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Seller Financing in Hawaii: Legal or Illegal?

  |  Legislative Updates: State of Hawaii
Click to view HAR's 2015 Legislative Program

Click to view HAR’s 2015 Legislative Program

“Owner financing is a useful tool in the credit market, as it expands the pool of potential buyers for owners and gives buyers an opportunity to make a purchase that would otherwise be out of reach, especially if they could not qualify for a traditional mortgage loan.”

– Hawaii Association of REALTORS®

Although seller financing (owner financing) has traditionally been a means by which real property transactions in Hawaii have been conducted, Clark Realty Corporation is currently advising our sellers to seek legal counsel before pursuing the sale of a property through a seller financing agreement. Here’s why, as explained by the Hawaii Association of REALTORS®:

During Hawaii’s 2014 State Legislative Session, the Legislature amended Hawaii’s Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act), which established the system for mortgage loan origination in Hawaii. That action, Act 198, removed exemptions that allowed ordinary, non-licensed property owners to provide financing for their own properties.

The action was proposed by DCCA’s Division of Financial Institutions (DFI) 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.

It is the opinion of the Department of the Attorney General of the State of Hawai‘i that owner financing is no longer legal in Hawai‘i unless the property owner has completed registration with the State of Hawai‘i as required under the S.A.F.E. Act.

As part of its 2015 Legislative Program, the Hawaii Association of REALTORS® is working to promote an amendment to Hawaii’s SAFE Act to make clear that an individual who offers or negotiates terms of a mortgage loan for their own property is exempt from the mortgage loan originator definition. As updates become available, we will share them here. In the meantime, our agents will be advising sellers to consult with an attorney for more information about the SAFE Act.

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