Dodd-Frank Seller-Financer Exclusion Decision Tree
Legal information, not legal advice. Federal thresholds change; confirm the current C.F.R./U.S.C. text and any CFPB guidance before structuring a deal. Last verified: 2026-06-08.
This page is the at-a-glance decision tree for whether a contract-for-deed (installment land contract) seller qualifies for a federal seller-financer exclusion — and, if so, which of the balloon / ability-to-repay (ATR) / fixed-rate conditions attach. It synthesizes dodd-frank-seller-financing and safe-act-mlo; every threshold below is cited to the C.F.R. or U.S.C.
Read this first — there are THREE independent federal gates, not one. A deal can pass one and fail another. Clearing the Loan Originator Rule exclusion does not exempt a high-volume seller from the Ability-to-Repay rule, and neither answers the separate question of whether the individual needs a state mortgage loan originator (MLO) license under the SAFE Act.
| Gate | Rule | Question it answers | Has a numeric seller carve-out? |
|---|---|---|---|
| 1. LO Rule | 12 C.F.R. § 1026.36 | Is the seller a “loan originator” subject to compensation/steering/qualification duties? | Yes — ≤1 (§ (a)(5)) and ≤3 (§ (a)(4)) property exclusions |
| 2. ATR/QM | 12 C.F.R. § 1026.43 | Must the seller (if a Reg. Z creditor) make an ability-to-repay determination? | No seller-financer exemption inside the rule (§ 1026.43(a)) |
| 3. SAFE Act MLO | 12 U.S.C. § 5101 et seq.; 12 C.F.R. § 1008.103 | Must the individual hold a state MLO license? | No federal number — “commercial context + habitualness”; states draw their own lines |
Sources: 12 C.F.R. §§ 1026.36, 1026.43 (https://www.law.cornell.edu/cfr/text/12/1026.36 · https://www.law.cornell.edu/cfr/text/12/1026.43); 12 C.F.R. § 1008.103 (https://www.law.cornell.edu/cfr/text/12/1008.103); all retrieved 2026-06-08.
Step 0 — Threshold question: is the credit secured by a dwelling for a consumer?
Both Dodd-Frank rules apply only to closed-end consumer credit secured by a dwelling (§ 1026.36(b); § 1026.43(a)). If any of these is true, the deal falls outside both the LO Rule and ATR rule entirely:
- The collateral is not a dwelling — raw/unimproved land with no residence, or commercial property (§ 1026.43(a) limits coverage to dwelling-secured credit).
- The credit runs to an entity, not a natural-person consumer.
- The purpose is business/commercial, not personal/family/household.
Whether a particular parcel is a “dwelling” turns on 12 C.F.R. § 1026.2(a)(19) (manufactured homes, land intended for a dwelling). That definition was not re-retrieved in the source run — treat the dwelling question as unverified at the margins (vacant land + later-sited manufactured home). See dodd-frank-seller-financing needs_verification.
If it IS a consumer, dwelling-secured CFD → continue to the LO-Rule tree below.
Gate 1 — Loan Originator Rule decision tree (§ 1026.36)
Is the deal a consumer, dwelling-secured CFD? ── No ──▶ Outside LO Rule. (Step 0)
│ Yes
▼
Did the seller BUILD / contract the residence in the ordinary course of business?
│ Yes ──▶ NO exclusion. Builder/contractor is a covered loan originator.
│ [§ 1026.36(a)(4)(ii), (a)(5)(ii)]
│ No
▼
How many seller-financed properties in any rolling 12-month period?
│
├── 4 or more ──▶ NO exclusion. Seller is a covered loan originator;
│ must comply or use a licensed third-party MLO.
