Dodd-Frank & Seller Financing — Application to Contract for Deed
Legal information, not legal advice. Verify against the cited statute / rule before acting. Federal thresholds change; confirm the current C.F.R. text and CFPB guidance. Last verified: 2026-06-08.
A contract for deed / installment land contract is an extension of consumer credit secured by a dwelling whenever the buyer is a natural person buying a 1-4 unit residence (or the land under one) for personal use. That single fact pulls a seller-financed CFD into two CFPB rules promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and implemented in Regulation Z (12 C.F.R. part 1026):
- the Loan Originator Rule, 12 C.F.R. § 1026.36, and
- the Ability-to-Repay / Qualified Mortgage (ATR/QM) Rule, 12 C.F.R. § 1026.43.
The two rules have separate triggers, separate exclusions, and separate thresholds. Qualifying for a seller-financer carve-out from one does not exempt a seller from the other. This page maps both.
- Authority (LO Rule): 12 C.F.R. § 1026.36 (statutory basis: TILA §§ 129B, 15 U.S.C. § 1639b; Dodd-Frank Act § 1403). Retrieved https://www.law.cornell.edu/cfr/text/12/1026.36 (2026-06-08).
- Authority (ATR/QM Rule): 12 C.F.R. § 1026.43 (statutory basis: TILA § 129C, 15 U.S.C. § 1639c; Dodd-Frank Act § 1411). Retrieved https://www.law.cornell.edu/cfr/text/12/1026.43 (2026-06-08).
- CFPB guidance: Loan Originator Rule Small Entity Compliance Guide (Nov. 2019), pp. 26-27 (seller-financer exclusions). Retrieved https://files.consumerfinance.gov/f/documents/cfpb_loan_originator_small_entity_compliance_guide.pdf (2026-06-08).
1. The trigger: a CFD secured by a dwelling
The LO-Rule loan-originator definition (12 C.F.R. § 1026.36(a)(1)) and the rule’s substantive provisions apply to closed-end consumer credit transactions secured by a dwelling (§ 1026.36(b)). The ATR/QM Rule “applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling” (§ 1026.43(a)). Retrieved https://www.law.cornell.edu/cfr/text/12/1026.43 (2026-06-08).
A “covered transaction” under the ATR rule is a dwelling-secured consumer credit transaction other than one exempted by § 1026.43(a) — the exemptions are HELOCs (§ 1026.40), timeshare-secured loans, reverse mortgages, temporary/bridge loans of 12 months or less, and the 12-month construction phase of a construction-to-permanent loan (§ 1026.43(a)). Retrieved https://www.law.cornell.edu/cfr/text/12/1026.43 (2026-06-08). There is no seller-financer exemption inside § 1026.43 itself. Retrieved https://www.law.cornell.edu/cfr/text/12/1026.43 (2026-06-08).
What falls outside both rules entirely: financing not secured by a dwelling (raw/unimproved land with no residence, commercial property), and credit extended to an entity rather than a consumer, or for a business purpose rather than a consumer-purpose. The ATR rule’s text is expressly limited to “consumer credit transaction[s]” secured by a dwelling (§ 1026.43(a)). Whether a particular parcel is a “dwelling” turns on § 1026.2(a)(19), which the author has not separately re-retrieved this run (see needs_verification).
2. Loan Originator Rule — the two seller-financer exclusions (§ 1026.36(a)(4) & (a)(5))
A seller financer who does enough deals is a creditor under TILA/Regulation Z — specifically, one who extends dwelling-secured credit (other than high-cost mortgages) six or more times in the preceding calendar year, or more than one high-cost mortgage in any 12-month period (CFPB LO Small Entity Compliance Guide, p. 26). Below that, two narrow exclusions remove a low-volume seller from the loan-originator definition (and thus from the rule’s compensation, steering, qualification, and identification requirements).
(a) The ≤1-property / 12-month exclusion — § 1026.36(a)(5)
Available only to a natural person, estate, or trust. The seller is not a loan originator if all of the following hold (§ 1026.36(a)(5); CFPB Guide pp. 26-27):
- provides seller financing for only one property in any 12-month period;
- owned the property securing the financing;
- did not construct, or act as a contractor for the construction of, a residence on the property in the ordinary course of business (§ 1026.36(a)(5)(ii)); and
- the financing meets these terms (§ 1026.36(a)(5)(iii)):
- (A) a repayment schedule that does not result in negative amortization — i.e., a balloon payment IS permitted under this exclusion, so long as the schedule never adds unpaid interest to principal; and
- (B) a fixed rate, or an adjustable rate that is adjustable only after five or more years, subject to reasonable annual and lifetime limitations on interest-rate increases.
