The Securities Exchange Commission (SEC) has now issued the final amendments to the accredited investor standards that were prompted by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank required the SEC to revise its rules to exclude the value of a person’s “primary residence” for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of $1M.
Because the Dodd-Frank Act required that the value of an investor’s primary residence be excluded from net worth, questions arose about how debt on a primary residence should be treated. For example, should debt on a primary residence be included in the net worth calculation, even if the total value of the residence was excluded?
The SEC’s proposed rules adopted a pragmatic, common sense approach. Net worth must exclude the value of a primary residence as an asset, can exclude debt on such residence up to the FMV of the primary residence, but must take into account the debt on the primary residence in excess of such FMV.
The final rules are substantially similar to the proposed rules, with one twist. The final rules say that debt secured by the primary residence, up to the estimated fair market value of the primary residence, doesn’t count against net worth–except for increases in primary residence debt incurred within 60 days of the sale of the securities. If you increase your debt secured by your primary residence within 60 days prior to purchasing securities, such increase must be counted as a liability.
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