│
├── Exactly 1, AND seller is a natural person / estate / trust,
│ AND seller OWNED the property
│ ▼
│ Terms test — § 1026.36(a)(5)(iii):
│ • No negative amortization → BALLOON IS ALLOWED
│ • Fixed rate, OR ARM that first adjusts after 5+ yrs w/ caps
│ • Good-faith ATR determination NOT required
│ ▼
│ ✔ Qualifies for the ≤1-property exclusion [§ 1026.36(a)(5)]
│
└── 2 or 3, AND seller OWNED the properties
▼
Terms test — § 1026.36(a)(4)(iii):
• FULLY AMORTIZING → NO BALLOON ALLOWED
• Good-faith ATR determination REQUIRED [(B)]
• Fixed rate, OR ARM that first adjusts after 5+ yrs w/ caps
▼
✔ Qualifies for the ≤3-property exclusion [§ 1026.36(a)(4)]
Source: 12 C.F.R. § 1026.36(a)(4)–(5), retrieved https://www.law.cornell.edu/cfr/text/12/1026.36 (2026-06-08); CFPB Loan Originator Rule Small Entity Compliance Guide (Nov. 2019), pp. 26-27, retrieved https://files.consumerfinance.gov/f/documents/cfpb_loan_originator_small_entity_compliance_guide.pdf (2026-06-08).
The two exclusions, side by side
| Condition | ≤1 property — § 1026.36(a)(5) | ≤3 properties — § 1026.36(a)(4) |
|---|---|---|
| Who may use it | natural person, estate, or trust only | any seller-financer (individual or organization) |
| Properties financed / 12 mo. | 1 | 3 or fewer |
| Must have owned the property | yes | yes |
| Did not build/contract the residence | yes | yes |
| Balloon payment | ALLOWED (only bar is negative amortization) | NOT allowed — must be fully amortizing |
| Good-faith ATR determination | NOT required | REQUIRED [(B)] — may use § 1026.43(c) criteria |
| Interest rate | fixed, or ARM first adjusting after 5+ yrs w/ reasonable annual+lifetime caps | fixed, or ARM first adjusting after 5+ yrs w/ reasonable annual+lifetime caps |
Rate caps the CFPB treats as “reasonable” (Comments 36(a)(4)-2, 36(a)(5)-1; CFPB Guide p. 26): annual increase ≤ 2 percentage points and lifetime increase ≤ 6 percentage points, ceiling not to exceed the applicable usury limit; an ARM must add a margin to a widely available index (e.g., U.S. Treasury securities indices).
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 Guide pp. 26-27.
The four ways a deal falls out of the LO-Rule exclusions
- More than 3 financed dwellings in any 12-month window.
- The seller built or contracted the residence in the ordinary course of business.
- A 3-property deal carrying a balloon (fails the fully-amortizing condition of (a)(4)).
- A short-reset ARM — any rate that can adjust inside 5 years blows both exclusions.
The single most-missed trap — 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)). If you want to do 2–3 financed homes a year, the note must fully amortize and carry a documented good-faith ATR file.
Gate 2 — ATR/QM Rule (§ 1026.43): a separate, parallel test
The § 1026.36 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).
Is the seller a Regulation Z "creditor"? (extends dwelling-secured consumer
credit more than the threshold number of times in a year)
│ No ──▶ Outside § 1026.43 by not being a creditor.
│ Yes
▼
§ 1026.43 applies → must make a reasonable, good-faith ATR determination at/
before consummation, weighing the 8 underwriting factors in § 1026.43(c)(2)
(income/assets, employment, payment on this loan, simultaneous-loan payments,
mortgage-related obligations, other debt/alimony/child support, DTI or residual
income, credit history).
Practical relationship: a small seller (≤1 or ≤3 dwellings/12 mo.) who is also below the Reg. Z creditor threshold can fall outside both the LO Rule (via § 1026.36(a)(4)/(5)) and § 1026.43 (by not being a creditor).
Unverified threshold. The exact transaction-count that makes a seller a Reg. Z “creditor” under § 1026.2(a)(17) (commonly cited as >5 dwelling-secured loans/yr) was not re-retrieved in the source run. It is marked needs_verification in dodd-frank-seller-financing and is shown as “unverified” here — do not rely on a specific number without confirming § 1026.2(a)(17).
