Posted by JPiper on January 19, 2001 at 24:23:37:
An escrow could be set up as you suggest to handle receiving payments and then distribute payments to the underlying mortgage and seller. In fact, this is one of the safety features that the buyer should have in place on a “wrap”.
As far as the due on sale clause…in most modern loans the due on sale clause will be triggered by a “wrap”. For this reason, sometimes the wraps go unrecorded. Once you allow the transaction to go unrecorded…a new level of risk enters for the buyer. For example, what assures the buyer that the seller won’t record additional liens.
Years ago I used to do unrecorded AITD’s…a form of wrap. Because of the due on sale clause the documents were not recorded…they were held in escrow, who also collected and distributed the monies. To protect the buyer would be record a second mortgage which contained clauses which entitled the holder of the second (the buyer) to future appreciation…a type of insurance for the buyer that he had a recorded interest in the property, and in the event he needed to foreclose to clear title, he would also be entitled to appreciation. Today an alternative to this technique would be the performance mortgage, giving the buyer a recorded interest securing his agreement.
If you were interested in better and safer ways to get around due on sale clauses, then you’d need to do some study on land trusts.