Note what is not required here: the one-property exclusion carries no good-faith ability-to-repay determination. Retrieved https://www.law.cornell.edu/cfr/text/12/1026.36 (2026-06-08); CFPB Guide pp. 26-27.
(b) The ≤3-properties / 12-month exclusion — § 1026.36(a)(4)
Available to any seller-financer entity (individual or organization). The seller is not a loan originator if all of the following hold (§ 1026.36(a)(4); CFPB Guide pp. 26-27):
- provides seller financing for three or fewer properties in any 12-month period;
- owned the properties securing the financings;
- did not construct, or act as a contractor for the construction of, a residence on the property in the ordinary course of business (§ 1026.36(a)(4)(ii)); and
- the financing meets these terms (§ 1026.36(a)(4)(iii)):
- (A) the financing is fully amortizing — NO balloon payment is permitted under the three-property exclusion (this is the key difference from the one-property exclusion);
- (B) the financing is one the person determines in good faith the consumer has a reasonable ability to repay; and
- (C) a fixed rate, or an adjustable rate that is adjustable only after five or more years, subject to reasonable annual and lifetime limitations on interest-rate increases.
For the good-faith ATR determination under (B), the CFPB guidance states a seller “may use the criteria set forth in 12 CFR 1026.43(c)” (CFPB Guide p. 27). On the rate caps, the CFPB treats an annual increase of 2 percentage points or less and a lifetime increase of 6 percentage points or less as reasonable, with the ceiling not to exceed the applicable usury limit (Comments 36(a)(4)-2 and 36(a)(5)-1; CFPB Guide p. 26). If an adjustable rate is used under either exclusion, the rate must be set by adding a margin to a widely available index (e.g., U.S. Treasury securities indices) (CFPB Guide pp. 26-27).
Side-by-side
| Condition | ≤1 property — § 1026.36(a)(5) | ≤3 properties — § 1026.36(a)(4) |
|---|---|---|
| Who qualifies | natural person, estate, or trust only | any seller-financer entity |
| Properties / 12 months | 1 | 3 or fewer |
| Must own the property | yes | yes |
| Did not build the residence | yes | yes |
| Balloon allowed? | yes (no negative amortization) | no (must be fully amortizing) |
| Good-faith ATR determination | not required | required |
| Rate | fixed, or adjustable after 5+ yrs w/ caps | fixed, or adjustable after 5+ yrs w/ caps |
Source for both columns: 12 C.F.R. § 1026.36(a)(4)-(5), retrieved https://www.law.cornell.edu/cfr/text/12/1026.36 (2026-06-08); CFPB LO Small Entity Compliance Guide pp. 26-27, retrieved https://files.consumerfinance.gov/f/documents/cfpb_loan_originator_small_entity_compliance_guide.pdf (2026-06-08).
What falls outside these exclusions (and so leaves the seller as a covered loan originator who must comply, or use a licensed third-party originator): more than 3 financed dwellings in 12 months; a builder/contractor financing a home it constructed; a 3-property deal carrying a balloon (fails the fully-amortizing condition); or a short-reset adjustable rate (adjusts within 5 years).
3. ATR/QM Rule — separate analysis (§ 1026.43)
The ATR rule’s coverage runs on the creditor definition, not the loan-originator definition. A person becomes a “creditor” under Regulation Z by, among other things, extending dwelling-secured consumer credit more than a threshold number of times. The § 1026.36 seller-financer exclusions remove a person from the loan-originator definition; they do not remove a high-volume seller from the creditor definition or from § 1026.43, which contains no seller-financer exemption (§ 1026.43(a); retrieved https://www.law.cornell.edu/cfr/text/12/1026.43, 2026-06-08).
Where § 1026.43 applies, the creditor “shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms” (§ 1026.43(c)(1)). The determination must consider the eight underwriting factors in § 1026.43(c)(2): income/assets, employment status, the monthly payment on the covered transaction, payments on simultaneous loans, mortgage-related obligations, other debt/alimony/child support, the monthly debt-to-income ratio or residual income (§ 1026.43(c)(7)), and credit history. Retrieved https://www.law.cornell.edu/cfr/text/12/1026.43 (2026-06-08).