Gate 3 — SAFE Act MLO licensing (§ 1008.103): no federal number; the state layer
A CFD can be a “residential mortgage loan” and seller financing can make an individual a “loan originator” under the SAFE Act — HUD confirmed that “the fact that the seller holds title to the property until the contract has been paid in full is the practical equivalent of a lien for purposes of the SAFE Act.” The licensing trigger is engaging in the business of a loan originator, defined as acting “in a commercial context and habitually or repeatedly” (12 C.F.R. § 1008.103(b)). An owner financing the sale of his or her own property on a one-off/occasional basis is generally not “engaged in the business” (12 C.F.R. pt. 1008, App. B(a)(1)–(2), (6)).
Are you financing the sale of YOUR OWN property, occasionally / non-habitually?
│ Yes ──▶ Generally NOT "engaged in the business" → no MLO license
│ (App. B(a)(1)–(2), (6)). But confirm your STATE's line.
│ No / Unsure
▼
Are you doing it HABITUALLY/REPEATEDLY or in a clearly COMMERCIAL way
(e.g., a recurring program, flips you built/renovated)?
│ Yes ──▶ Assume a STATE MLO license is likely required.
│ (Builder who repeatedly originates "would almost certainly"
│ be covered — HUD preamble, 76 FR 38474.)
▼
Does your STATE publish a numeric safe harbor? (see table below)
There is no federal numeric de minimis — HUD declined to create one and rested the line on “commercial context and habitualness.” States that administer SAFE-Act licensing fill the gap with their own numbers, and those numbers differ from the Dodd-Frank ≤1/≤3 thresholds. Clear both tests separately.
56-jurisdiction overlay
The Dodd-Frank LO-Rule and ATR exclusions are uniform federal law — the ≤1-property (§ 1026.36(a)(5)) and ≤3-property (§ 1026.36(a)(4)) carve-outs and their balloon/ATR/fixed-rate conditions apply identically in all 56 jurisdictions. The variation lives in Gate 3 (the state SAFE-Act MLO numeric safe harbor) and in any state CFD consumer-protection statute layered on top. The table records the state SAFE-Act seller-financer numeric line only where that jurisdiction’s page states one; ”—” means the page gives no published number (the federal “commercial context + habitualness” standard governs by default — see that state’s §4 module).
Every row: the ≤1 and ≤3 Dodd-Frank exclusions apply (uniform federal law). The “State SAFE-Act numeric safe harbor” column is the only column that varies.
| Jurisdiction | DF ≤1 excl. (§ (a)(5)) | DF ≤3 excl. (§ (a)(4)) | State SAFE-Act numeric MLO safe harbor | Source page |
|---|---|---|---|---|
| Alabama | applies | applies | — | alabama |
| Alaska | applies | applies | — | alaska |
| Arizona | applies | applies | — | arizona |
| Arkansas | applies | applies | — | arkansas |
| California | applies | applies | — | california |
| Colorado | applies | applies | — | colorado |
| Connecticut | applies | applies | — | connecticut |
| Delaware | applies | applies | — | delaware |
| District of Columbia | applies | applies | — | district-of-columbia |
| Florida | applies | applies | — | florida |
| Georgia | applies | applies | — | georgia |
| Hawaii | applies | applies | — | hawaii |
| Idaho | applies | applies | ≤5 owner-financed dwelling sales / 12 mo. (Idaho DOF Policy Statement 2013-01) | idaho |
| Illinois | applies | applies | — (state CFD “seller” trigger is >3 contracts/12 mo., 765 ILCS 67/5 — a separate test, not the MLO line) | illinois |
| Indiana | applies | applies | — | indiana |
| Iowa | applies | applies | — | iowa |
| Kansas | applies | applies | — | kansas |
| Kentucky | applies | applies | — | kentucky |
| Louisiana | applies | applies | — | louisiana |
| Maine | applies | applies | — | maine |
| Maryland | applies | applies | — | maryland |
| Massachusetts | applies | applies | — | massachusetts |
