Rent to Own and SAFE Act Implications

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Question: We just acquired a manufactured home in our community. I would rather sell it to a new tenant, but would consider renting it out or doing a rent-to-own. If I pursue rent-to-own option, will I be subject to the new SAFE Act?

Answer: Remember that the SAFE Act only applies if the seller/landlord is providing financing, and in doing so, is going to make a credit decision regarding the buyer’s financial capacity.

In short, so long as you don’t extend credit (which includes carrying back a security agreement or other form of installment payment contract) you’re not subject to the Act. If you do a credit check for your prospective tenant, this would not be covered by SAFE. Make sure that your lease/option or rent-to-own paperwork is reviewed by legal counsel – and under no circumstances do you want to offer an extension of credit in the transactional documents. Under SAFE, if you extend credit for the purchase of the home you would have to be a Mortgage Loan Originator as described in the Act. I did an extensive summary (FAQs) on the SAFE Act, and you can link directly to it on the MHCO website.

However, on another note, you might want to consider what you are getting into as a landlord of mobile homes. First, you will be responsible for providing certain statutory “essential services” which are far more extensive than if you were merely a landlord of the space. Additionally, Oregon law imposes certain habitability duties on landlords who rent out homes. See, ORS 90.320 and 90.360 and 90.365.

So before making a final decision, I suggest you look at the cost and benefit. Even if you have to hire a Mortgage Loan Originator to assist in making the credit decision under the Safe Act, you can be sure that as an “owner” of the home, you will not be saddled with any of the long term duties of a residential landlord, which could prove costly.

Lastly, if you decide to sell the home – either for cash (which will not subject you to SAFE, since no credit decision is being made on the prospective resident as a “buyer”) or by carrying the financing yourself (which would subject you to SAFE), you must be very careful in the Bill of Sale and other sale documents, to make it very clear that this is an “AS-IS sale” and that you will not be subject to any warranties express or implied. This is very important, since you’re failure to do so could impose upon you certain statutory warranties found in Oregon law.