How long before lender will "typically" call the due on sale, and - Posted by dewCO

Real Estate Investing
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Posted by Gary (San Diego) on June 24, 2000 at 09:46:30:

Update: Title search revealed nothing except 1st and 2nd TD. I reinstated 1st and purchased 2nd. Owner did not file bankruptcy at my request (she was relieved). Now I have some follow-up questions:

  1. I understand how to transfer properties through a land trust and reassigning the beneficial interest. However, I’m not sure how this is done with a deed in lieu of foreclosure since the twist is that I’m the second lienholder. Please explain.

  2. Do I put this through an escrow? My concern that there are other intangibles in the deal (such as state required disclosures and other legal requirements) that I’m not aware of.

  3. Other than telling them to leave, what legal instrument do you use to get them out of the house.

  4. Should I have signed a contract to purchase in this case to bind her to sale? I’m concerned that she could sell the property to someone else before we actually transfer property to me especially now that I’ve cleared the first and purchased the second. I may have goofed here. I’m sure she won’t since the relationship so far has been excellent, but I’ve got to cover these bases.

Any other thoughts? Thanks for helping me on my very 1st deal.

Gary (San Diego)

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How long before lender will “typically” call the due on sale, and - Posted by dewCO

Posted by dewCO on June 21, 2000 at 22:32:45:

if they call it and I can’t talk them out of calling it, or into waiting, what does the lender do next if the loan isn’t paid when they call it? File foreclsoure?

(A LITTLE LONG) I’m in a weird situation where I’m in third position on a property, and the owner is staring down the barrel of foreclosure on the first (but probably not BK because he’s got too much equity, and I don’t think he’d let that happen and lose it, he needs the equity too bad).

It’s on the market for sale now, (not moving at $499,000) and I’m afraid in the mean time that some other lien(s) or judgment(s) will attach to the property (his finances are such that this is a good possibility I hear), which would reduce his equity enough to the point where he just decides to let it go into foreclosure and/or he goes with BK, and then I get zip too.

So, to eliminate something else attaching and messing up the equity (and my getting paid off $30,000), I’m trying to talk him into giving me the deed NOW, and I’ll bring his 1st current (no small matter at $3,000/mo.!!), and I’ll keep it that way, until I sell the property. This will buy us time to sell: so I’ll get paid off and he’ll get his equity.

But if the seller calls the due on sale when the deed transfers (because the lender knows this property is in trouble) how long do I then realistically have to sell it??? (It’s not a quick sale in this price range AND it has a vacant adjacent lot included in the legal description (and all the same loans as his house). So I may be looking for 2 buyers, one for the house and one for the lot!!! (which could take some time)

Thanks for benefit of someone’s experience who has had notes called on what happens when it’s called.

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Re: How long before lender will “typically” call the due on sale, and - Posted by JPiper

Posted by JPiper on June 22, 2000 at 15:57:00:

I don’t think you’re going to get anyone to respond to this post, because most people have never had a loan called.

If it were me, I would bring the superior mortgages current…then file my own foreclosure if necessary. If the owner will deed in lieu of that’s great…it used to be the preferred way to obtain title and get around the due on sale clause.

Of course, it doesn’t get around the clause. But, there seems to be an unspoken agreement between secured creditors not to call mortgages on each other. I’ve never seen one called in these circumstances.

Once you bring the loans current, the superior mortgages would have to notice that title had been transferred. They might depending on what you do on the insurance. My guess is that worst case scenario they would send you a letter asking to you either pay off the loan, or assume the loan. This written communication takes time…and starts from the time that they first notice the transfer and get cranked up to do something about it.

Some letters and other communication back and forth may well server to stall this process even further. My guess would be that even in the event of an acceleration…that the entire process would take several months…perhaps 6 months…before foreclosure would be initiated.

But, if you leave the existing insurance policy in place, have the owner change the address on the loans so that you get the communications, get a separate policy covering your interest…the superior lenders would likely never notice the transfer.

This should give you more than ample time to market the property.

Just my opinion.

By the way, you didn’t give any numbers to tell whether or not this deal is really worth pursuing. $30K can disappear in a flash on a house of this size. Let’s hope there is sufficient equity in this deal to warrant the risk entailed.

JPiper

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Re: How long before lender will “typically” call the due on sale, and - Posted by Andrew

Posted by Andrew on June 22, 2000 at 08:26:28:

As a Lien holder, I believe you have the right to get a deed without having a problem with the due on sale.
As long as you bring the 1st and any others current, they wont have a problem, since they should be able to find out in a title search that your a lienholder.
I would point out to the "seller’ that he would be better off giving you the deed, and walking then anyone of the lienholders foreclosing.
And concerning the “Equity” , you can basically say “what equity”?. After we pay off the other liens, and pay to market this house, there wont be any equity.
Any equity left over , will be your liquidated damages for having been put through this mess.
Just a thought
Andrew

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Re: How long before lender will “typically” call the due on sale, and - Posted by Rob FL

Posted by Rob FL on June 22, 2000 at 08:15:26:

From what I have read in the Garn St. Germain Act, junior lienholders are one of the exemptions to the due on sale clause. If you foreclose or get a deed in lieu, you should be exempt under federal law. Don’t quote me on that though.