Practical relationship between the two rules: A small seller (≤1 or ≤3 dwellings/12 months) who is also below the Regulation Z creditor threshold can fall outside both the LO Rule (via § 1026.36(a)(4)/(5)) and, by not being a creditor, outside § 1026.43. The precise creditor-count threshold that pulls a seller into § 1026.43 is left under needs_verification rather than stated from memory, because § 1026.2(a)(17) was not re-retrieved this run.
▸ For Sellers / Operators — Two compliance gates, not one. Gate 1 (LO Rule, § 1026.36): structure each deal to fit a seller-financer exclusion. The easy box to miss is the balloon: a balloon is fine under the one-property exclusion (§ 1026.36(a)(5)) but kills the three-property exclusion (§ 1026.36(a)(4)), which demands a fully-amortizing note plus a documented good-faith ability-to-repay file. If you sell more than three financed homes a year, you are outside both exclusions — use a licensed loan originator or build a compliant origination process. Gate 2 (ATR/QM, § 1026.43): there is no seller-financer exemption here. If your volume makes you a Regulation Z creditor, you owe a full ability-to-repay determination on every dwelling-secured deal regardless of how few you do. Avoid the adjustable-rate trap: any rate that can adjust inside five years blows both exclusions — stick to a fixed rate. Then layer your state §4 overlay (SAFE Act MLO licensing and any state CFD consumer-protection statute), which can be stricter than the federal floor.
▸ For Buyers — The federal balloon and ability-to-repay protections only attach when the property is a dwelling and you are a consumer. A seller claiming the small-seller exclusion still cannot (under the three-property exclusion) put a balloon on you, and must have determined in good faith that you can repay. If your CFD has a short balloon on a home, ask which exclusion the seller relied on.
Linked from: every jurisdictions/<state>.md §4 (Federal Overlay).
Cross-links: safe-act-mlo · garn-st-germain-due-on-sale · forfeiture-vs-foreclosure
Meta
- sources:
- {type: regulation, cite: “12 C.F.R. § 1026.36(a)(1), (a)(4), (a)(5), (b)”, url: “https://www.law.cornell.edu/cfr/text/12/1026.36”, retrieved: 2026-06-08}
- {type: regulation, cite: “12 C.F.R. § 1026.43(a), (b)(1), (c)(1), (c)(2), (c)(7)”, url: “https://www.law.cornell.edu/cfr/text/12/1026.43”, retrieved: 2026-06-08}
- {type: agency_guidance, cite: “CFPB, Loan Originator Rule Small Entity Compliance Guide (Nov. 2019), pp. 26-27”, url: “https://files.consumerfinance.gov/f/documents/cfpb_loan_originator_small_entity_compliance_guide.pdf”, retrieved: 2026-06-08}
- {type: statute, cite: “TILA § 129B, 15 U.S.C. § 1639b (LO Rule basis); TILA § 129C, 15 U.S.C. § 1639c (ATR basis)”, note: “statutory hooks named in CFPB guide p. 10; section text not separately re-retrieved this run”}
- needs_verification:
- Verbatim text of 12 C.F.R. § 1026.2(a)(17) “creditor” definition and the exact transaction-count threshold (commonly cited as >5 dwelling-secured loans/yr) that pulls a seller into § 1026.43 — not re-retrieved this run.
- Verbatim text of 12 C.F.R. § 1026.2(a)(19) “dwelling” definition (incl. manufactured homes, vacant land intended for a dwelling) — not re-retrieved this run.
- Statute text of 15 U.S.C. §§ 1639b and 1639c — only the CFPB guide’s reference retrieved, not the U.S.C. text itself.
- open_questions:
- QM (Qualified Mortgage) safe-harbor mechanics under § 1026.43(e) as applied to seller-financed notes — out of scope for this overview page; candidate for a dedicated subsection.
- Whether a CFD on vacant land with a manufactured home later sited is a “dwelling-secured” transaction at consummation.
- changelog:
- 2026-06-08 — Page created. Both LO-Rule seller-financer exclusions (a)(4)/(a)(5) and the ATR/QM overlay populated from retrieved § 1026.36, § 1026.43, and the CFPB Nov-2019 LO compliance guide pp. 26-27. Gap_score: 3 (three honest needs_verification flags only; no uncited or fabricated claims).
Disclaimer. This page is legal information, not legal advice, and may be out of date. Federal rules and thresholds change; confirm the current C.F.R./U.S.C. text and any CFPB guidance before structuring a seller-financed transaction. Consult a licensed attorney and, where licensing may apply, a compliance professional before originating or signing an installment land contract.