| Michigan | applies | applies | — | michigan |
| Minnesota | applies | applies | — | minnesota |
| Mississippi | applies | applies | ≤10 loans or ≤20% of units sold / yr (Miss. Code §§ 81-18-5, 81-18-7) | mississippi |
| Missouri | applies | applies | — | missouri |
| Montana | applies | applies | — | montana |
| Nebraska | applies | applies | — | nebraska |
| Nevada | applies | applies | — | nevada |
| New Hampshire | applies | applies | — | new-hampshire |
| New Jersey | applies | applies | — | new-jersey |
| New Mexico | applies | applies | — | new-mexico |
| New York | applies | applies | — | new-york |
| North Carolina | applies | applies | — | north-carolina |
| North Dakota | applies | applies | — | north-dakota |
| Ohio | applies | applies | — | ohio |
| Oklahoma | applies | applies | — | oklahoma |
| Oregon | applies | applies | — | oregon |
| Pennsylvania | applies | applies | — | pennsylvania |
| Rhode Island | applies | applies | — | rhode-island |
| South Carolina | applies | applies | none — five-note exemption REPEALED (2017 Act 93, Title 37 Ch. 22) | south-carolina |
| South Dakota | applies | applies | — | south-dakota |
| Tennessee | applies | applies | — | tennessee |
| Texas | applies | applies | — (state CFD penalty trigger: seller of <2 transactions/12 mo. owes $100 per missed annual statement under Tex. Prop. Code § 5.077 — a separate state test) | texas |
| Utah | applies | applies | — | utah |
| Vermont | applies | applies | — | vermont |
| Virginia | applies | applies | — | virginia |
| Washington | applies | applies | — | washington |
| West Virginia | applies | applies | — | west-virginia |
| Wisconsin | applies | applies | — | wisconsin |
| Wyoming | applies | applies | — | wyoming |
| American Samoa | applies | applies | — | american-samoa |
| Guam | applies | applies | — | guam |
| Northern Mariana Islands | applies | applies | — | northern-mariana-islands |
| Puerto Rico | applies | applies | — | puerto-rico |
| U.S. Virgin Islands | applies | applies | — | us-virgin-islands |
56 jurisdictions (50 states + DC + 5 territories). “applies” reflects that the federal LO-Rule exclusions are nationwide; it is not a representation that a given seller qualifies — qualification depends on the per-deal terms test above. A ”—” in the SAFE-Act column means the source page publishes no numeric safe harbor, not that none exists; the federal “commercial context + habitualness” standard governs, read together with that state’s §4 module. State numeric safe harbors are subject to change (e.g., South Carolina’s was repealed in 2017).
Worked examples
| Scenario | LO Rule (§ 1026.36) | ATR (§ 1026.43) | Net |
|---|---|---|---|
| Individual sells 1 owned home she didn’t build; 5-yr balloon, fixed 7% | ✔ ≤1 excl. — balloon OK (no neg-am), fixed rate | Outside if not a Reg. Z creditor (1 deal) | Likely clear of both federal Gate 1 & 2 |
| LLC sells 3 owned homes/yr; fully amortizing, fixed, with ATR files | ✔ ≤3 excl. — amortizing + ATR + fixed | Outside if below creditor threshold | Likely clear of Gate 1 |
| LLC sells 3 owned homes/yr but one carries a balloon | ✘ fails (a)(4) fully-amortizing condition | covered if a creditor | Fails Gate 1 — covered originator |
| Individual sells 1 home with a 2-yr-reset ARM | ✘ ARM adjusts inside 5 yrs | n/a | Fails Gate 1 (rate condition) |
| Builder seller-finances a home it constructed | ✘ build/contract bar (a)(4)(ii)/(a)(5)(ii) | covered if a creditor | Fails Gate 1 |
| Seller does 6 financed homes/yr | ✘ >3 properties | covered (likely a creditor) | Fails Gate 1 & 2 |
All outcomes derive from the conditions in 12 C.F.R. § 1026.36(a)(4)–(5) and § 1026.43(a)–(c) as set out above; the creditor-threshold leg of the ATR column is unverified pending § 1026.2(a)(17).
