAT OWNER FINANCING OF A REAL ESTATE PURCHASE IS NO LONGER LEGAL IN THE STATE OF HAWAII
During the 2014 State Legislative Session, the Legislature amended the State’s HAWAII SAFE ACT, which establishes the system for mortgage loan origination in Hawaii. That action, ACT 198, removed exemptions that allowed ordinary, non-licensed homeowners to provide owner financing to family members or other purchasers of their primary residence. The action was proposed by DCCA’s Division of Financial Industries as a part of a much more complex bill affecting mortgage origination rules in the SAFE ACT (HRS 454). This change in the law went into effect on July 1, 2014, but its effects on owner financing just came to light. RAM’s attorney recommended that you be notified.
At this point it is still not clear if owner financing is no longer legal in Hawaii.
While ACT 198 removed the exemption for homeowners from the requirement to get licensed as a mortgage originator before making mortgage loans, it left the exemptions for attorneys and Realtors in place. Those exemptions, which are found in Section F-2 of HRS 454, say that Attorneys and Realtors can still represent their clients’ interests in financing real estate purchases. Some attorneys have read the changes to mean that the owner’s right to offer financing has been removed, which was the opinion that brought this matter to light. Others interpret the remaining exemptions for attorneys and Realtors acting on behalf of their clients as meaning that, as long as the owner works through either a Realtor or an attorney, they can still provide seller financing.
As a result of the difference in interpretation, a letter asking for an official legal opinion on this question has been sent to the State Attorney General, which is the agency that gives the State’s position on statutes. Hopefully, we will have an answer within the month.
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