The Texas Rule That Could Turn Your Seller-Financed Mortgage Note Creation Into A Crime — SAFE Act

Full Video Transcript

Introduction

Hi, I’m Dawn, Senior Note Analyst and Seller Financing Advisor with Moxxie Asset Group.

I want to tell you about a rule almost nobody knows exists until it’s too late. If you’re seller financing property sales in Texas, this could genuinely affect whether your notes are even legal.

Too Many Notes Without a License

Here’s the question I want you to sit with for a second. Did you know that creating too many seller finance notes in a single year without the right license can actually expose you to civil penalties and in some cases criminal charges?

It sounds extreme, but it’s real and it’s called the SAFE Act.

Think of It Like a Fishing License

Think of it like a fishing license. If you cast a line off your own dock once or twice a year, nobody’s really checking your paperwork. But if you’re out there every weekend running it like a full business, that is a different story and the state wants you licensed.

Seller financing works the same way in Texas. The SAFE Act says if you’re originating residential mortgage loans, and yes, a seller financed note counts, you generally need to be licensed as a residential mortgage loan originator, an RMLO.

The Three-Note Exemption

Now, here’s the good news for most individual sellers. There is an exemption. You can create up to three seller finance notes on residential property in any 12-month period without needing that license. Three and under, you’re fine.

Affiliated Owners Count as One

But here’s where it gets interesting and where people genuinely get caught off guard. Let’s say you own a property through an LLC and your spouse owns another property through a different LLC. You guys might think, great, that’s six notes between us, three each. Texas law says, uh-uh, no.

If you’re affiliated owners, spouses, business partners, related entities, you’re all counted as one single owner. You can’t split notes across different names or entities to stay under the limit. If you go over three in a year without being licensed, you’re looking at real consequences, administrative sanctions, civil penalties, and in serious cases criminal charges.

How It Affects Selling Your Note

And here’s the part that hits closest to home if you ever want to sell one of those notes. An unlicensed note can face real challenges to its enforceability, which means a note buyer, including us, will flag it immediately during review. It can seriously hurt what your note is worth or whether we can buy it at all.

Exceptions Worth Knowing

A couple of quick exceptions worth knowing. This rule doesn’t apply if you’re financing a sale to an immediate family member or if the loan is secured by your own personal residence. Those situations are exempt regardless of how many you do.

Get Guidance and a Free Note Review

If you’re actively creating seller finance notes in Texas, especially more than a couple a year, this is exactly the kind of thing worth getting real guidance on before you get in too deep.

We’re happy to talk you through your situation. And if you already have a note and want to know where it stands, we offer a free no obligation review. Reach out anytime via our free note review form or you can call us anytime. Thank you.