▸ For Sellers / Operators — Run all three gates on every deal. Gate 1: pick your lane — the one-property lane (§ 1026.36(a)(5)) lets you use a balloon and skips a formal ATR file; the three-property lane (§ 1026.36(a)(4)) demands a fully-amortizing note plus a documented good-faith ability-to-repay file. Never use a rate that can adjust inside 5 years — it blows both. Gate 2: the ATR rule has no seller carve-out, so if your volume makes you a Reg. Z creditor you owe an ATR determination regardless of how few homes you sell. Gate 3: the SAFE Act asks a different question with a different (state) number — confirm your state’s MLO safe harbor (e.g., Idaho ≤5; Mississippi ≤10/20%; South Carolina has none since 2017) in its §4 module.
▸ For Buyers — A seller claiming the three-property exclusion cannot put a balloon on your home and must have determined in good faith that you can repay. If your CFD on a residence carries a short balloon, ask which exclusion the seller relied on; if it carries an ARM that resets inside five years, the seller likely qualifies for neither federal exclusion.
Linked from: index reference section; every jurisdictions/<state>.md §4
(Federal Overlay) may point here for the at-a-glance tree.
Cross-links: dodd-frank-seller-financing · safe-act-mlo ·
garn-st-germain-due-on-sale · truth-in-lending-cfd ·
cfpb-cfd-enforcement · forfeiture-vs-foreclosure
Meta
- sources:
- {type: regulation, cite: “12 C.F.R. § 1026.36(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), (c)(1)-(2)”, 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: “12 U.S.C. §§ 5101–5103 (SAFE Act)”, url: “https://www.law.cornell.edu/uscode/text/12/5102”, retrieved: 2026-06-08}
- {type: regulation, cite: “12 C.F.R. § 1008.103 + App. B to Part 1008”, url: “https://www.law.cornell.edu/cfr/text/12/1008.103”, retrieved: 2026-06-08}
- {type: agency_guidance, cite: “Idaho Dep’t of Finance Policy Statement 2013-01 (≤5 / 12 mo. owner-finance safe harbor)”, note: “via idaho”}
- synthesized_from: dodd-frank-seller-financing, safe-act-mlo; state SAFE-Act numeric data from idaho, mississippi, south-carolina.
- needs_verification:
- The Reg. Z “creditor” transaction-count threshold (§ 1026.2(a)(17)) that pulls a seller into § 1026.43 — not re-retrieved; shown as unverified in Gate 2 and the worked-examples ATR column.
- “Dwelling” definition margins (§ 1026.2(a)(19)) — vacant land + later-sited manufactured home — unverified per dodd-frank-seller-financing.
- ”—” SAFE-Act cells reflect silence on a published number in the source page, not a verified absence of any state line.
- changelog:
- 2026-06-08 — Page created. LO-Rule (§ 1026.36(a)(4)/(a)(5)) and ATR (§ 1026.43) decision trees + side-by-side conditions synthesized from dodd-frank-seller-financing; SAFE-Act MLO gate from safe-act-mlo; 56-jurisdiction overlay with verified state numeric safe harbors (ID ≤5, MS ≤10/20%, SC repealed) and honest ”—” where pages give no number. Two federal thresholds flagged unverified, not guessed.
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, and check your state’s conforming SAFE Act and any CFD consumer-protection statute, before structuring or signing an installment land contract. Consult a licensed attorney and, where licensing may apply, a compliance professional.