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Re: How long before lender will “typically” call the due on sale, and - Posted by JEFF D

Posted by JEFF D on June 21, 2000 at 23:26:00:

You can buy the property by placing it in trust and assigning benifitial intrest . there are lots of articles about that on this website. the problem I would worry about is that price range home in my area (OH) is sold to 1/2 of 1% of the buyers out there. At $3000 a month your profit with piti, maint,closing cost when sold, holding and usual discount on sales price is gone in about 7-8 months. Way to short of a time frame to sell that skinny of a market. If he would deed it to you, the bank could never foreclose in that short of time frame.

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Re: How long before lender will “typically” call the due on sale, and - Posted by JPiper

Posted by JPiper on June 22, 2000 at 15:46:37:

Nope…not true. It’s an exemption to record a junior lien as long as it’s not related to occupancy. But a deed-in-lieu of is not an exemption…it triggers the clause. However I’ve never seen a first mortgage holder foreclose on another secured creditor once that creditor brought them current…not that it’s never happened.

JPiper

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Re: How long before lender will “typically” call the due on sale, and - Posted by Gary (San Diego0

Posted by Gary (San Diego0 on June 23, 2000 at 02:43:06:

Jim, I have one more question. If this house is only three years old and the original owner is stilling living in it, do I still need to do a title search. I can’t see how the title would be clouded. I’m afraid the title search will take longer than I have available to cure the 1st. I have less than 24 hours to cure the first (before it goes to trustee sale). Is it possible to delay the sale to do a title search? Or should I just bite the bullet?

Gary (San Diego)

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Re: How long before lender will “typically” call the due on sale, and - Posted by Gary (San Diego)

Posted by Gary (San Diego) on June 23, 2000 at 01:21:51:

Wow. This sounds like my situation. I just negotiated a purchase of a $35,000 2nd TD for $3,500 contingent on making 1st current. The first is $192k and $21k to reinstate (FMV = $290k). After reinstating the 1st, the owner has agreed to give me a deed in lieu of foreclosure of the 2nd. I too am concerned about the DOS. Jim, your post raises two follow-up questions:

  1. You say a 1st ususually won’t foreclose on another ‘secured’ creditor. What does ‘secured’ mean? I’m just a private investor, will they call it on me if I’m making the payments on the 1st?

  2. You also state ‘depending on how you handle the insurance…’ What do you mean by this? What’s the proper way to handle the insurance?

  3. How do I get the 1st TD holder to send me the payment coupons without them wondering why the 2nd is paying the monthly payments on the first and perhaps calling the loan?

Gary (San Diego)

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Re: How long before lender will “typically” call the due on sale, and - Posted by Rob FL

Posted by Rob FL on June 22, 2000 at 20:16:58:

Good. Thanks for clarifying that.

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Re: How long before lender will “typically” call the due on sale, and - Posted by JPiper

Posted by JPiper on June 23, 2000 at 07:43:30:

  1. A secured creditor is one whose note is is backed by collateral, in this case, the house. If you own the 2nd you are a secured creditor. As I said in my post, I think there is an unspoken law amongst creditors that they don?t call loans on each other?.I haven?t seen it happen. BUT, because I haven?t seen it doesn?t mean it hasn?t happened. I didn?t say it ?won?t? happen.

  2. The lender is going to know a transfer took place if you completely change the insurance. If this concerns you then you either need the cooperation of the seller in adding you to the existing policy?or you need to acquire a new policy to insure your interests.

  3. If the seller is cooperating with you have them sign a letter which you send to the lender changing the address, and have them give you the existing coupons.

If this is going to be a deed in lieu for foreclosure you could do this all in a trust?.the above was conversation really more geared to someone who is foreclosing. There?s substantial information here on how to do this in a trust. This may not help though if you have less than 24 hours. How did you plan to deal with these issues?

As far as whether you should check title?.of course you should. The fact that the owner has owned the house for 3 years doesn?t mean there?s not an IRS lien as an example. The condition of title will dictate whether you have to foreclose, or you can do a deed in lieu of foreclosure. If there are other judgments and/or liens you don?t want to do the deed in lieu of because these all attach to the property. Call your title company?.you might be surprised how quick they can move. Again, this is something that you should have already had done if you were considering a deed in lieu of. You don?t think a guy could have gotten a judgment against him in the last 3 years?

If you buy the 2nd, everything recorded after the second will be cleared from title if you conduct a foreclosure?.except for certain things like property taxes and IRS liens. Accepting a deed in lieu of won?t clear anything off.

You might be able to stop the foreclosure temporarily by contacting the first. I presume you have already done this to verify the loan, etc. That will depend on them. The owner can stop by ?filing? bankrutcy?although this could end up working against you later as you educate the owner on ways to delay the foreclosure.

A lot here depends on the relationship with the owner. But you need to know the condition of title?.you can bet the first mortgage holder knows.

JPiper